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Advanced Analogic Technologies, Inc. (NASDAQ:AATI)

Q4 2008 Earnings Call

February 5, 2009 4:30 pm ET

Executives

Lisa Laukkanen – The Blueshirt Group

Richard K. Williams – President, Chief Executive Officer & Chief Technical Officer

Brian R. McDonald – Vice President of Finance & Chief Financial Officer

Analysts

Tore Svanberg – Thomas Weisel Partners

Richard Schafer – Oppenheimer

Patrick Wang – Wedbush Morgan Securities, Inc.

Operator

Good afternoon. Ladies and gentlemen, thank you so much for standing by. Welcome to the AnalogicTech fourth quarter 2008 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). And as a reminder the conference is being recorded today on Thursday, the 5 of February, 2009. I will now turn the conference over to Ms. Lisa Laukkanen with The Blueshirt Group. Please go ahead, ma'am.

Lisa Laukkanen

Good afternoon, and thank you for joining us on today’s conference call to discuss AnalogicTech’s fourth quarter and full year 2008 results. This call is being broadcast live over the web and can be accessed for 90 days in the Investor Relations section of the AnalogicTech's Web site at analogictech.com.

On today's call are Richard K. Williams, President, Chief Executive Officer, and Chief Technical Officer; and Brian McDonald, VP of Finance and Chief Financial Officer. After the market closed today, AnalogicTech issued a press release discussing the results for its fourth quarter ended December 31, 2008. The press release is accessible online at the company's website, or you can call The Blueshirt Group at 415-217-4961, and we’ll fax or e-mail you a copy.

We would like to remind you that during the course of this conference call, AnalogicTech's management team may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are simply predictions, and actual events or results may differ materially. We refer you to the documents the company filed from time to time with the Securities and Exchange Commission specifically the company's most recent Forms 10-Q and 10-K. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

With that said I’d like to now turn the call over to AnalogicTech's President, CEO and CTO, Richard Williams.

Richard K. Williams

Thank you for joining us today as AnalogicTech reports it's fourth quarter and fiscal year 2008 results. During the call, I will provide a brief recap of the financial results and business highlights. I will then turn the call over to Brian to review the details of our financial performance followed by guidance for the first quarter. We will then open up the call to your questions.

2008 proved to be a challenging year for the semiconductor industry. AnalogicTech was no exception. The worldwide economic crisis impacted the consumer electronics market and demand for our products. During the fourth quarter, the industry's decline was unusually steep. We responded swiftly to the changing business conditions with broad-based cost reductions including a workforce reduction, salary cuts, shutdowns, and closing two of our European sales offices. These actions were motivated both to preserve cash and to better position the company for future profitability without sacrificing new product developments or top line revenue growth.

We also accelerated our product cost reduction activities including die shrinks, field improvement, press time reduction and renegotiated supply agreements. The details for the fourth quarter and 2008 are as follows. Revenue for the fourth quarter was $18.6 million, a decline of 42% year-over-year. Annual revenue for 2008 was $90.3 million, decline of 18% year-over-year. During Q4, we took a number of one-time charges associated with our cost reduction activity. Brian will provide the details of these charges. Including the one-time charges, net loss on a GAAP basis was $14.4 million or $0.32 per share. For the year GAAP net loss was $18.4 million or $0.40 per share.

Despite this loss, cash increased in Q4 by approximately $4 million sequentially, exclusive of our share repurchase activity as expected sales across all geographies were down during the fourth quarter. In Korea, we experienced a most significant sales decline as handset sales for our two largest customers soften. In China, we continue the aggressive inventory controls and experienced a modest decline in sales of $800,000. Taiwan sales declined primarily due to lower demand on wireless LAN products.

Even with lower sales distributor inventories continued to be below our two months target. We also took actions to reduce our whip commensurate with lower forecasted sales. Sales at Samsung accounted for approximately 40% of total revenue in Q4 and 36% in 2008, primarily driven by growth of high current LED flash applications for high-end camera phones using ModularBCD technology. Driven by a broader product offering and increased content, new design wins are accelerating. Including several over voltage protected battery chargers scheduled to ramp during the first quarter. Our design win momentum continues with a number of Samsung premiums models including Roxy, Opus, Eureka, Delve, Isis and Omnia. We also have recent design win attraction in Samsung's fast growing entry level phones including their modern and coast lines.

