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Executives

Jim Schneider – Goldman Sachs, Semiconductor Team

Oleg Khaykin – Chief Executive Officer

Analysts

International Rectifier Corporation (IRF) Goldman Sachs Technology and Internet Conference February 13, 2013 12:30 PM ET

Jim Schneider – Goldman Sachs

Okay. Good morning everybody. Welcome to the International Rectifier Presentation at the Goldman Sachs Technology and Internet Conference. My name is Jim Schneider from the semiconductor here at Goldman. And it’s my pleasure to introduce IR, which makes a broad line range of analog semiconductors sold into broad range of end-markets.

And with us, from the company we’re happy to have CEO, Oleg Khaykin. Welcome Oleg.

Oleg Khaykin

Thank you.

Jim Schneider – Goldman Sachs

Maybe you can just kind of continue what we were just talking about before the session started which is just in terms of the overall demand environment then some of the near-term drivers in the business, you had couple of quarters of pricing corrections last year. And your guidance for sales to be up a little bit sequentially for the March quarter. So, can you maybe talk about what you’re hearing from customers in terms of their confidence levels and their order levels and maybe walk us through some of the trends you’re seeing by end markets.

Oleg Khaykin

Sure. Well, last year was quite a bit of a rollercoaster ride. I mean, it started with a strong first positive signal and everybody is rush out and orders were very good, and March quarter up, June quarter up. And then came big realization, now wait a second, it was a lot of speculation by distributors, contract manufacturers, I think the orders are going to come in but they didn’t.

And as a result, they had a big correction, two quarters, big drops in September and December. And for us it was really a situation where we made a conscious choice, we really got a focus on reducing inventory at the significant expense of oiling to fabs. So, we’ve taken our equalization significantly down, and worked down our inventory. So, even with the revenue decreases from June to September and December to December, we were able to reduce our inventories as well.

So, if you can imagine, it’s doubled where I mean, you have lower revenues you have to take your attrition down. And then to avoid building inventories you got to pick it even further down. So, that said, sometimes towards the end of the December quarter, we started looking at the bookings, for kind of three to six months out, and an interesting picture is starting to emerge like current bookings over the same period, before gradually as they are getting better.

And as we enter January, and especially by second half of January, the increase really has accelerated, which is a bit unusual because usually people stay very conservative of Chinese New Year and then really come out and place all their orders for the June quarter, which my initial reaction was well, it’s a speculative in anticipation for kind of seasonal billed June quarter, and they say well, but if they’re speculating why are they placing orders now rather than until waiting after Chinese New Year. Or if they’re not speculating okay, well, what are the indicators.

Well, if you look at broader indicators, who the orders are coming from, they’re coming not from your slide by night distributors who want to make a quick buck or make some specialty bet, they’re coming from manufacturers, that means they have usually at that point fixed orders kind of three months out and they are setting up supply chain.

So, in that respect, I have more confidence and I just spent most of January in the road, going down R&D, you are actually getting a feeling that across all regions, Europe, North America and China that inventories are did and depleted, they are starting to think about production bills for the summer. And it still varies by segments, but overall broad based it’s all indicators for the first time, I’ll tell in a year and half, the two years appointing in the right direction, to see if the market indicators, GDP purchasing, manager indicators, kind of customer interviews indicators and customer orders.

Now, by market, one thing is very clear, I mean, aside from outside PC market, pretty much all markets that IR addresses we feel is a very good momentum and optimism for at least kind of next three to six months, beyond that I just don’t have the visibility.

And the only thing was PC was more of a point, in transition period of people getting gearing up for next generation Intel processor hardware, so they want to burn off whatever inventory they have this quarter and, we see orders for next quarter actually coming in very nicely for the Hassle platform.

Jim Schneider – Goldman Sachs

Fair enough. That’s helpful color. And you think you alluded to it before some of the changes or differences you’re seeing between orders from the distributors and orders from the direct OEM customers, can we maybe talk about some of those differences and specifically when you talk about distributors, address their willingness to hold inventory at current levels or potentially even restock beyond the inventory?

Oleg Khaykin

It’s actually a good question, I should have said. So, when I looked at it, I’ve done my – down my own and the office go down, deeper and say okay, I have all the bookings are up. The thing to look for are the booking ups from distributors, how did they compare up versus the OEM. If clearly distributors are higher, okay, there is probably some speculation, actually prior to Chinese New Year, the increase in bookings from OEMs were much higher percentage in your relative increase than from distribution. And it kind of fits my picture, the distributors will wait until the very last minute.

