Standard Microsystems Corp. F4Q09 (Qtr End 02/28/09) Earnings Call Transcript

Standard Microsystems Corp. (SMSC)

F4Q09 Earnings Call

April 8, 2009; 5.00 pm ET

Executives

Chris King - President, Chief Executive Officer

Kris Sennesael - Vice President and Chief Financial Officer

Carolynne Borders - Director of Corporate Communications

Analysts

Vernon Essi - Needham & Company

Christopher Longiaru - Sidoti & Company

Presentation

Operator

Good afternoon ladies and gentlemen. Welcome to the SMSC fourth quarter and full year fiscal 2009 conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. Following managements discussion we will open the conference up for questions and answers, and instructions will be given at that time.

I’d now like to turn the conference over to your host, Ms. Carolynne Borders of SMSC. Please go ahead.

Carolynne Borders

Thank you. Good afternoon and thank you for joining us today for SMSC’s fourth quarter and fiscal 2009 conference call. You should have all received the copy of our press release issued this afternoon. If you’ve dialed-in on the phone line, please note that there is also a slide presentation that accompanies today’s call.

The press release, slide presentation and a replay of today’s call will be available in the Investor Relation section of our website. Representing the company today are Chris King President and Chief Executive Officer and Kris Sennesael, Vice President and Chief Financial Officer.

Following management’s discussion, we will open the call to a Q&A session. If you are participating in our online webcast, please move on to slide two for a quick note on our Safe Harbor statement. Certain matters discussed in this teleconference are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected or forecasted.

Such risks and uncertainties include, but are not limited to, those discussed in this teleconference and those found in the company’s Form 10-K, 10-Qs and other filings with the Securities and Exchange Commission. I’d also refer you to the forward-looking statement language contained in today’s press release regarding risks and uncertainties.

Today’s presentation also includes non-GAAP financial measures, which should not be considered in isolation or as an alternative to results of operations data or any other measure of performance derived in accordance with U.S. GAAP. However, these non-GAAP financial measures are presented because the SMSC believes they provide useful supplemental information for management and investors and allow them to perform meaningful comparisons to the company’s past and present results.

With that, I’ll ask you to advance to slide three in a presentation and I’ll turn the call over to Chris King.

Chris King

Thanks Carolynne and thank you all for joining us today for a review of SMSCs fourth quarter and fiscal 2009 results. I’d like to start with the snapshot of the semiconductor market as we see it today. Due to our fiscal quarter and year end timing we tend to report a little earlier than appears.

You may recall that we were one of the first company’s to report the precipitous drop in PC sales two quarters ago, forward by automotive market declines. We were also one of the first company’s to hold up a ray of light last quarter, when we saw a significant deceleration in our own customer order push-outs and cancellations. Since that time inventory in the PC chain has predominately have been absorbed and is back to healthy levels.

We have seen some improvement in customer demand for several end products, particularly in Asia and North America. Notebook demand has been improving and the real bright spots are sales and design wins for netbooks, as we have an excellent product lineup for these low end systems. Another bright spot is the smart phone market and we have seen strong orders from Asia for these devices. In addition, overall Asian consumer demand appears to stabilize.

Automotive inventory is still high worldwide and as a result we expect to see revenues depressed until at least to second half. We anticipate sales in Europe and Japan to be weak in the first quarter due to the global automotive inventory situation, as well as a continued decline in consumer product sales, which is not expected to improve until our August quarter. We are seeing improving metrics in our business, including a quarter to-date book-to-bill ratio of over 1.1 and order push outs and cancellations have returned to normal levels.

Let’s move on to slide four for look at fourth quarter fiscal 2009 financial performance. Q4 revenue of $51.2 million came in at the high end of SMSC’s guidance, which we had updated on February 9, when we saw the bookings re-strengthening. Gross margins were disappointing as a result of lower revenues and a significant drop in inventory. It is our expectation that gross margins will return to greater than 50% in the second half of the fiscal year.

We have completed our plan cost reductions, which will result in an approximate $6 million of quarter savings starting in the current quarter and will facilitate meeting our objective of being operationally cash neutral in the same period. Q4 operating expenses were down approximately 2% sequentially and we expect to further reduction in the current quarter.

Finally, our fourth quarter GAAP results include non-cash goodwill impairment charge related to the OASIS acquisition of $52.3 million as part of our annual goodwill impairment analysis. We continue to build a strong position in the automotive market and firmly believe that this will result in significant long term return.