Fourth quarter sales to LG accounted for 21% of total revenue in Q4 and 25% of 2008 sales. We secured new design wins for our high current camera flash products and switching regulators. Ongoing sales to LG continued across our broad, total power management offering for a wide range of models including Ruby, Viewty, Secret, Omega, Renoir, Silver slide, Dare, and Prada 2. Wireless LAN sales declined sequentially in proportion to overall revenues. Specifically, Broadcom and its distributors accounted for approximately 9% of total sales for the fourth quarter. Current production models are now finally migrating to Broadcom's newer 802.11n chipset, while sale of older 802.11bg legacy products are declining.

Overall, 60% of revenues in Q4 were from lighting and display products, 18% from voltage regulation and DC-to-DC converter products, and 18% from other power management products including interface, port protection, and battery management. Battery management while still a small portion of total revenue is at 4% continue to show significant design win traction. Switching regulator revenue used in lighting solutions grew significantly year-over-year and is reported in the lighting and display category.

In the fourth quarter, we introduced a total of 12 new products expanding our total power management offering of high current LED drivers, 30 volt, over voltage protected battery chargers. Low cost LED backlight markers and multi-channel SmartInterface I/O expenses. This new edition to our battery management product line is designed to operate from USB ports, AC adapter inputs and is capable of powering a product, while simultaneously charging a battery at an optimum rate. ModularBCD revenues accounted for 19% of sales in Q4. To-date, we have released 57 ModularBCD based products into production and have 39 new products currently in development.

Some of our developments include a total power management product portfolio for mid to large screen LCD displays comprising sophisticated LED backlight drivers for mega-contrast HD TVs with local dimming and power saving capability. High Precision Programmable Gamma-Voltage bias generator ICs for controlling LCD brightness and color with improved display consistency and uniformity. High precision VCOM trim for automated flicker illumination and a high-speed VCOM buffers for improved display uniformity and fully integrated panel power PMUs for improved manufacture ability and simplified build of materials.

Other developments include, an expanded product offering of lighting PMU products for handset applications, including automated fade-in and fade-out functionality and power saving dynamic backlight control also known as CABC. A single channel OVP battery charger for mid-tier handsets released and now ramping to production volumes. A dual channel OVP charger IC for smartphones, needed in products or the USB and adapter inputs do not share a common connection, now sampling.

A mini-PMU for a Qualcomm based smartphones combining a switching charger for fast charging with over voltage protection and also integrating features such as USB on the go, multichannel LED backlighting and fuel gauging for accurate battery monitoring, now in definition. And lastly, a novel dual polarity chip for active matrix organic LED TVs, now sampling.

We are working closely with potential AMOLED customers on defining new architectures and system definitions. In conclusion, we remain optimistic about new growth opportunities for AnalogicTech despite the present macroeconomic environment. We remain focused on offering products and securing design wins for new applications within our existing customer base such OVP battery chargers and high current LED camera flash.

And to expand our portfolio to address new markets, such HDTV monitor and notebook LCD display as a part of our product diversification strategy. Disciplined execution in securing new design wins implementing timely cost reductions, serving our customers with superior products and maintaining a solid balance sheet remained fundamental to our management strategy in order not only to survive, but actually grow in these difficult times.

I will now turn the call over to Brian for a detailed financial review.

Brian R. McDonald

Thank you, Richard. And thank you everyone for attending our conference call. I will review our results for the quarter and then briefly discuss our outlook for the first quarter of fiscal ’09. Please keep in mind that the financial data mentioned within this call will be on a GAAP basis unless otherwise noted. Now let me outline the details. Revenue for Q4 of ’08 was $18.6 million, compared to $25.4 million in Q3 of ’08 and $32.1 million in Q4 of ’07. Revenue decreased by 27% sequentially and decreased 42% from Q4 of ’07. Sales in Korea were a $11.9 million, China $3.3 million, Taiwan $2.5 million, and all others had $0.9 million. Sales in Korea decreased as expected primarily due to decreased shipments to Samsung and LG.