And I spoke to a number of our distributors in Taiwan two weeks ago over there and that’s the thing. They see good momentum but they are all – they all have access to our system so they see how much inventory we have. And everyday you can see traffic going in and out, they are watching how much of inventory is available versus blocked, right.

And it’s my view is that we’re really waiting until after the Chinese New Year before they really freeze their outlook for the June quarter. Whereas I think the OEMs clearly they are taking a much longer horizon, like six month horizon. And they are placing orders based on their demand, or they see it, and that we need to believe that there is probably going to be an up-tick in distribution orders, as it gets closer to the June quarter.

That said, when I look at it, and I see the volume orders coming in, the way I see it, we said, we are about 16 weeks internally and about 12 weeks externally, that 12-week can very quickly turn into six weeks and the 16 weeks can very quickly turn into 10 weeks.

And the recessing from what I see this time, myself and my peers, nobody is running to start gearing up utilization because we all got burnt last year by false positive. But I think you’re going to see a lot more caution and that may actually lead to a squeeze-out which ultimately is good because it will allow people to do a lot of practical action, especially in a more commoditized product.

Jim Schneider – Goldman Sachs

Yeah, interesting. And then, the risky hand, they’re getting too acute about this, on the order side, one of these you see when people kind of get worried about your internal inventories, where you can too much is, it’s out of place, longer dated backlog on you. And you also start to see longer dated backlog and you just envision just kind of the same timeframe of current backlog?

Oleg Khaykin

Not yet. I mean, the only step facing the double booking and things like that – hey if I place a big order I get a – provide a bigger allocation. Only if I should tell them that lead times, I cannot meet their demands within the week times. That’s when the panic steps in and now I have to really close some inventory. Unfortunately this industry never runs, it’s every time the pick of cycle everybody claims that they’ve learned their lessons, never happens. The insanity is going to prevail and you just got to take advantage of it.

And frankly I don’t mind it, it’s good, I mean, my motto this time around with especially this commodity products will be kind of little variation of the old Chicago audits, earlier it was open, except there is going to be raked prices earlier often, right. So, I mean, it’s in a way capacity crunch and the supply crunch is good for the pricing on commoditized products, yeah.

Jim Schneider – Goldman Sachs

Yeah, yeah, fair enough. And just I think you cover most of the end markets, but one thing which I think we had a lot of signals about late last year was the idea that there is a huge amount of finished goods inventory in Whitewoods in China specially. Can you address that was real, did you see that too and whether you think that is now at a reasonable level and you’re starting to see a recovery there?

Oleg Khaykin

Well, it was real and we not only saw it but felt it under our own skin. I mean, as you can look at our business unit, our energy saving product business unit dropped close to 50% from its peak and it largely was driven by the white goods in China. And that problem is in many ways the white good is heavily influenced by the Chinese government incentives. And what they tell you is they give you $50 of whatever voucher or like a subsidy based on how many to build.

So, often when manufacturers build and they yeah, the market is there but if the more I build, I get this government money coming in. So, if I build a million new I get that money coming in. So, at the previous peak there was a lot of building going on and when the government shutdown all the real-estate markets and pulled all these incentives, a lot of people ended up with lot of inventories.

And it’s really most of last year actually I won’t say last year, really been a year and half because the peak hit like was June quarter of 2011, so really for the last 18 months there has been working down a lot of the finished goods inventory and we’ve seen significant drop, our business unit volume dropped 50% for the particular product line dropped much more than that.

And really, there practically was no, orders from Chinese OEMs for several quarters last year. And now with the finished goods inventory has really been depleted quite a bit. And now we’re seeing orders coming in for production even for this quarter and obviously for next quarter.

It’s no where near the same peaks as the previous peak was. But I think they’ve learned their lesson, lot of them got burnt. So they’re being much more cautious. But just looking quarter on quarter, week on week, orders in that segment is up significantly. And it’s all for a very near term production.

Jim Schneider – Goldman Sachs

Yeah, okay, that’s helpful. And maybe next I want to shift to every investor stable topic, gross margins. Right now, as you talked about before, entry is still relatively high and in fact the utilization you brought down quite a bit. So, relative to your target of high 30s level you’re about 15 points down from that. So, can you kind of walk us through what are the steps and what’s the path that kind of increasing gross margin over the next three, four, five quarters?