Slide five shows their expectations for the current quarter and Kris will go into more detail on this later in the presentation. For the first quarter of fiscal 2010, we are expecting revenues to be up by approximately 10% sequentially. As I mentioned, our quarter-to-date book-to-bill ratio is over 1.1. In addition to the slowing in order cancellations and request for push outs we have received some expedited orders, especially for low end PCs and netbooks, and sales of our portable products in Asia have also improved.

Today, our OEM revenue backlog covers about 95% of our forecast revenue for Q1. Automotive revenue is expected to be weak until the second half of the year. Based on customer forecast, we expect our total second quarter fiscal 2010 revenues to be sequentially higher. In addition, we are happy to report that we expect to achieve our cash break-even goal, excluding cash for restructuring in the current quarter.

If you’ll join me on slide six, it is encouraging that as we look across our global business, design activity is healthy. Netbooks, smart phone and automotive customers are continuing to drive aggressive engineering schedules. For instance, we are now working with about 15 new customers in Asia and North America on both X86 and non-X86 processor-based netbook designs.

Smart phones are integrating more functions into their USB sub-systems including ESD over voltage protection and battery management, all of which we provide. Despite the poor health of the automotive industry, we are seeing strong activity among global OEMs to upgrade to network approaches and faster speed grades. Our most engineers are very busy with next-generation designs.

We are making positive spot strides in virtually all of our target markets, since the pace of platform innovation has not slowed. Whether we are looking at automotive networking, more versatile LCD monitors for the home or office, or the emerging market for lower end PCs.

Each quarter, we like to provide a snapshot of sales by our five target vertical markets and you’ll see this on slide seven. It’s no surprise that we saw a shift away from the PC and automotive segments and into consumer electronics. This was due to the overall weakness in PC sales and the associated inventory correction. The automotive decline in the fourth quarter reflects the timing of the general auto market sales declines, which follow the PC market. The PC correction is now largely behind us and sales are beginning to improve in the notebooks and lower end PC segments of the market.

Slide eight details SMSC’s geographic revenue based on design win location, and Asia is a growing region. North American revenue decline more sharply in the fourth quarter of fiscal 2009, primarily due to PC maker inventory build up. The Q4 decreases in Europe and Japan were due to the falloff in automotive revenue.

We expect the revenue picture to improve in North America and Asia due to the factors we’ve discussed related to lower inventories an increased PC in consumer sales. For now we expect conditions in Europe and Japan to continue to be weak primarily because of automotive exposure.

Our largest product lines showed on slide nine is computing and connectivity, accounting for 67% of total FY’09 revenues. This group offers our best view into the state of the market due to its size and also the breadth of product offerings, which cover PCs, consumer and industrial applications. We are seeing orders return into normal patterns albeit at lower than previous revenue levels.

The clearing of inventory in the PC pipeline is obviously having a material positive impact on this business and we are now seeing new orders in the netbook and low end PC segments of the market. These orders are coming from both North American PC makers and Asian manufactures. For the current quarter, we expect revenues from this product line to grow sequentially.

Design win activity for our USB to Ethernet solutions has been strong. We were among the first to market with a solution that provides 10/100 Ethernet connectivity that interfaces to existing high speed USB SoC ports. This is proving to be a highly desirable solution for compacts systems designed with space and utility in mind such as netbooks.

We have organized our core product portfolio strengths to assist customers in the computing and consumer markets to develop higher performance, lower cost and more feature-rich products. We’ve been successful in servicing these customers due to our ability to provide system controllers and USB and Ethernet products to differentiate them.

This breadth of product is one of the reasons we’ve been successful in penetrating the netbook market, which we believe has the potential to drive 20 million units in this calendar year alone according to our forecast. These core products represent a part of our offering that has evolved over many years to meet changing market requirements. Our success depends on being extraordinarily competitive and nimble, while continuing to deliver new features.

One of the ways we are differentiating ourselves is by integrating microcontroller technology along with USB and Ethernet interfaces. We are looking forward to establishing a leadership position in SuperSpeed USB 3.0 as we have for each of the USB predecessors. We are hard at work on 3.0 and expect to deliver our first product next calendar year as the technology begins to be broadly deployed.

