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Microsemi Corporation (NASDAQ:MSCC)

Morgan Stanley Technology, Media & Telecom Conference Transcript

February 28, 2013 11:45 AM ET

Executives

Paul Pickle - Executive Vice President

Robert Adams - Vice President, Corporate Development

Analysts

Vidya Adala - Morgan Stanley

Vidya Adala - Morgan Stanley

So, good morning, everybody. My name is Vidya Adala, and I work with Joe Moore in the Semis team at Morgan Stanley. We’re very pleased to have Paul Pickle, EVP of Microsemi; and Robert Adams, who is Corporate -- VP Corporate Development at Microsemi.

Before I start off, I just need to get through one legal thing. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website or at the registration desk.

So, with that, Paul, maybe a good place to start is, if you could give us a very quick overview of the company, and then we could jump into more details after that.

Paul Pickle

Sure. So, Microsemi has been around for awhile. I think if you look at us today, you would see rather drastic transformation from what we’ve traditionally been, even comparing us five years ago.

Five years ago we were about 70% discrete -- 70% of the revenue was discrete product. Today about 70% of the revenue comes from integrated circuits, and that’s the portion of the business that I’m specifically in-charge of. And it’s been very, very targeted transformation, planned transformation that we’ve kind of architected inside.

And pretty excited about where we are going today. Today we are looking at new technologies that we haven’t historically been, but still maintain this identity of value-added supplier, component supplier. We still maintain a focus on the application solution.

And if you look at the opportunities that we are focused on today and bidding on today it’s, we are certainly looking at opportunities that we’ve not historically had opportunities to bid on.

So we’ve kind of gotten through Phase I. We are working on Phase II and setting our sights on leveraging those broader markets, trying to accelerate the growth of the company by focusing on, one, our key customers making sure that we continue to bring value there and leverage more content on those applications.

As well as leveraging additional technologies. If you look at the tools and toolbox if you will that we have pull from. Today it’s much, much broader set of tools. Today focused on that end application.

You’ll see from us total solutions providing an end application, as well as owning the content. That’s definitely something that’s been -- that’s different today than it was a few years ago. So it’s a pretty exciting time.

And we are setting our sights even higher. We are focusing on much higher topline drivers, organic growth, certainly as one of those key initiatives inside. And we’ve got good operating models, high value proportion operating models. In addition to that, we are making sure that the roadmaps are aligned such that we are looking three years and continuing to develop that technology.

Vidya Adala - Morgan Stanley

So one backward looking question for you is, you did transform the company effectively? So what made you choose this integrated circuits, its RF, mixed-signal, what made you choose this? And one question that comes up is your company has been very successful in acquiring and integrating? So what makes you special on that?

Paul Pickle

We do integrate and acquire very, very well, I would say, I’m quite proud of our success rate. And it’s a fairly conservative model when it comes to choosing acquisition targets. It -- we look at the accretive part of it first and then, we want to make sure that we’ll get that technological synergy as well that leverage secondly.

And I’d say the way we pick those targets. The way we stay true to the identity of who Microsemi is, choosing more niche applications that are going to be valued by the customer.

In addition to, we are not afraid of some of the higher volume, larger markets either, but we make sure that it’s a fairly targeted conservative approach and it’s a -- it’s done very well for us.

Vidya Adala - Morgan Stanley

Sure. So let’s go into the end markets and let’s communications which is about 30% of your revenue today. There are several different pieces within this whether we think of PoE, RF, CPE, et cetera. So talk to us about these various segments and why they are interesting, what are the key drivers for you in some of these different pieces?

Paul Pickle

That’s a good question. It’s a many fold answer. So I’ll attempt to address couple of them. Phase I was really about kind of acquiring the scale necessary to provide proper leverage for our growth businesses. And if you look at certain segments like CPE, it certainly does drive a lot of the wafer volume that drops variable costs on the rest of the product line, allows us -- gives us the foundry relationships that we need in order to leverage some of the more advanced technology nodes.

Not to mention, it puts you very, very close to a very select customer base, the market makers. So you get a lot of the advance look that you want to have in order to construct the proper roadmaps, develop the right technology for the next-generation. So, we always look to differentiate though. Even in CPE we have a differentiator. You won’t see a large list of competitors for the components that we supply …

Vidya Adala - Morgan Stanley

Who are your competitors?