Oleg Khaykin

So, I think if I look at where we are today, our utilization is artificially lower for the even levels of revenue that we have because to bring down inventory we took it way below which we would call the Cray equilibrium utilization. So, just even at the current revenue level you’re getting equilibrium, your utilization will go up to the extent revenue it goes up and recovers you go to bring utilization even higher.

So, for us, where we are today let’s say last quarter we said 22%, but 9 percentage gross margin expansion is clearly to utilization. So, as we start aligning the demand and production more in equilibrium and with the revenue recovering we are going to be bringing up our utilization significantly starting towards the end of this quarter end accelerating to the next quarter –provided the outlook remains robust.

And as to give you an idea, if I have the perfect mix within 240 million to 250 million in revenue, I could have my factories running – pretty much at very high levels of utilization, okay. So, for us, when I look at it, how do I get from 22 back to the gross margin where you were before the downturn, about 9 percentage points spread from 22 to 31 tool is driven by utilization. So, as you improve utilization that’s where the leverage comes in.

The next kind of seven percentage points even it’s split between what I would call ASP erosion and the mix change. So, energy saving products is our higher margin business unit, it dropped significantly. So, as that business recovers, as their enterprise power recovers over the next 12 to 18 months, that’s where you’re going to get this – about 3.5% gross margin comes from just a mix kind of getting back to normal.

And the ASP erosion, I think part of it you’re going to get back as the market recovers, you up the prices on some of the products but also just through routine operational efficiency improvement you absorb some of that price decrease. And to the extent we continue to implement our operational footprint restructuring that kind of the icing on the cake that will take us up above and beyond just sustained recovery.

Jim Schneider – Goldman Sachs

Okay. And then you touched on ASPs, clearly that’s an area that’s been pretty weak especially in a more discreet commoditized proxy over the past current year and half or so. Can you maybe talk about aside from the fact that demand’s been mad for a while now are there competitive or capacity reasons for why things have been bad?

Oleg Khaykin

I don’t know it’s so much capacity, I think the demand has been bad but I will tell you one thing, this whole notion that if I drop my price I will get my volume, some companies will now sense. In the down market like we have today there is basically zero elasticity. So, by dropping prices all you’re doing is just pulling your revenue and destroying your margins. So I think a lot of our competitors who thought they were clever and they went on and dropped the price, they really did not get any meaningful pickup.

There are some products, I mean, we have a couple of product lines, we only align at the bottom of the cycle so they are just – ubiquitous as they get and it’s purely aligned chiller and it’s virtually zero margin product. So that one is really – I mean we only last time we ran them was in bottom of the ’08 early’09. We were some of that but it’s relatively small percentage but I have not seen any meaningful market share erosion in areas where we decided not to play significantly on pricing, there are some soft markets where you can win or lose. But also I did not see any of my competitors get any benefit from being stupid and just really flashing the brightest.

But really I think the bigger problem today was really drove a lot of the stock market ASPs on especially laptops, it’s less to do with capacity but more to do with them, very – one particular Japanese company is in very grave situation where they are basically doing anything they can do to pay the salaries and cover their variable costs and they are going out there and – basically dropping any price they would take just to offset some of their cost.

Fortunately it cannot last forever. I mean, they are shutting down their fab, they are looking to consolidate and all the customers, all the member, in ’08 or ’09 because they did exactly the same thing. And within two quarters all the supply dried up and they just left them hanging. So, I mean, they’re having some success here and there but it hasn’t been wide spread outside.

Jim Schneider – Goldman Sachs

And beyond that specific instance are there other areas in the industry where you think capacity might get rationalized into those more commodity areas?

Oleg Khaykin

I think as – there is the re-rationalization I think we are taking out, I mean, we are shutting down from our older fabs. And what we’re doing is we’re just going for boundary capacity which is already there, so you compete maybe with some other IC so in the end that is not really much capacity being created. And I think I doubt anybody would put a new capacity for discreet components in place because fundamentally from our live perspective you would never buy new equipment and kind of new fabs for commodity discreet components youth. If you want capacity, the cheapest way to do it is you sell the old D-RAM capacity with some marginal investment, discreet specific tools.

Jim Schneider – Goldman Sachs

Got it. And then, you talked about the whole internal external capacity, maybe this concert on the manufacturing strategy, longer term for second I think you put up there the goal of I believe it’s 50-50 external, internal on the funding side. And then 70-30 external internal on the backend side, maybe talk about where we are today and we kind of is the path to getting there like two quarters or two years?