Let’s move to slide ten; as we said the global automotive market is still in a deep recession. The inventory gluts that started in the US was followed by Europe and Asia. Consumption of auto units is now down worldwide about 20% from calendar 2000 levels according to our estimates. We don’t expect inventory levels to improve until at least the second half of the calendar year.

As a result SMSC’s auto related revenue will remain challenged. During FY ’09 SMSC’s automotive sales accounted for approximately 16% of total revenues. Despite the market challenges automotive design activity remain strong. The car makers are positioning to win market share during this crisis by adding new features and technology.

In particular MOST 150, our fastest speed grade is seeing accelerated interest from additional car markers following the initial adopters of the technology. We are making progress in all geographies with our most technology and expect to continue to win designs with new OEMs and broader global penetration.

On the product launch front SMSC recently made an important product announcement with our first True Automotive branded high speed USB hub controller. This automotive grade product enables USB port expansion with four downstream ports allowing car markers to design compiling information systems.

It was the natural immigration for us to develop automotive product outside of MOST that leverage our expertise in USB and Ethernet. Today we are one of the very few companies that can meet the ultra low defect rates that are required by automotive industries specification.

We will continue to rollout new TrueAuto products based on our exiting commercial grade devices. We also have some exciting news to report related to design wins. With three new models, the Estima, Majesta and Lexus RX, Toyota has continued its MOST rollout in their broad portfolio of cars and Lexus RX is now the first worldwide Toyota model with MOST technology.

Slide 11 provides an update on our analog product line, which was about 10% of total SMSC FY ’09 revenue. This product line includes highly accurate and reliable thermal management solutions that are design to support leading PC architectures at advance process geometries.

We expect to see significant improvements in sales for analog product during the current quarter, particularly from notebook and netbook demand coming largely from Asia. Our capacity of sense of product rollout is on track and we are starting production this quarter with our first devices in the mobile PC arena. We will be sampling products for other vertical markets in the coming quarters.

For the current quarter we expect revenues from this product line to grow sequentially, although our portable product line with our smallest business in fiscal 2009 at approximately 4% of total sales, it is expected to be our fastest growing product line in FY ’10; portable products serve applications such as smart phones, personal navigation devices, ultra-mobile PCs and personal media players.

The vertical market for smart phones has remained a bright smart spot, admits the industry turmoil. Cell phone shipments are down year-over-year; however, SMSC’s forecast focus has been on the smart phone segment, where fast transfer of data, pictures and other multimedia content is the name of the game.

We offer the industry’s smallest footprint USB transceiver with a vast array of critical features, such as extreme ESD and over voltage protection, battery conservation and the integration of switches to reduce bill of material’s cost. This means that our customers can design more feature-rich technology into smaller devices.

Some of our most recent design wins include the HTC Touch Pro and other HTC smart phones, as well as several portable consumer products; including GPS and personal navigation devices and personal media players.

Now I’d like to hand the call over to Kris Sennesael, SMSC’s CFO, for a more detailed look at the financial performance. Kris.

Kris Sennesael

Thanks Chris and I’m pleased to be here today on my first earnings call with SMSC, since joining the company in January of 2009. As Chris stated, we are coming out of a very tough quarter due to the broad lack of demand across the semiconductor industry. We are quite optimistic that the worst is behind us now and we will talk more about that in a few minutes, but first, let’s have a look at our Q4 score card.

Total revenues in the fourth quarter of fiscal 2009 were $51.2 million, slightly above the high end of our guided revenue range, but representing a decrease of 39% sequentially and a decrease of 46% when compared to the same period in the prior year. The non-GAAP gross margin was slightly below expectations at 45.5%. The lower gross margin as compared to previous run rates is a result of lower activity based on lower revenue and additionally as a result of our aggressive inventory reduction program.

During the fourth quarter, inventories were reduced by approximately $5 million and we will continue to drive down the inventory levels in the next couple of quarters. We expect to return to gross margin levels above 50% in the second half of fiscal 2010, as revenues are expected to increase, and as our inventory reduction program approaches a level more inline with industry standards.

Non-GAAP OpEx for the fourth quarter was $38 million, a 2% sequential decrease and lower than provided in our guidance. This is mainly as a result of our discretionary spent reduction program. During the fourth quarter, we completed all of our planned cost reductions as announced in January 2009, including a reduction of almost 100 employees. The cost savings associated with these plans will result in an incremental reduction of our operating expenses of approximately $3 million during the first quarter of fiscal 2010.