Paul Pickle

You’ll see competition from like a Silicon Labs in certain segments. But, that particular, we have majority market share in that voice business, in CPE specifically because, incumbent solutions are hard to displace, we have an advance process technology that also allows us to compete more effectively. And, so it drives the end application and then it of course allows you to go target another application like Wi-Fi.

We’ve done -- we’ve been traditionally in that business, but more on the enterprise side. And we want to make a technology transition into Silicon germanium. We want to do something special and/or at least differentiated. And we are able to make a transition with the help of process technology development with IBM.

We were able to make a monolithic FEM, the world’s first. And so that’s kind of, we’ve gotten kind of pulled more into the consumer electronics space as a result of having that advantage. So, that, it’s kind of neat when customers are pulling you into application as opposed you trying to push away into the lobby doors.

Communications, also the other side of that is the timing and that is really about the high reliability, cutting edge, being fully entrenched in the core routers, as well as the optical transport networks and a little bit on the edge. We are even seeing some pull not just in timing but in the PoE space into small cell deployments over LTEA deployment as well.

So as those networks push up in terms of bandwidth and we know that they are into the 40 gig and 100 gig, especially as they move into more of the concurrent 100 gig applications, we are going to see increase usage for this pretty technologically advanced ICs, to be able to boast 250 femtosecond jitter specs is pretty significant (inaudible) rights and it puts you in a class all your own.

Vidya Adala - Morgan Stanley

So how big is PoE for you today?

Paul Pickle

We don’t breakout those product lines specifically. I will say, if you look at PoE systems for us, we are seeing some rather strong growth. It certainly better than changed over the past year, we are just seeing some great adoption.

PoE is one of those few businesses though in telecom and so once you get a flagship program, you see an adoption or ramp up cycle attached to that and we see nice steady growth there, even as standards would appear to be, let’s say, we will see one more additional high power standard ratification and then beyond that I think we are kind of pushing the limits of the wire. But it’s really about kind of that expansion of that spec into alternative application.

Namely HD based is starting to gain some additional traction as well. And then we are seeing some unique applications where people want to use PoE to power radio heads and like I was mentioning in small cell deployment as well.

Vidya Adala - Morgan Stanley

Yeah.

Paul Pickle

So I see some really nice growth for PoE over the next several years.

Vidya Adala - Morgan Stanley

Right. So talk remaining on the subject is communications, a question that has come up over and over again over the last three days for us is, what’s going on now and when does this improve, everybody seems to be just waiting for it? So what are you hearing from your customers? You have a little bit, not the discrete focus but on the back-haul side? So what are you hearing from customers? How do you feel about this end market right now?

Paul Pickle

So, I think the end markets shifting a little bit, it use to be, hey, we are going to rollout a standard and then when we are -- when the industry is ready to rollout another standard, you see this massive replacement of infrastructure and certainly, an increase in infrastructure spending.

That market has been somewhat constraint by CapEx and loosening some of the strings. It is a finance model with some of the service providers. And so you haven’t seen lending meaning to be what it is in order to kind of fund or fuel that growth. But at the same time, the industry is gotten quite creative on how they address the bandwidth needs.

And we are seeing movement in that industry and but I don’t think it’s typically what everybody was expecting. And but it does appear in select geographies as well. China has been a big portion of the growth last year and we see some evidence that Europe and North America starting to move in a positive direction as well. But I suppose I would echo, it’s not what people were expecting.

Vidya Adala - Morgan Stanley

So we need to temper our expectations.

Paul Pickle

Well, we are seeing positive momentum, I wouldn’t say that it’s a wait and see. We’ve seen movement in the right direction. I wouldn’t characterize anything. It’s snapback of, I think you’d have difficulty saying, it’s a snapback, but its nice steady presumption of growth.

Vidya Adala - Morgan Stanley

So one of the other comments we’ve seen is, there has been some tendering activity in China, in the -- since the leadership changed. Does that echo with what you are seeing as well?

Paul Pickle

A little bit, yeah, so I’d say, that the growth is tempered somewhat but, I don’t see anything that will go in the other direct either. So you see -- you always see a little bit of ripple when there is geopolitical change. But I don’t know that it’s raised any red flag of concern.

Vidya Adala - Morgan Stanley

Okay. Sounds good. And one more topic on this would be 802.11ac. So, how are you participating in that so? Is it just our reference? What are you selling into that and how do you see that playing out over 2013 and maybe much more in 2014?