Oleg Khaykin

Well, I mean, so, I mean, when I joined there about five year ago IR was 98% away for sourced internally which is very unusual because you know most companies kind of went through it, rethinking their fab life or fabulous or the ideal strategy in the ’90 2000 IR just kind of was a late bloomer just so the same.

So, when we did it, we put a robust program to start diversifying our supply base for fab and by the peak of the cycle of June of 11, we got to buy 25% external. Our goal by the next peak to get to 50% external and we’ll see where we go from there. I mean, the reality is, there is plenty goods and you got to be in Asia that’s where the ecosystem for front end supply is. But there is always, it’s an economic trade-off, the old macro-economic problem Barter versus Tanks, I mean, where do you optimize. It’s exactly been trade-off, we have to do, the same people, if you want to shut down an old fab and you get to physically move the old processes and technologies to the foundry, the same people who would be doing a new technology development, are the same people who do the moving.

So, yes to maintain a balance if I go too hard on moving and shutting down and accelerating it, means I go into the desert from point of view of the new product development. And they’ll come back to buy a couple of weeks later.

So, from the point of view of transfer, they are getting pretty good at it. It takes us about nine to 12 months to transfer a process qualified. But then also you have to keep in mind you have different customers, especially automotive customers, their very long re-qualification cycle, it’s is often they don’t even want to do that.

So, you have to place three hash between new product development transfers and which customers do you think are going to for concert as the rich customers will not. So, I think we’ve got it, put it dialed in, put it in the right balance and we expect our also bundle five-inch pack to be shut down by the end of this quarter by March. And we are looking to shut down our six-inch UK Fab in the second half of 90 foundry guidance.

Jim Schneider – Goldman Sachs

Got it. So, just to clarify that – we’re talking about multi-year timeframes actually to get to those numerical targets? Is that right?

Oleg Khaykin

Yes. Well, I mean, the – for the first phase, as zero this quarter and with the benefit next quarter we are – we have downsized our six-inch fab indicator already. So we’re already going to capture partial benefit by June quarter this year, and but really the true benefit comes from when you physically shut off the lights. And that’s sometimes second half of next year.

Jim Schneider – Goldman Sachs

It’s helpful. And then OpEx, I think – can you help us understand kind of how your OpEx rates are going to trend on the way up, I think you’ve done a really good job, putting OpEx rates down – OpEx rates are going to trend on the way up I think you’ve done a really good job, bringing OpEx rates down as the cycle is compressed. But maybe only talking about above $250 million a quarter to $270 million, $300,000 etcetera is 75 right kind of OpEx number o think about or how should we think about this variable part of the SG&A expense kind of going up and when you think you’re exactly not in R&D.

Oleg Khaykin

So, that’s right. So, I think OpEx is clearly the area that we are focusing long on. I mean, our goal is to be at about $75 million so we scale up $200 million to $300 million or so. Now, as your revenue goes up, you have been commissioned that go in OpEx. And as you would become profitable, you also stop taking bonuses. So, for you to keep 75 and be able to do that you have to continue to extract efficiency out o f the OpEx. And that’s something we are more opportunities to take out of cost in our OpEx and that cost reduction would really be more to offset increasing commissions and future bonus.

So, with this we have good idea of what we need to, which levels have been support. Up to R&D I think we are pretty good shape on R&D, we did a lot of – we had part of our higher R&D plans in the last couple of years, it was part of the technology transfers.

I mean, those things when you move for technology from one back to another – you have much clear as you have a lot of consumables as these things continue and up to way while they start going down there is obviously going to be some reductions which can be replaced with a new product development. So, there is mix of line give that to your manager.

Jim Schneider – Goldman Sachs

So, bottom line, 75 is kind of right number.

Oleg Khaykin

75 is where we are really intending to trying to hold stuff.

Jim Schneider – Goldman Sachs

Great, thanks. Maybe just kind of switching to product lines for a second, maybe kind of walk us through on server side, Romley I think has been a little bit of a – head wind for you, as we go forward and you look through to Brickland, Grant Lee and these kind of new platforms. How do expect that headwind to turn into a tailwind or?

Oleg Khaykin

Well, so I mean, we noticed when were bidding on Romley business it was looking really good for a while. And a lot of our customer, we always think okay wow, there is for the last several years – I said lot like five to six years has been a lot of discussion of care, we going to go digital power management, analog power management. And at least early on for our Romley design cycle looks like customers, no, no, we’re going to stay with analog.