The non-GAAP net loss for the fourth quarter was $11.8 million or $0.54 per share. The non-GAAP net loss included higher than expected tax expenses as a result of our year end true-up tax calculations and a reduction of tax benefits on lower income. The non-GAAP net loss excludes stock-based compensation in the amount of $5 million, amortization of required intangible assets in the amount of $1.5 million, restructuring charges in the amount of $5.2 million and a non-cash goodwill impairment charge of $52.3 million as part of our annual goodwill impairment testing.

The testing resulted in an increase in the value of our intangible assets of $26 million; however, GAAP rules does not allow us to book the increased value of the intangible assets. Including all the exceptional items the GAAP net loss for the fourth quarter was $71.6 million or $3.30 million per share.

Briefly looking at the results for fiscal 2009 on slide 14, total revenues decreased 14% from fiscal 2008 to $325.5 million, with a GAAP net loss of $49.4 million, including the previously mentioned non-cash goodwill impairment charge of $52.3 million. Non-GAAP net income for the year was $16.3 million or $0.73 million per share. Let’s advance to slide 15 for a recap of our cash flow and capital structure.

During fiscal 2009, the company was able to maintain its strong balance sheet. SMSC generated $36 million in cash flow from operations and $18 million in free cash flow. Total cash and investments were down slightly at the end of fiscal 2009, at $166.4 million or $7.65 million per share, as compare to $176.6 million at the end of the third quarter.

We are pleased to report that we continue to work down our exposure to auction rate securities, with $8.3 million redeemed at par during the fourth quarter and an additional $8 million at par already in the first quarter of fiscal 2010. Lastly, total day sales outstanding were held flat versus the third quarter of fiscal 2009 at 47 days.

Turning to slide 16, I would like to review our guidance for the first quarter of fiscal 2010. Based on our current booking trends and backlog levels, we expect revenue to be in the range of $55 million to $58 million, approximately 10% higher sequentially. As Chris stated, the PC market is beginning to recover and in addition, I would expect its revenue growth is based on the improving customer demand in notebooks, netbooks and smart phones.

We currently anticipate the non-GAAP gross margin to be approximately flat compared to the fourth quarter of fiscal 2009 as we will continue to drive down the inventory levels by $4 million to $5 million. Non-GAAP operating expenses are expected to be down 5% to 8% from the fourth quarter of fiscal 2009, as a result of the cost reduction actions that we took during the fourth quarter.

This leads to an expected loss per share in the range of $0.20 to $0.28. We also expect our cash and investment balance to be roughly flat from the fourth quarter, excluding approximately $5.2 million in non-recurring charges related to the restructuring.

In summary, I would like to say that management is committed to return the company to a healthy profit level. Revenues in the fourth quarter have not fallen as deeply as initially expected and first quarter and second quarter revenues are expected to increase sequentially. On higher revenues, gross margins are anticipated to return to levels above 50%, while holding our inventory levels inline with industry standards.

After the completion of our right sizing activities during the fourth quarter of fiscal 2009, management will continue to focus on a tight control of our cost of goods sold, operating expenses and capital expenditures. By doing this, the company is determined to get back to operational cash generation and profitability.

So, now I’ll turn the call over to the operator for the Q-and-A session.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Vernon Essi - Needham & Company.

Vernon Essi – Needham & Company

I wanted to dive in and on this presentation there was a lot of good detail here, but I wanted to just address the question on gross margin and get a little more of an understanding of the moving pieces to that.

Obviously, to some extent implying you’re going to have obviously a better revenue ramp into the back half of the year at least through the fiscal year rather and that’s another question I’ll ask, but before I get to that, what are you looking for in terms of the moving parts to improve the gross margin. It sounds like you’re going to continue the reduced inventory.

Can you give us an understanding of where you’re targeting sort of a days in inventory level relative to that, and then also any other levels in there that we should be aware of on the foundry side or however you’re going to address the cost metrics on gross margin?

Kris Sennesael

Well Vernon, first of all so, now in last quarter and this quarter and also next quarter, we are working on the inventory reduction program, which is not helping us on the gross margin, but we believe it’s the right thing to do. We have to go down to industry standard inventory levels, which are approximately in the range of four to five turns, but we see an improvement in the gross margin mainly coming from the increased revenue levels driving increased activity and improving our absorption.