Robert Adams

So, good question. 802.11ac is really a great opportunity for us. We definitely see and the industry is making that transition. There is just no doubt. It does two things. It pushes an additional band, which is an important thing to note. It’s not like 802.11n. 802.11n was a multi-band and a 2.4 and 2.5 gig spec. 802.11ac, today is -- at least the spec is ratified say to 5 gigs, right. That’s important. The reason why it’s important is because it really affects the type of semiconductors that you a used to make those devices.

And so where we place specifically is in a bit more of an exotic material, but silicon germanium as well as gallium arsenide, semiconductor component on, what’s called the FEMs, the front-end module. So it’s kind of post baseband in that, very complimentary. You’ve seen the press release from us where we have a technology partnering that joint press release was with Broadcom.

We are engaged with the other suppliers as well. And we definitely -- when we look at the solution that we provide, we’ve seen inherent cost advantage with the approach that we’ve taken, because if we are monolithic chip on an h-lead frame as oppose to a multi-chip module on substrate and that’s important. As yields come up, certainly much smaller, the industry is trying to push subscale packaging and that's something that we can certainly compete with for the next several years.

Vidya Adala - Morgan Stanley

So, how do you see that drilling out? Do you think we should see revenues from that in the second half of this year and is 2014 the main year? Some industry analysts even suggest 2015 could be the main year, so how do you see that?

Paul Pickle

So we will definitely see revenue in the second half of this year. It’s definitely -- second half of the year will play for us. We’ve started production builds. There is some orders that are trickling in on that. I wouldn’t characterize as mass production. But second half of the year for us, if I look at an 802.11ac adoption rate, it’s going to be prolific on handset. Certainly, I think those handsets that are ruling out and then you will see that production transition over. But even we are seeing some refreshes on older devices that are already deployed in the market, as people are coming in for 802.11ac. And for us, I guess the important thing to note is, it is really -- the question is that it is a dual band or does it have five-gig Wi-Fi. If it does you can assume that it is 11ac.

Vidya Adala - Morgan Stanley

Right. So with perhaps we can talk about defense and market. I have had conversations with Jim before where he is trying to say that defense has -- the sequestration aspect has been expected over the last few years. But the census performed really well for you guys. So maybe the first point is, why, what type of products are supplying into this that you are not seeing them back as much as I guess everybody expected, dual expected? What’s the nature of these products?

Robert Adams

I’m monopolizing the time, so do you want to answer?

Paul Pickle

You are doing great, buddy. What I would say is as you think about situations -- first of all we have to get beyond the hype. Jim said we’ve seen this all along. Sequestration is a word we have been using for the last year roughly. But this all started in 2008 and 2009. And since that time, it’s fair to say we’ve seen what you might expect from a nervous market. We’ve seen order perversions, we’ve seen push outs, cancellations. But it looks like market is basically also seeing parlance.

And it’s our fundamentally belief that electronic content is going to grow, it’s going to make our budget more efficient. The international markets offer growth opportunities, the faster growth opportunity. I think that being said, this is about a 7% CAGR kind of an opportunity. And our product portfolio is growing.

10-years ago, we were a discrete power conditioning company. Today, we can bring complete subsystems to our customers. We can build things that they can’t build, but we can build them better, faster, cheaper than they could did it in-house and without related entitlement expense and all these types of things that are really at the heart of the problem.

So we are not saying it’s going to be easy necessarily, navigating the sea. But we are saying that are going to continue to rise. We are going to see content growth. We are better than ever poised to drive more content into that market space.

Robert Adams

And I will hang on that. We have maintained that this a good market for us. I get worried about markets, when I don’t seek a growing SAM three, five years out. And there is an interesting push and I think that if you dug, you would see this by the DoD. America’s defense department was the one who kind of led the cutting-edge years back and then the commercial industries took over and push the envelope on technology. There's a resurgence and a funded resurgence, trying to get the DoD back to the cutting edge and think beyond with commercial applications currently see today.

I only see silicon content going up and I think that’s an important point. The other thing that I would add, we are bidding on programs, funded programs that we’ve never seen these types of opportunities with the defense department before and for us it’s an exciting opportunity. You are going to see cuts in personnel and certainly in fields, those kinds of tangibles. But electronic content is -- we are quite confident when we are going to go up.