Sales to Samsung combined with this contract manufacturers accounted for 40% of total revenue as compared to 41% in Q3 of ’08. Sales to LG represented 21% of our total revenues similar to Q3 of ’08. Sales in China decreased 15% sequentially as a result of decreased distributor point-of-sale activity and distributor management. With this the distributor inventory level in China remained within our two-month target. Sales to ChiefTech were up slightly sequentially and represented 7% of our total revenues, compared to 5% in Q3 of '08.

Sales in Taiwan decreased 37% sequentially primarily due to lower wireless LAN product shipments. Overall, distributor inventory in Taiwan remained within our two-month target. We continue to actively monitor and manage our Asian distributors inventory level. GAAP gross margins were adversely affected this quarter by various one-time charges and events. Inclusive of these adjustments, GAAP gross margin was 38.2% for the quarter.

This compares to 50% in the prior quarter and 52.6% in Q4 of '07. Non-GAAP gross margins was 43.5%, compared to 51.4% last quarter and 53.6% in Q4 of '07. Sequentially, gross margin decreased primarily due to a 4% intangible impairment asset charge, 3% from lower ASPs, 2% from unfavorable product mix and a 2% higher excess inventory charge. Therefore, excluding the extraordinary charges, we expect gross margin in Q1 to return to the range of 44% to 46%. In the current environment, we are aggressively pursuing revenue opportunities, which will have a near-term impact on gross margins, which is incorporated in that outlook.

During the fourth quarter, we took aggressive measures to lower expenses to align with a lower outlook. Specifically, we reduced our workforce by approximately 12%, implemented tiered salary reductions up to 11%, closed two foreign offices and cut discretionary expenses. As a result of these actions we incurred non-recurring restructuring expenses of $0.5 million during the quarter. These actions will begin to be reflected in the first quarter financials. The annual cost savings are expected to between $4 million and $5 million. These actions were carefully orchestrated to reduce the cost structure without sacrificing our product design momentum or customer support.

R&D spending was $7 million or 38% of revenue for the quarter, a decrease of $0.5 million from the prior quarter, and a decrease of $1.4 million from Q4 of ’07. The sequential decrease in R&D expenses was the result of lower stock compensation, lower payroll related expenses offset by restructuring expense. Included in the R&D spending was $0.4 million of stock-based compensation expense.

SG&A spending was approximately $5.9 million or 32% of revenue for the quarter. This represents a decrease of $0.2 million from the prior quarter and a decrease of $0.7 million from Q4 of ’07. The sequential decrease was primarily attributable to lower stock-based compensation expense. Lower travel and other expenses offset by restructuring related expenses. Included in the SG&A spending was $0.5 million of stock-based compensation expense.

Litigation expense was $0.8 million for Q4’08 as compared to $0.2 million in the prior quarter and $0.1 million in Q4 of ’07. Operating expenses in total were $13.7 million. This compares to $13.8 million in the prior quarter and $15.1 million in Q4 of ’07. Stock-based compensation expense in total was $1 million for Q4 of ’08, compared to $1.7 million in the prior quarter and $1.8 million in the prior year. The reduction of this expense was primarily attributable to a change in the forfeiture rate.

Operating loss was $6.6 million for the quarter, as compared to operating loss of $1.1 million in the prior quarter and operating income of $1.8 million in Q4 of ’07. Other income net was 42,000 or 0.2% of revenue for the quarter. This compares to $0.7 million in the prior quarter and $1.2 million in Q4 of ’07. The sequential decrease was primarily attributable to a $0.5 million write-down on a private equity investment and partially due to lower interest income.

Tax expense was $7.8 million as compared to $0.3 million last quarter. During the quarter, the company recorded a non-cash charge of $8.6 million related to evaluation allowance against deferred tax assets offset by a benefit of $0.8 million associated with the reinstatement of the federal R&D tax credit in Q4 of ’08. Net loss for Q4 ’08 was $14.4 million or $0.32 per diluted share, compared to a net loss of $0.6 million or $0.01 per share in the prior quarter, and compared to a net income of $3 million or $0.06 per share in Q4 of ’07.

Moving onto the balance sheet. During the quarter, we continued to maintain a solid and debt free balance sheet. Cash, cash equivalents, and short-term investments totaled a $110 million at the end of the year, a decrease of $1.3 million from the prior quarter and a decrease of $4.7 million from the end of last year.

