Actions Semiconductor Co., Ltd. Q2 2009 Earnings Call Transcript

Actions Semiconductor Co., Ltd. (ACTS)

Q2 2009 Earnings Call

August 3, 2009 5:30 pm ET

Executives

Pia Christensen – The Blueshirt Group

Nan-Horng Yeh - Chief Executive Officer

Patricia Chou - Chief Financial Officer

Analysts

Adele Mao - Susquehanna Financial Group

Richard Fearon – Accretive Capital Partners

Charles Chen – Morgan Stanley

Presentation

Operator

Good afternoon and thank you for joining us on today’s Actions Semiconductor second quarter 2009 earnings conference call. (Operator Instructions) This call is being recorded today, Monday, August 3, 2009. I would now like to turn the call over to Pia Christensen.

Pia Christensen

Thank you for joining us on today's conference call to discuss Actions Semiconductor's second quarter 2009 financial results. This call is being broadcast live over the Web and can be accessed on the Investor Relations section of Actions’ Web site, www.actions-semi.com for 90 days.

On today’s call are: Nan-Horng Yeh, Chief Executive Officer; Patricia Chou, Chief Financial Officer; and Jimmy Liu, Investor Relations Manager.

After the market closed in the U.S. today, Actions issued a press release discussing the results for its second quarter ended June 30, 2009. The press release was also filed on Form 6-K with the US Securities and Exchange Commission. The press release is accessible online at the company’s Web site, as well as the SEC’s Web site, or you can call The Blueshirt Group at 415-217-7722 and we will fax or e-mail you a copy.

We would like to remind you that during the course of this conference call, Actions 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 estimates and actual events or results may differ materially. We refer you to the documents that Actions files from time to time with the SEC, specifically the company’s most recently filed Forms F-1, 20-F, and 6-Ks. These documents identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

Now I would like to turn the call over to Actions’ Chief Executive Officer, Mr. Nan-Horng Yeh.

Nan-Horng Yeh

Thank you for joining us on Actions' second quarter 2009 earnings conference call. We appreciate your continued interest and support of Actions. I will review the business highlights and then Patricia Chou, our Chief Financial Officer, will discuss the second quarter 2009 financial and forward guidance. Then we will open up the call for questions.

In the second quarter of 2009 Actions' revenue was $10.5 million and net loss was $0.8 million, or $0.01 per ADS. Gross margin for the second quarter of 2009 was 27.7% and operating margin was a negative 39.1%. Due to continued weak consumer electronic demands our business has not achieved the level of expectations we had for the first half of 2009.

Our gross margin remained under pressures largely as a result of a mixed shift of increased sales of our faster growing lower end products and advanced products, both of which are linking up before enjoying the major economy of scale. Continued ASP launchings and competitive pricing practices were also factors for our below expected quarter pricing in margins. The highly competitive environment for our sector persists as we continue to see new late comers to the market, coupled with the decreasing demand for consumer electronics.

In order to maintain our market shares, we continue to set [inaudible] and adjust our pricing as well as diversify our business by increasing penetration into new market segments. While competitive pricing affects our margins in the near term we believe this is the better approach to secure our leadership position, cost structures, and market shares.

Facing the tough business environment we have taken official measures to totally reduce our operating expenditures. Since the beginning of the year we have implemented an average 20% compensation reduction for our senior management teams and for most of our VP and department heads as well as instated a hiring freeze on all non-R&D functions, where we are currently reviewing our headcount.

As part of our staged plan for our cost reduction, we will continue to monitor business conditions and are actively considering further cost saving decisions focusing on lowering overhead. We continue to believe that the ongoing embattling of our R&D workforce is imperative to maintaining our current competitiveness and to secure long-term success for our company.

We will proceed with our plans for adding approximately 140 R&D talent in 2009 and have hired approximately 62 engineers to our Zhu Hui and Shanghai teams in the first half of this year. We are committed to establishing a world-class team and so allowing the portfolios to be better prepared for the rebound in marketing men.

The embattling of our engineers not only contributed to our [inaudible] D&B product development effort, but also to our cost of sound initiatives. In 2009 we are migrating our process technology down to .15 and .11 micros as well as optimizing design for smaller die size, decreasing the bottom cost and lower wafer and packaging outsourcing charges.

Our cost reduction initiatives are very important from a cost management perspective. They also enable us to offer our customers more competitiveness, more competitive functionality to process for them.

As a result of our commitment to continue improving our technologies and extending our product portfolio through investing in R&D, we have recently rolled out a number of new products and are encouraged by the positive feedback and increasing sales momentum for these introductions. We believe that our commitment to continue to invest in R&D is the core of Actions' values and the essential component of our effort in increasing our market shares, in both current research and new development and market.

For example, our automotive and mp4 processes [inaudible] product have been well received by our customers and as a result we saw new shipments in both of these segments increase steadily in the second quarter.

Now I would like to give a brief update on the traction of our product categories during the quarter. The gift and automotive product segment kept growing as a percentage of our business as we continue to encounter increasing demand in this market and are focusing on extending our market shares.