Vidya Adala - Morgan Stanley

That’s really interesting. To some of your previous comments has been that you’ve gained market share as well in the space like Rob just alluded to. Who are your key competitors and who were you taking away market share from at this point in time?

Robert Adams

You never like to say that you are unique in standalone, but at the moment those -- if you look at the traditional supply chain within defense and military systems you will see a lot of that value-added contract manufacturers, design houses. And today, if you look at the breadth and you can look at some of the acquisitions that we have done in the past, Microsemi does have the assembly, the systems and the component expertise. And that’s actually give us some of the opportunities that we wouldn't have had in the past.

We are not only supplying to the clients, but we are actually bidding on projects as we are filing some cases. So it's hard to say that there is somebody else that’s like us. There is a lot of guys out there that have a facet of what we have, but one particular program that comes to mind, we are doing the software encryption algorithms. We are doing the FPGA design, RTL design. We are doing the assembly. We’ve done hardening the anti-tamper.

It’s really kind of a multifaceted one-stop shop approach and once again, it’s a focus on the systems.

Vidya Adala - Morgan Stanley

I see. And in this segment, do you think you need any other inorganic tides, additions to your portfolio or do you think that given everything you have done you are more or less there?

Robert Adams

So we’ve always kind of taken the approach that, if we don’t have the tool and the tool bag, back to the analogy, really the development in-house or strategically acquire. And so it really comes down to what’s the most efficient way to do that, the best return on that investment. We certainly will look for strategics. But we will do and continue to do the internal developments as well.

Vidya Adala - Morgan Stanley

And then the other thing that I think everybody who’s gone through an airport and is sitting in this room is probably thinking of the millimeter back way or the millimeter wave technology. So we’ve seen that switch come through and you guys have been very vocal about x-rays are not good and the technology needs to shift. So talk to us about it. How – what is the fundamental difference in the technology and what does that mean for you in terms of revenues going forward?

Robert Adams

Well, there is a very fundamental difference in the two technologies and it’s mainly frequencies, bands, how you process the information that comes back. Millimeter wave is also -- it’s not just an active scanning system where you send out millimeter waves and read what comes back. It can also be a passive system as well.

And so, if you look in terms of -- you never want a kiosk sitting next to a busy hallway, just throwing out x-rays. But millimeter wave is certainly -- that’s something, we can just have a passive key asking, read what’s coming back in and do some of these, maybe advanced what we call standoff scans to kind of see some of those threats that maybe coming before they get into the scanner. So the technology has got applications much -- well beyond standing in a tube and getting scanned for a second or half a second.

And so we see further expansion into more civil applications, not just TSE but we think that in light of the focus on security and some of these events that happened, it would help to have some of these advanced warning systems that we’ve kind of warning you before that it enters a municipality or a school or something like that.

Vidya Adala - Morgan Stanley

Outside of the TSE, but even in local buildings and things like that you see that happening?

Robert Adams

I think it’s definitely applicable and it comes down to -- it really comes down to events and peoples recognition of the needs to have this in play. But I think where we are taking it, the expansion of the application as well as the focus on making it a practical implementation. I do see it expanding. I think it’s something that we’ve seen in the distant, not too distant future.

Vidya Adala - Morgan Stanley

How does it compare in cost? What’s the --

Robert Adams

To X-ray. I’d say it’s on par. X-rays are little bit cheaper. We certainly see a significant dollar content, but the applications only now started to be deployed. So, as you see this more and more prevalent, the cost will of course drift down.

Vidya Adala - Morgan Stanley

So can you help us quantify what that electronic content for you is and maybe in the millimeter wave and what the silicon content is on the X-ray side as well.

Robert Adams

So we haven’t broken it out specifically, but I think if you think about a number in the low 10s of millions it’s probably upon swag at the number. I would further say that when this market first started to develop for us and if you remember back to the Christmas Day event and what not, there was an opportunity or there was certainly the chance that we thought that business could grow more quickly. What we’ve discovered over time is that there was a technology decision that had to be made millimeterwave versus backscatter X-ray, that seems to be made now. There was a concern over privacy, the millimeterwave solution has addressed that. And that’s part of the reason it’s dominant now.

And at the end of the day, we also realized that our customers are government customer generally. L-3 is our customer. Their customers are government customers. So we can’t move more of those rates you’d expect from aerospace and defense types of businesses. That said, it’s a good thing for us as we look at it.