The decrease from last year was primarily attributable to the reclassification of certain short-term investments to long-term and the stock buyback program. During the quarter, we spent $5 million to repurchase stock under the announced repurchased program. Net of the stock repurchase program, the company was cash flow positive by approximately $4 million.

Net accounts receivable was $6.7 million at the end of the year down by $8.2 million from the prior quarter and $7.8 million from last year and primarily due to lower sales and the timing of shipments. The average days sales outstanding for the quarter were 33 days compared to 53 days in Q3 and 41 days at last year-end. Net inventories were $9 million at the end of the year down $3.4 million from the prior quarter and down $3.2 million from last year-end.

Inventory turns for the quarter were 5.1 as compared to 4.1 in Q3 and 5.0 at the end of last year. Now, onto the business outlook, and I’ll comment on Q1 ’09. We expect Q1 ’09 revenues to be in the range of $13 million to $16 million. GAAP gross margin between 44 and 46%, R&D expense in the range of $5.6 million and $5.8 million exclusive of stock-based compensation expense. Stock comp and R&D will be in the range of $0.7 million to $0.8 million.

SG&A expenses will be in the range of $4.6 million to $4.8 million, exclusive of stock-based compensation expense with stock comp in the range of $0.8 million to $0.9 million. Litigation expense in the range of $0.5 million to $0.7 million. Stock-based compensation expense in total in the range of $1.5 million to $1.7 million. Other income will be in the range of $0.2 million to $0.4 million. Tax expense in the range of $0.2 million to $0.4 million. The non-GAAP tax expense to be in the range of $0.6 million to $0.8 million, and the GAAP EPS loss to be between minus 15 and $0.12. So, a range of minus 15 to $0.12.

That concludes my remarks. Now, I’d like to open the line for questions. Operator?

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions). Our first question is from line of Tore Svanberg with Thomas Weisel Partners. Please go ahead.

Tore Svanberg – Thomas Weisel Partners

Yes. Thank you and good afternoon. Couple of questions, first of all, in regards to your guidance $13 million to $16 million, could you just talk a little bit about your visibility maybe your bookings and maybe how much coverage you have so far this quarter towards the mid-point of that range? Please.

Brian R. McDonald

Tore, the beginning of the quarter we carried about 35% coverage to the mid-point of the range, As of yesterday we were at about 75% coverage on the mid-point of the range and those numbers are fairly consistent with some historical percentages. I’d still say the bookings, the visibility is still not fantastic, but we have seen an increase in bookings, right, we hit a low in November, we actually had a slighter higher December. We've actually had a slightly higher January than December even with the Chinese New Year in there. And the first week of February is actually a higher run rate than we saw in December. So, the bookings are trending up, they are still a little low, but it looks like they are trending upward.

Richard K. Williams

And we think that that's a good sign because, we know that a lot of our customers took an extended time off for Chinese New Year's this year. So, instead of taking a week they took maybe a week and half or two weeks. So, actually that did cut into the visibility during January, but since Chinese New Year has concluded and people started coming back to work we are seeing activity from many of our major customers and that means that they're back and business is back and that's a good sign.

Tore Svanberg

Great. And can you talk a little bit about where your bookings are coming from is this fairly broad-based or is it more concentrated within certain segments?

Brian R. McDonald

No, I would say its broad-based, we are seeing it come back in all areas, Korea definitely is coming back fairly well. And then probably China next and then after it would be Taiwan.

Tore Svanberg

Great. And on the inventory if you reduced those quite significantly, this quarter how should we model that going forward and with some of the bookings that you have seen lately due you feel you have enough there to respond quickly?

Brian R. McDonald

We do fell we have enough to respond quickly I did the net inventory was down fairly significantly, but there was about $800,000 to $900,000 in reserves for excess reasons and a lot of that inventory could be used for a ramp up. So, I feel pretty comfortable, we are in a position to respond to a ramp, but I would expect inventories to grow a bit next quarter and probably turns in the 4.5 type range.

Richard K. Williams

And we also monitor very carefully, the highest volume products and we had special allowances to make sure that we had adequate material on those high volume products. So, some of the slower moving products would take it little bit longer for us to respond to, but those tend to not have the same kind of rapid ramps that the big movers have.