Vernon Essi – Needham & Company

Okay, I mean obviously that’s the case, but are there any other elements of that that you feel, I mean in other words, design or anything you’re going to bring to market that would be a catalyst other than just better absorption on the top line; and in terms of the inventory, I mean that’s an aggressive move from here and it’s understandable. Do you foresee there being any charges to bring it down to that level?

Chris King

Vernon, first of all I think in addition to what Kris said, I think that more absorption is the main factor, but as we go through the year we will be making cost reductions and we have been working with our suppliers in on every front, in reduced pricing and that’s been very successful. In addition to that we are introducing some new products as we get to the back end of the year that will help us from a mixed standpoint.

In terms of the inventory write-down, we think that we’re going to be at normal levels for inventory write-downs. We don’t see any red flags there and to Kris’s point, one another things about our competitive inventory turns is we still do have a significant automotive business, which requires us to keep more inventory, so that we don’t shutdown any copper lines, but we definitely want to get in the competitive range that Kris mentioned.

Vernon Essi – Needham & Company

Okay and then just to switch gears on the product side; on the netbook area, obviously a very active area right now, in terms of your products that you are selling into that, can you give us an understanding of which ones are getting a stronger penetration rate relative to the others you mentioned protecting USB?

Chris King

Yes, sure Vernon. Well, first of all I think it’s pretty amazing that on this call three months ago we were just starting to talk about what netbooks are and how we saw them and now we’re like getting all these orders for components for netbooks, which is a pretty amazing turn, pretty quick.

The products that we are seeing are things like our USB to Ethernet components, our USB components and then our IO components like keyboard controllers and I think that we’re definitely seeing the most strength in Asia. Our team feels that the whole Chinese stimulus package has really helped us here, by increasing orders on the very low cost, kind of netbooks and low end PCs, but we’re also seeing a lot of activity on the North American front, including some orders for both reference designs and products.

So, I think it’s pretty amazing that this is a new thing we were just talking about, not so long ago and now we’re talking about actually revenue in the current quarter.

Vernon Essi - Needham & Company

Just to move to the HP here, the high performance products. You didn’t talk a lot about turmoil; I’m wondering if there is any activity there with typical customers and then also on the capacitive side, any thought as to what your penetration might be on the touch sensors into that target to notebook and netbook markets?

Chris King

Yes, but I’m glad you about that, because I neglected to mention on the whole low end PC phenomenon. One of the biggest areas we’re seeing driving are the temperature sensors. So, that’s one of our very high growth areas for the current quarter. So, in addition to the mid products I mentioned, we also have an increase in those temperature sensors and fan control in that low end PC area.

On the capacitive sensing front, we’re just getting into production right now. So, obviously our penetration is very low at this point in time. However, I think the number of opportunities that we’re looking at across the number of vertical segments; I think I mentioned in our first application that’s going into production this quarter is in the PC arena, notebook arena, but we’re seeing opportunities anywhere from white goods, to printers, to LCDs, to those PC applications.

So across all geography this is an area we see a lot of opportunities, but I would say our market penetration now is very low and that gives us a great opportunity.

Operator

(Operator Instructions) Your next question comes from Christopher Longiaru - Sidoti & Company.

Christopher Longiaru - Sidoti & Company

My first question is; basically can you talk about just who the customers of the netbook side are right now and just talk about what kind of content you’re seeing; you talked about maybe at $20 million unit opportunity.

Chris King

Right, so that’s our current estimate of what we think this year its opportunity is in terms of the overall opportunity. I think one of the things we have to watch, as we mentioned we are working with about 15 different customers. So they range from I would say all the Asian manufacturers and ODM’s; so a big piece there; there’s actually obliviously a couple of giants in terms of PC OEMs in Taiwan that we’re working with.

Then when we kind of shift to North America, we’re seeing reference designs from the major component makers as in both x86 Adam related products , but also non-x86, whether its from traditional graphics providers or smart phone and cell phone providers. So, hopefully that gives you some idea, without necessarily naming the exact customers working with.

I would say that the 20 million, obviously we’re not expecting everyone to be winners and we’re not believing every customer forecast, but rather we’re kind of more aligning ourselves with the 20 million kind of netbooks that we expect to be sold in total, not our sales worldwide; so I want to clear on that.

Now, there are some people, particularly in Asia, think the number’s going to be higher, but that’s where we’ve kind of put the number. I think our content varies from platform to platform. I think we would have more content in non-x86, who don’t have the peripheral gear integrated like the Intel platforms would have. We do see a difference in content there, so…

Christopher Longiaru - Sidoti & Company

What’s the range?