In terms of units of opportunity, we’re in the very early innings of this ramp. And like Paul said our form factors are going to expand. We have passive systems, long-driven types of solutions as well. So we expect growth in this space for several years.

Vidya Adala - Morgan Stanley

And my last question on this defense side, when you’re giving us -- you give us guidance only a quarter out but what sort of impact from these potential budget cuts, are you already baking into your model at this point?

Robert Adams

I think we’ve already baked in any possible effects. And what we’re looking at is some wins over the next couple of quarters. Some of those projects that we’re bidding on, we’re looking to capture those. Those certainly will drive the number up.

If you look over this next three quarters, we’ve got several programs that we would certainly be smiling about it if we want. And that will definitely have a positive impact on the number.

Vidya Adala - Morgan Stanley

Right. And what sort of visibility, do you have already, what’s potentially sitting in your backlog?

Robert Adams

I think a lot of it’s already been baked in. Over the past year, we’ve seen -- really maybe year and half we’ve seen some of the effects happening. Little Skunk Works programs being canceled but at this point, I think we feel pretty comfortable about where we’re going certainly with the guy that we gave and in this particular space.

And you never know it may be that they kicked -- they came down the road and maybe that we get past it and we realize there is no impact. But I think we’ve been pretty conservative there. And I think we feel pretty comfortable about where it’s going.

Vidya Adala - Morgan Stanley

So, one question on the aerospace side for you. Talk to us about the pieces of the market that commercial as well as the satellite market. What’s going on in those areas?

Robert Adams

Okay. Satellite, if we looked at satellite launches, I think we showed a graph at our Analyst Day where we showed that trend will be continuing up. But if we look at content, we continue to grab more content on satellites. This is a space that we feel very comfortable with. Certainly is a space that we’ve historically captured and are going to continue to target additional SAM within that space.

And those programs are going really well. We were looking for an up cycle. I think we’ve seen good bookings trend this past quarter. And we’ve seen the indication that that cycle is starting. So space for us right now is looking pretty good.

And it’s good high margin business. If we look at Comair, we continue to grow content on some of these advanced higher efficiency aircraft, not just the historical content that we have, the power devices, the discretes but also in with our FPGAs, one of our plays with FPGA is our ability to handle single event upsets and that really kind of speaks to reliability you want, reliable devices on an aircraft of course. And we’ve seen our content, the number of devices grow on these new commercial aircraft.

And as the industry is driving to the 2020 total electrification, we only see our content growing. We see this as a very good market for us. And we’re engaged with the -- some of the -- even engine manufactures that we haven’t been engaged with in the past. They are recognizing the need to put more power, control electric components, right at the engine. So it come to us through high temperature reliability aspects. So it’s a real growing market for us.

Vidya Adala - Morgan Stanley

I’ll ask you the question again is, who is it that you compete with when it comes to these types of products?

Robert Adams

You never want to say that you don’t have competition.

Vidya Adala - Morgan Stanley

I asked the question again. I got the answer.

Robert Adams

I will say this in space, it’s primarily ASICs. We sell programmable device and it’s really whether or not they’re going to choose an FPGA-type device in space or are they going to use an ASIC. And as we drive the lowering order geometries, we just announced 65 nanometer FPGA platform. And we’re working on our Next-Gen 28 nanometer.

We’ll continue to offer a solution to say, hey you don’t really want to do this high dollar ASIC when you can make -- put your design on FPGA for a space, it really makes a lot of sense. So we do have competition there but its not, its not component-to-component competition.

Unidentified Analyst

(Inaudible)

Robert Adams

No, it isn’t. In space, it isn’t. And you have those two aspects of the satellite. There is -- you’ve got bus side and payload side. On the bus, we really -- it’s an ASIC play or a Microsemi FPGA. On the payload, there is a number of different solutions. They can kind of handle more of a non-mission critical -- it's more of a non-mission critical application.

And so if they detect an upset and kind of reboot the system and there is momentary downtime, that’s okay. But on a bus, on a vehicle, that’s going up in the space, you can’t afford any mishaps. Since we are the kind of -- our business unit, I’d like to say we are the undisputed king in that particular application. But we do have competition there from ASICs.

Vidya Adala - Morgan Stanley

Actually, we might as well poll the audience for any questions before I can quit.