Tore Svanberg

Great. And Richard last question, the OVP product is finally ramping this quarter. Can you just talk a little bit, how you expect that business to continue to ramp throughout the year.

Richard K. Williams

Yeah. So, I think we have landed one major account and as, we are expanding our footprint into more and more models. Of course, even if you double, triple or quadruple the number of models, you don't know, which ones of those are going to ramp. So, I would say the design in traction is good, we will wait to see how that translates into actual production design wins, but as long as we continue to expand our footprint then to more and more models, the chances of us being in the next top model improves. And so, I would say in our lead account that's a very favorable event, we are also getting close to having some of those opportunities in Taiwan and then we're following on with work in China to see what we can come up with there as well. So, it's a new product portfolio for us, but as you know it gives us an increase to build the materials, more content into a client base that we already have good relationships with and we view that as a very favorable situation in what would otherwise be a pretty small business climate.

Tore Svanberg

Great. Thank you very much.

Richard K. Williams

Thank you.

Brian R. McDonald

Thank you.

Operator

Thank you. Rick Schafer with Oppenheimer. Please go ahead with your question.

Richard Schafer – Oppenheimer

Hey guys. I just had a couple of questions. Just first one, back on the income statement for a second the can you give us an idea sort of what the target quarterly break-even rate is for ’09 for you guys, I mean I guess if I look at it, if sales are down let's say 30% or more in ’09 just currently on a number out there. It’s kind of pre-'05 revenue levels, I mean.

Richard K. Williams

Right.

Richard Schafer – Oppenheimer

Is there a chance we see, OpEx pulled down below 40 million this year, I mean just kind of give us a little bit color if you could on that?

Brian R. McDonald

Well, the break-even the way we have targeted the break-even is to, at a about a $22 million quarterly run rate. The OpEx today is at roughly a low $40 million run rate. Now, we will adjust the OpEx through either, a further pay roll savings if we have to if we see the revenue start to decline at a rate below where we are currently at, but in the second half we would expect to see the break-even still at about the $22 million range, we would get close to break-even in the second half.

Richard Schafer – Oppenheimer

Okay. So, if you guys hit your, the way you are saying, you hit your target in the first quarter, that 13 to 16 and you grow from there or stabilize there it sounds like, you've kind of done with the big cuts.

Brian R. McDonald

I would say yes.

Richard K. Williams

Yeah, what we have been doing there is if we thought that something was particular to a quarter or to some particular model that delayed, we could always do a fore shutdown if we needed to as another way to handle a one quarter off issue. And then as Brian was saying if then we have to gauge the expenditures to the one range plan, because it's a double edge sword, if you cut too much and then you start to see some big programs take off, you could end up short handed as well.

Richard Schafer – Oppenheimer

Right, exactly. Another question just talking about the Korea guys, it sounds like the two big Korea customers are seeing on a little more confident, they're not, if I am not reading too much into that or not, but it sound like you're feeling better about business. And you talked about some of the new design wins in terms of battery charger repeat everything, I mean can you talk about, I guess are you seeing any of the newer design win installed because of what you are, and it appears what you're seeing out there in terms of the macro right now are you seeing you seeing some of the newer stuff ramping and some of the older stuff, legacy stuff maybe not ramping as much or kind of dying up faster, that makes sense?

Richard K. Williams

I think for consumer electronics company some times in bad markets. They like to use that as an opportunity to get ahead of their competition, who have weaker resources and aren't able to react in the down market. So, if anything, we see the Korean guys are pretty aggressive in coming up with new models and trying to gain market share. So, there is a pretty strong interest on them to make sure that we are able to handle any ramp that they are unable to forecast. And of course that's our challenge is, that we have to kind of guess what we think are going to be the hot models, and make sure that we have the material in place. But, fortunately we are selling some part numbers across the broad number of products and that's makes it little bit easier for us to put the whip in place to handle a sudden ramp. But I think they are being pessimistic and then they are concerned about an upside. And that's definitely more of the total narrowband saying that they're being optimistic and it could actually get worse then what it is. That's not what we are hearing from our customers right now.