And then within that literally six months, after one of the major OEMs that I’m going to make it at least the hybrid, I’m going to make a digital communication by all of a sudden it became a check mark and nobody wanted to hear even though they were saying, six months before, we want to stick with analogs, everybody wanted at least some digital functionality.

And IR, where we had a very strong position on the previous in Hallum, we got card of got, our own internal development was behind the digital roadmap. So, we took a hit on the market share in Romley, I mean, we still got decent business in Romley but not as much as we had before. Plus one of our major customers decided to go from coming really one supplier to having three suppliers, so there the market share discussed was regardless.

So, in that respect, one of the things that came out of it, we quickly, quickly realized it and the transit would be a lot faster than anybody thought. And because we were so close to it, we wanted to push the funds to really realize it, so that’s when we went out and bought the semi-conductor.

In the last two years, the digital indeed moved way much faster not only it’s now servers its now ubiquitous laptops and desktops. And you can see a lot of people who are kind of the dominant players in Analog controllers today are bleeding very badly because everything is moving to digital.

So, as much as we lost in the Hallun, sorry, in the Romley, we are feeling very good about our position into the kind of the next platforms like Brickland which is seen on higher end but because of the less volume which will then be followed by Grant Lee. And we feel that the Grant Lee and and Brickland we’re going to get back to share, as it comes back over the two week with Romley.

Now, one thing about Romley was that he has not been a very successful platform, so the results, we were very happily selling the Hallum-Products all the way up until October of last year, three quarters longer than we thought this might centralize. But really last quarter was the first quarter customer decided to stop placing orders and burn off whatever they’ve got them – focus on Romley but we know they are also trying to accelerate Grant Lee because they really believe that’s going to be the platform that’s going to drive wholesale upgrades of the server farms.

Jim Schneider – Goldman Sachs

So, we paused that, okay – two to three air-pocket and that business be wholly owned?

Oleg Khaykin

I would think it’s probably being searching some kind of orders coming in, in first quarter of next calendar year, somewhat you might even say, I’d say, it’s already in our numbers that this is reflected in December.

But we’re going to start seeing one part of losing share on Romley, diversified our customer base, so we’re actually going to start seeing very up-tick in some of the household business, the gaming and then the Brickland business all through the rest of the share, gradually and then of course when Grand Lee goes to production, we hope to see further tailwinds for that business for us into next year.

Jim Schneider – Goldman Sachs

Got it, and then we touched on the energy receiving products, area from a cyclical perspective – maybe just on kind of on – from cost perspective for a second, the sales back in 2011 kind of ones things were pretty fluffy, with $70 million a quarter and now they’re half that. so, can’t help s understand we would be one cyclical element when the – I mean, maybe start with for people who may not be familiar what our energy saving process was – what kind of process they go into because they think – and people think its solar or something like that.

Oleg Khaykin

No, no, actually one good call we made is we stayed the hell out of home. And whoever really believed in it, and fortunately we are proven right. What the energy saving project says it’s really all about white goods and industrial motors, pumps, compressive and such.

And if you think about it, it’s 50% of electricity in the world is consumed by – some shape or form of electrical motor. These compressor or motor or pump or fan or whatever. And what its typically is it involves the controller, obligation specific controller and the power module.

And these module is built from just small – just crewed device to this big little brick that would do 600 valves, 10, 15, 20, 30 amperes. So you’re looking at about kilowatts, 2-3 kilowatts modules. And so that business unit saves servicing primarily, air-conditioners, pumps motors, industrial drives and things like that, washing machines or refrigeration, you name it.

So, it’s really kind of capital intensive products from consumer point of view, a consumer durable from industrial point of view it’s kind of like capital equipment that industrial companies buy. So, when economy is weak, the consumers don’t buy white goods, companies don’t buy capital goods. When the company picks up you get a nice bounce in that market.

So, for this business, so we picked out about $75 million a quarter. Now granted there was a lot of double booking, I think really more equilibrium revenue was between $65 million to $68 million rather than $75 million. So that is kind of the pick. We feel there are many good tailwinds for that business because even today there is only about 25% to 30 % penetration of these high efficiency motor drives in the industry. And that penetrated is expected to continue to grow.

So the unit volume is expected to continue to grow up significant. So, as all the regulations and efficiency standards comes into play. The so, I think over the next year or so I think that market is going to recover very nicely for us, because we still have a very good product portfolio, we have new products coming down and we’re getting very good traction with all the customers.