Question-and-Answer Session

Unidentified Analyst

Can you talk about the timing impeding your 60-30 initiative and talk about how aggressive you’re going to pay down debt? Thanks.

Robert Adams

Sure. Just a recap, we talked at our Analyst Day last September about paying down our targeting payment of $100 million towards our term loan B, which two quarters now passed, we continue to pay $25 million per quarter. I think every quarter we’re going to get and of course, check the cash balance in the bag, put some in the bank and continue to pay down towards our $100 million that we’ve committed to doing.

In the absence of other corporate development types of activities, that’s the best thing to do for our shareholder to continue to pay down more debt, we’ll do that. There is an opportunity to do something in terms of acquiring key technology Paul might need or something along those lines, we’ll look at that too. We are committed to paying down certainly. We’re committed to paying down $100 million and beyond that, we just look at it as a case-by-case situation, what’s in the best interest of our shareholder.

It’s worth, we just lowered the debt load there. I believe it’s completed last week but we have refinanced our debt of about $726 million, I want to say. We took the rate, interest rate down from 4% down to 3.75%. So it’s been a little cheaper too, which is nice.

60-30, so we move to a dollar level kind of a target as to when we get there as oppose to a calendar date per se. Just given the economy and what not, but I think what’s important for us is we previously saw that 60-30 coming -- with assumptions on mix coming at $290 million or $295 million topline revenue number.

Now, we feel very comfortable saying that probably occurs somewhere more around $280 million. You’ll continue to see a strong -- in the near term a focus from us on cost control. I think our goal is to ever lower that. We want to control -- in a tough macro, we want to control that which we can control.

Sometimes the top line is a little bit out of your control but OpEx is always something you keep your eye on. So we will continue to do that in the near term. A little revenue tailwind would certainly help that situation as well.

Vidya Adala - Morgan Stanley

So this question about revenue in the near term and how is that looking. So we spoke about that for communications but if you think about the group as a whole, the general sentiment coming out from all the companies at this conference for sure is things have improved and they have held over the last four weeks at least. Would you echo that sentiment and your lead times are longer. So that does give you a little bit more visibility. So talk to us about how your lead times, have they changed at all. How are they looking at this point in time?

Robert Adams

The lead time is really haven’t changed for us all that much. The visibility -- I'd say the cadence has definitely improved from the end of last quarter. In some cases, individual product lines bookings rates have just about doubled as compared. We see the follow-on quarters selling our nicely but it’s kind of a -- more of a resumption in normalcy rather than real optimistic uptick for this quarter.

I like the direction that it’s going. It’s building our momentum and you can -- any time you can see the follow-on quarters. And since we do have the little bit more visibility in the out quarters, when you see that momentum build a little bit, it does give you -- we talk about stronger second half of the year. And I think we feel comfortable saying at this point.

Vidya Adala - Morgan Stanley

So you just said that specific product lines have seen the improvement. Any specific end markets that you see or geographies perhaps?

Robert Adams

It’s bit of a mix bag and that’s why I think it’s hard to say that there is a wholesale trend in the upward direction as probably why you get a lot of people cautiously optimistic. It is a bit of a mix bag. We’ve seen in our industrial segments, I think we’ve kind of feel comfortable saying hey, March was at the bottom or is at the bottom. And we’ve seen some stronger booking rates out there. We’ve seen some stronger booking rates in timing specifically but it’s really kind of a mix bag at this point. And the blend pushes it in a positive direction.

Vidya Adala - Morgan Stanley

Inventory levels, where do you see inventory levels in the channel? They've been at historical lows. Do you see that it is a potential for us? I don't want to use the word snapback. But some form of restocking could happen if confidence improves and it feels like that is happening as we speak. So what would you say on inventory levels generally?

Robert Adams

I’d say it could. Certainly, I think that is a possibility but to say that there has been an inciting incident to say that it is going to happen, I have a tough time saying. But if you look at the channels, at some cases the channels are very lean. And we’re cautiously optimistic that there will be a replenishment that’s needed. And so we’ll probably strategically build in certain areas. You always want to see that happen before you say it could happen.

Vidya Adala - Morgan Stanley

So we'll know it only in the rearview mirror basically?

Robert Adams

Yeah.

Vidya Adala - Morgan Stanley

Any other questions from the audience. Well, if not, we’ll wrap that up. Thank you very much for your time, Paul and Bob.

Robert Adams

Thank you.

Paul Pickle

Thank you.

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