Richard Schafer – Oppenheimer

Got it, okay. And then one last question. Just generally speaking, can you comment on what you are seeing in terms of pricing out there and how willing have your foundries been to kind of work with you to help offset any kind of pricing you guys are seeing?

Richard K. Williams

I’d say there is a general cooperation of all people in the supply chain to work together to get through this time and so we are getting good cooperation with our suppliers and we are doing as much as we can to help which includes test time reduction and yield enhancement. ASP depends very much on the function and how ubiquitous that function is if it's commoditized function then there is a lot of ASP pressure, but we know that going in, we can design the right type of product, as long as you don't sell a catalog type product as a commodity then you're fine and we are working very hard to make sure that doesn't happen in any of the new models. In things like battery chargers there is a fewer number of companies that are qualified to supply it and one because it is a safety related product, and so our customers are very careful with battery chargers because of the safety element on bringing on new suppliers and we've been paying the dues to we initiated as one of those suppliers and we are starting to see fruits from that. So, that product line I think, we will see some stability in the pricing, of course on the very low end LED drivers, there is always a competition, but as I said we already anticipated that and build that into the cost structure of the product.

Richard Schafer – Oppenheimer

And Richard, if the different number of it, at the lower end lets say, normal pricing was down 15, 20 a year, I don't know if that's roughly in the ballpark, I mean are you seeing it kind of worsen out or sort of inline?

Richard K. Williams

Some time, it sort of gets too low it starts slowing down actually because then all the suppliers run into a limit, because at some point in time the package cost becomes the largest component of the product cost and the silicon is almost for free, and when that happens packages are made of metal and plastic and both those are based on expensive materials, mining, and oil both of which are traded as commodities. So, I think in that case we don’t see a lot of aggressive pricing out there on the low end, and on the higher end we try to implement functions that are not easy to copy and that helps as well.

Richard Schafer – Oppenheimer

Okay, thanks. Thanks a lot.

Brian R. McDonald

Thanks Rick.

Operator

Thank you. (Operator Instructions). Patrick Wang with Wedbush Morgan Securities. Please go ahead.

Patrick Wang – Wedbush Morgan Securities, Inc.

Yeah. Hey, guys.

Brian R. McDonald

Hi, Patrick.

Patrick Wang – Wedbush Morgan Securities, Inc.

Hey, how are you doing?

Richard K. Williams

Good. How are you doing?

Patrick Wang – Wedbush Morgan Securities, Inc.

Okay. So, just a couple of questions here. I was hoping you could help me out, help me understand some of the moving parts here with gross margins as we look into Q1, and maybe a little bit more of what you expect after Q1, I know you talked about some pricing some mix here, some inventory reserves, what’s going on with Q1?

Brian R. McDonald

Okay. We like I said on in the script, we expect to see a bump in the gross margin up to the 44%, 46% range. Okay, and a lot of that is driven by just the elimination of the one-time charges, okay. And a couple of ones I highlighted were one the 4% intangible asset charge is a one-time charge that rode off some balance sheet items that’s 4%. And then we had a mix issue, which we think will get back to a more reasonable mix in the second quarter that was about a 2% charge. And then we had a 2% higher than normal inventory write-off charge. So, that adds up to somewhere around 8%, which gets you up into the 46% range. Now, beyond Q1, we would expect to see some gradual increase as the new product start to roll out; we expect to start to see that number trend up towards the high 40’s by the end of the fiscal year.

Richard K. Williams

And that completely excludes any opportunities in the TV and large screen LCD display area, which we are not modeling those to have any revenue contributions in this year, because this is the design in year that we’re focusing on, but those are longer-term drivers, which again have a fewer competitors and a lot more sophisticated functionality in them.

Patrick Wang – Wedbush Morgan Securities, Inc.

And I’m assuming those are ModularBCD type products that with margins that contribute in the 50s.

Richard K. Williams

Yes or more.

Brian R. McDonald

Yes, or more actually.

Richard K. Williams

And then battery charges are kind of the margins on those would depend on what the end market is. But as we mature in that product line, then we think we can make those into attractive margins too.

Patrick Wang – Wedbush Morgan Securities, Inc.