So, I think that business itself, the foundation is very solid and those markets recovers and substitution kicks in that business will continue to grow.

On top of this, we expanded our market, because of the things IR always played and played into the motors, big pump, big compressors, its big modules. Now there is a whole bigger market, two others of magnitude bigger than this bigger market, if you think about mans in small motors, like if you open your refrigerator you have a compressor, that’s one got of those big bricks driving it but there is also a little fan that’s cooling the coils right. By the way you have exactly same thing in air conditioner, you have a compressor and then you have cooling fan.

Well, the cooling fan motors are two orders make it bigger in market than the big compressors and the big motor. And what Iyaha has introduced last year is what we call micro-IPM it’s micro integrated power modules. And it’s effectively the whole power control system in a single chip and it’s about 12 millimeters by 12 millimeter and it goes right inside the housing for that fan, and we had tremendous success in the market in the last three years with it. And it started shipping to production last calendar year and that trend is going to continue to accelerate.

So I think we have a very robust base for that business plus as we opened up the market where we were not before within today we are by far the best position the company really change the way this small motor and pump market is driven today. So I think in that respect we have a very good upside for that business unit, over next two to three years.

Jim Schneider – Goldman Sachs

Okay, fair enough.

Oleg Khaykin

Well, I mean, I don’t want to put a number on that because we haven’t put up. But it should be probably not going to go from 40 to 68 three years as we did last time. But I think have a minimum double digit growth.

Jim Schneider – Goldman Sachs

One last question before we end. And one question before we’re done?

Oleg Khaykin

I have one close to 100 but you get to something below it.

Jim Schneider – Goldman Sachs

I’ll be honest before open it up to from the audience which – which is capital allocation, I mean your cash balances is pretty substantially even repeat those $550,000 million it’s now 3.50 now. Can you maybe talk about?

Jim Schneider – Goldman Sachs

400, almost 400…. Can you maybe talk about what investments have you made over the past couple of years to kind of steal off the business whether it’s IT systems or other things then maybe kind of talk about what level cash balance you feel then we’ll be comfortable with cash flow again?

Oleg Khaykin

So, I think last cycle we have generated quite a bit of cash but we also consumed a lot of cash. I mean, we have – upgraded our factories which have badly in the need of upgrade the spend more higher quality equipment, more capable equipment. We also grew out tope line by 50% so we increased some person internally even though we brought up a lot of external capacity. But as far as our restatement, we have to implement robust IT systems to prevent any future irregularities. So, we spent $70 million on SAT implementation and we made an acquisition but close to $75 million which is semi-conductors. So that’s really worth a lot of the money we’ll spend and clearly we generate cash fluffy at a much higher level of CapEx that we have won.

I feel where we are today – I think our fabs are really up-to-date. Our IT system are probably most advanced I’m ready for my conductor company, outside from Intel, at least that’s what I hoped that $70 million with that $50 buys you. But I mean, joking aside, it’s really is making a big difference and that’s where a lot of our SG&A productivity improvements and saving accounts results, we get better and better without automating our processes and systems.

In terms of the looking forward, we expect our CapEx to drop into the single digits. We are running by the 11% to 12%, we think next cycle would be around 7% to 8%. And so, clearly there is significantly – foresee a significantly lower capital intensity going forward. I don’t see any major kind of how – picks her up her projects or IT projects for us.

From the point of the acquisitions, we have remained believers that the best way to add value is to grow your business organically. The only area I would see during, I could see technology that significantly strengthens our prospects we will do that. Or you get significant OpEx synergies, that you can realize that in six to nine months. Apart from that, I mean, is the factors that frankly speaking.

So, I think in that respect, I expect us to generate quite a bit of cash. And we have a buyback plan in place and we’re going to continue to execute and there is not many other ways to return cash to the shareholders. And we may – I mean, buyback seems to be – at least to my perspective is one of the most attractive ones because from our perspective this industry remains irrational. As much as I like the way where the stocks are going today, I will tell you within next eight quarters there will be a pull-back and wholesale everybody will drop and drop, and that’s when you go shopping. And that’s one way to cycle and cycle, improve the shareholder return to profit.

Jim Schneider – Goldman Sachs

Thank you. Thank you for being with us.

Oleg Khaykin

Okay, thanks.

Question-and-Answer Session

[No Q&A session for this event].

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