Chris King

I think our content kind of ranges to the $1 level to the $10 level. I think that’s a pretty wide range, but I think the platforms are just emerging and I think it will be interesting to see how the second generation netbooks kind of evolve in integrating functions and how they sugar out with that exact functions that end customers want to see.

Operator

Your next question comes from Vernon Essi

Vernon Essi - Needham & Company

Well I warned you, I’m going to ask the big question, and so what is your interpretation of how this cycle is going to play out going into the rest of your fiscal year? I mean you’re obviously implying a pretty significant improvement in gross margin, which of course leads us to the notion that revenue is going to grow materially; it looks into the back half of the fiscal. Do you want to provide any color on that or any thoughts as to how you have that visibility right now?

Chris King

Yes, I would be happy to do that Vern. One thing that really surprised me is we started seeing the inventory correction back a month ago and that really played out in a very favorable way. The thing that surprised me in the last four weeks is the fact that there has been some up tick in end customer demand, even though it’s perhaps not in traditional segments, but some new products, so I think that’s interesting.

I also think that I made very clear, we expect to see further sequential improvement above our guidance of $55 million to $58 million in the current quarter and so that’s based on our customer forecast and how we’re seeing orders fill in.

So, given that piece of information, on the other side of the equation, I would say that in order to get to the 50% gross margin levels, we’re not expecting to get to the revenue run rates that we had in the first three quarters of 2008. So, we expect the revenue run rates to be below that and let me give some color on that and let me do it kind of by our product line.

The computing and connectivity markets that is serving the PC and consumer markets overall, I see that we get to a recovery level of perhaps like 30% below our more historic levels that we saw early last year. I think the question on that is do we expect it to accelerate and return to that, but I would say given our current visibility, we don’t necessarily see that happening. So, we expect the run rates to be depressed in that business.

If we look at our automotive business, that is declined by over 50%. We’re expecting to see a little bit of improvement there, but we’re not calling an end of that depressed market overall. So, we’re not counting on the automotive market coming back significantly.

Now we look at our analog product line and our mobile portable product line. Those two areas are areas that I think as we see this year play out can be equal to the levels that we saw in 2008 and in the case of portable products provide us with some growth. So, we’re not expecting a huge up-tick in revenue run rates that are all to get to the 50% margins and we’re expecting to still be below the rates that we saw in the first three quarters of our fiscal 2009.

Vernon Essi - Needham & Company

Okay and just to go into that a little bit deeper, the past SMSC made a strategic decision somewhat to walk from the white box business on some of these parts. I’m summing this strategy you’re still kind of taking that assumption in the consideration would not be effectively going downstream per say at this point?

Chris King

I don’t think we’re going downstream, but I do think where we anticipate to play is where the branded OEMs in Taiwan; as a matter of fact I was personally in Taiwan two weeks ago, so I got a firsthand look of what’s going on there, and I also went to Japan, a little bit different picture.

I think that we do believe it’s important to be engaged with the branded OEMs in Taiwan and we also think it’s important to be engaged in these platforms in terms of netbooks and low end PCs that many of the ODMs are pursuing, because our content actually has nice margins that we like.

So we are looking at the same type of products that we’ve been selling in the past in the product portfolio that we’ve built out, without going after new product segments with depressed margin. So, that’s not our expectation at all.

Operator

There appear to be no further questions at this time. I would now like to turn the conference back over to Ms. Chris King for closing or additional comments.

Chris King

Thank you very much Courtney. I’d like to close the call today by reiterating that we are looking forward to improve sequential revenues in both our first and second quarters as PC market inventories have returned to healthy levels, and end customer demand in certain fast going segments such as smart phones and netbooks is getting stronger. In addition, we expect to achieve a breakeven operating cash flow in this current quarter.

Though we’ve had to make some tough decisions to reduce cost and ensure the health of our business, we believe we have right sized the company to the current revenue run rate. We have accomplished a lot, but we’ll continue to look for ways to optimize our cost structure and we remain committed to investing in R&D for our future success.

We’ll be out on the road a lot in the coming months with marketing road trips and our full roster of conferences. We hope to see you at one of these events. Have a great night.

Operator

That does conclude today’s program. We thank you for attending and have a great day.

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