Gotcha. Okay, now that’s helpful. Okay, and then also in terms of operating expenses, just to make sure that I understand it correctly. We think about full year OpEx is in the low 40s per year is that the right way you’re thinking about that?

Brian R. McDonald

Well, let me be clear, right. So, the OpEx without the litigation expense and without the stock comp, which is the way I think you model it is and I guided that number to roughly 10.5 million in Q1, that you’ll see probably flattish in Q2 and then a slight increase in the back half of the year, which gets you into the low 40ish, 40, 42 million for the year. The litigation expense I guided roughly is mid-point something around 600K in the first quarter and that number could in the $4.8 million to $5 million for ’09. So, you should able to get to a total OpEx number with the litigation that way.

Patrick Wang – Wedbush Morgan Securities, Inc.

Gotcha, okay. And just on the note of litigation, can you give us an update of what's happening here and what are some of the key dates to look forward to?

Richard K. Williams

Yeah, I mean this is a whole lot of nothing is kind of what's been happening. The appeal, so you know, the charge pump case is over, the Linear lost that appeal. And so that entire action is dead. So, now what's left is the switching regulator related portion of the lawsuit, they appeal that there was a hearing that occurred and that's one of these things where the total timing in front of the judges is less than half an hour for all parties involved. So, it's primarily based on the judges looking back on all the briefs that have already been submitted, it's not based on new material. So, they will go through and then they will decide what to do with that. They can just leave the ruling as is, they can invalidate things or they, and say that its all over or they can under the worst case scenario I guess they can send it back to the ITC court and this, will you please go look at some of these things and give us clarification on that. So, it’s a little hard to judge what we've done is we've tried to model it financially as kind of mid-cost, not the most ridiculous scenario, but we also have not been taking it as the most optimistic scenario. So, some level of cost involved there was also some other actions on the part of Linear that involved them trying to implement an enforcement action, but normally what happens in these is that any of those requests generally get put behind the appeal. So, basically you got to wait till they rule on an appeal, before you have any idea of where we go from here, but its likely that that appeal would not I mean it could be another 3 or 4 months before they would even come back with an answer and unlike in the initial ITC action where they are on a very tight timeline, this is pretty much at the courts own decision as to when they get around to making a ruling or not so.

Patrick Wang – Wedbush Morgan Securities, Inc.

Okay. So, I mean it’s the timing, but it sounds like.

Richard K. Williams

Wait and see business as usual right now.

Patrick Wang – Wedbush Morgan Securities, Inc.

Yeah. Okay. Okay, fair. I want to ask you about pricing here, I know that you said that that you are anticipating maybe some competitive pricing pressures here or something you are doing to position yourselves for to take some share or maybe despite some of these other guys out there, can you talk about what’s happening there and maybe help us understand what the impact is?

Richard K. Williams

So, it depends on the product lines. So, what we have done is, we've been actively doing cost reductions, and we took more than a dozen different chips and die shrinks and cost reductions. And then we are able to go take business at prices that we might not have taken if we had not done the cost reductions. Now, one effect that occurs is when you have inventory and whip in the pipeline, it's normally at the older price. So, when you do a cost reduction that shows up when you've burned off that other inventory. So, it would depend on is an LED backlight driver or SmartSwitch, how much of that inventory, if the parts are very ubiquitous, we can sell at a lot of different places. We can burn off the inventory pretty quickly, if its specialized and more use for only one customer then it takes longer before we can start to see the full benefit. But at the same time, if we calculate that it’s going to be a good long-term business sometimes you’ll have to do forward pricing to get the socket. And then hopefully you’ll burn off the old inventory before it starts to ramp to big volumes, and then you can actually get the benefit of the newer lower cost material. And we’re doing that on a very proactive and ongoing basis. On other areas like battery chargers, you sometimes get some lower margin to buy your way into a market and then you customize the products to exactly what they need, and are able to optimize the margins for each and every socket that you’re selling into. So, the broader the product portfolio, the better it is for us to optimize the margin. So, I think there is a lot of moving parts there and then of course the products like the TV related, those are very high margin, but those were we’re not modeling those to ramp this year, and if any of them do ramp that would be pure upside from our point of view.

Patrick Wang – Wedbush Morgan Securities, Inc.

Okay, clear perfect. And then just lastly just want to make sure I got the numbers right for ModularBCD here is 19% of sales in the fourth quarter. You guys have 57 products, 39 products new products in the pipeline here. What was it for Q3 and what are you guys expecting say over the course this year as a percentage of sales?

Brian R. McDonald

Say that, well I can tell you in Q3 it was about 19% of sales it was almost flat as far as the percentage goes.

Patrick Wang – Wedbush Morgan Securities, Inc.

Okay.

Brian R. McDonald

What was the back half for that question Patrick?

Patrick Wang – Wedbush Morgan Securities, Inc.

Just the expectations of…

Brian R. McDonald

Expectations of where that will be by the end of this year is somewhere in the 40ish percent range as we exit the year.

Patrick Wang – Wedbush Morgan Securities, Inc.

Okay. Perfect. Thanks so much guys.

Richard K. Williams

Okay.

Operator

Thank you. And our final question will be a follow-up from Tore Svanberg. Please go ahead.

Tore Svanberg – Thomas Weisel Partners

Yes, thank you. Richard, could you talk a little bit more about your LED backlight opportunity for TV, I know you've had some products there, you are sampling, when could we start to see some revenues coming from that product line?

Richard K. Williams

So, it's a little early to give you an answer on the revenue ramp, but clearly we embedded the functionality that the system needs, there is two types of televisions, one that have Edge lighting and one that have a matrix of LEDs behind the screen up to 2000 LEDs in one TV. And then you provide local dimming, so the first product offerings that was launched are the ones that handle the higher end TVs with the local dimming and the matrix LEDs. So, those are the customers we are going after right now. We also plan to introduce a product that will handle any of the lower cost TVs that have the Edge lighting as well. It looks like the initial scrutiny from our customer is the functionality they need is there some of want different bells, different whistles, changing the interface a little bit, none of those are major show stopper, we expect we will get some design wins with the existing architecture, and with the derivative spin we think we can, we can pick up a lot more but it certainly still a little bit new in the industry, most of the TVs were shipping today, if you rip them up, which probably not inclined to go buy a 15-inch TV and take it apart. But we did, and when you go do that you find that there is a tremendous amount of discrete transistors. So, the stuff that's in the market today is not architected the way it's going to be in the future and we are working very closely with multiple customers. All the big guys on what the right products are that each model needs and we even find the two different groups within the same company don’t have the same architecture. So, it looks like there is a lot of opportunity there, and we are giving the relationships, in the very least you could see the chips we are offering there has made us a credible supplier that we can do the functionalities and the features that they ultimately want. We are also starting to offer gamma correction and VCOM trim and expanding up the portfolio for the power that's on the front of panel not the backlight, but the front of the panel, and the initial discussions with the customers on those products have been very favorable as well and those include high ASP products too. So, we are looking at all the different content in one, our interface users even working on a Class D amplifier it will be to and for the power levels for driving the speakers in a HDTV. So, even the audio piece we will be launching this year too. So, it's still early, but I’d say given that we have only been sampling for a couple of months, it's pretty encouraging.

Tore Svanberg – Thomas Weisel Partners

Very good. And the last question is more of a clarification question, on the wireless LAN business did you say that the 802.11bg legacy business is now, no longer an overhang on your growth rate, is that how I should look at that?

Richard K. Williams

Yeah. I would say that that it's mostly down, and any business that's still there is what we would call like a residual business that may not go away for a long time. But most of that decline was built in, and there is probably more upside in the end then there is downside in the b and g now.

Tore Svanberg – Thomas Weisel Partners

Perfect. Thank you very much.

Brian R. McDonald

Thanks Tore.

Operator

Thank you. And management there are no further questions. Please continue with any closing comment.

Brian R. McDonald

Okay. Just thank you very much for attending the call and hopefully for a happy '09.

Richard K. Williams

Yeah. Thanks.

Operator

All right. Thank you. And ladies and gentlemen this does conclude the AnalogicTech fourth quarter 2008 earnings conference call. If you would like to listen to a replay of today's conference, you can do so by dialing 1-800-405-2236 or 303-590-3000 and put the access code 11125021. ACT would like to thank you very much for your participation today. You may now disconnect. Have a very pleasant rest of your day.

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