The transition to our recent [inaudible] in the series 3 and automotive series for the line have gone very smoothly and these products now represent approximately 20% of our total shipments.

We continue to be a leader in the administering of the P&P, serving the mono display and small color display media portals. We have strived to maintain our market share in this segment. Soon comparative pricings, new product reductions and cost reduction initiatives.

We also recently announced the deduction of a new series 2 Series 2 products with only one five-micro process technologies and better flash compatibilities which will be compatible with our mono and small color segment.

We are pleased to report a continued momentum in the mp4 market which addresses the QVDA mp4, B1 PMD, and the high definition P&P segment. The mp4 quarter unit shipment increased to 5% of our total shipments in the second quarter.

We remain on track to making the introduction of high-end products for B1 solution in the second half of this year and of our high definition quarter in 2010.

Actions' position is of market leader so this is a testament to our solid business fundamental and experienced management team. Soon [inaudible] we have kept a steadfast focus on leveraging our competence by enhancing our technologies, managing our expense to improve our margins, sustaining our competiveness, and expanding our market shares.

We view this challenging time as a transition period for Actions where we can focus on further building our teams, introducing new products, and penetrating different products with the goal of emerging as a market leader.

As part of our near-term business strategy, we are committed to executing the following actions. First, enhancing our position in the P&P market with a complete and competitive product for the full year. Second, controlling the costs through our expense reduction program. Third, investing in R&D to build up a world-class team. Four, increasing efficiency in product development with a focus on interfusion products with more cost-effective features and addressing the faster growing segments. Fifth, preserving our balance sheet and strong cash positions. And six, repurchasing shares to increase the shareholders' values.

Although we are facing a very tough business environment, we still believe that the P&P market holds a number of opportunities for us. While a market recovery is not imminent, we are encouraged that by the reason that the [inaudible] new market segment if we will let our business model [inaudible] to leveraging our first related launches, are effectively enabling us to become a leader in P&P market in the long term.

With our growing engineering teams, a series of new cost-[inaudible] mps, target marketing strategy, and competent management team, I continue to be confident in our ability to execute these actions as we walk toward our long-term goals.

In the meantime, I would like to turn the call over to Patricia Chou, our CFO, to discuss the details of our financial results.

Patricia Chou

I will review the second quarter financials in detail and then discuss our forward guidance for third quarter 2009. After that we will open the call for Q&A.

As a reminder, our financials are reported in accordance with U.S. GAAP. For the second quarter ended June 30, 2009, we recorded $10.5 million in revenue. Our gross margin for the second quarter was 27.7% compared to 33.6% for the first quarter of 2009.

Our gross margins in the second quarter were primarily impacted by a sales mix shift as a result of the renting demand for our products, targeting both a faster growing lower end and an event in market segments where we have not enjoyed the economy of scale. Continued ASP erosion and a competitive pricing also remanufacturers came the decline of our margin.

For our second quarter, total stock-based compensation expense amounted to $1.1 million, up slightly from $1.0 million in the first quarter of 2009.

R&D expense was $5.0 million, or 47.1% of revenue for the second quarter as compared to $4.7 million, or 38.5% of revenue, in the first quarter of 2009.

As we have discussed previously, we expect R&D expense to remain at higher levels as a percentage of revenue as we invest in our next-generation product development initiative. While we will cut discretionary spending in other areas, we view continued investment in R&D as critical to our long-term success.

As a reminder, we announced that the pay cuts for the senior management at the beginning of the year, followed by another up to 20% in pay cuts for the manager level in the second quarter. We have been conducting constant subsequent expense reviews company-wide as part of our ongoing efforts to control costs.

G&A expense was $1.8 million in the second quarter or 15%[?] of revenue as compared to $2.4 million, or 19.4% of revenue in the first quarter of 2009. Sales and marketing expense was $20.0 million in the second quarter, or 2.8% of revenue, compared with $0.3 million, or 2.4% of revenue, in the first quarter of 2009.

Operating loss was $4.1 million for the second quarter compared to operating loss of $3.0 million for the first quarter of 2009. Through our persistent commencement of cost down initiative we are actively working to reduce our product costs, particularly in light of the challenging operating environment. We continue to tightly manage our operating expenses while maintain our focus on investing in our technology to best position the company for a return to [inaudible]. We expect to begin to see a strong benefit for our cost down activities in the second half of 2009.

Net other income of $0.2 million was recorded in the second quarter, mainly related to a foreign exchange gain in our position of new Taiwan dollars. This compared to other expense of $0.9 million for the first quarter of 2009 related to a foreign exchange loss.

Interest income was $3.1 million for the second quarter, up from $2.9 million in the first quarter of 2009, which was the continued benefits related to our high cash position and our efficient financial management.

Loss before taxes was $0.9 million for the second quarter as compared to a loss of $1.0 million in the first quarter of 2009.

Net income tax credit was $0.2 million for the second quarter compared to income tax expenses of $0.4 million in the first quarter of 2009. The net income tax credit in the second quarter resulted from a preferential tax treatment carried forward from 2008 but realized in April 2009, which entitled certified hi-tech companies to deduct qualified R&D expenses by 150% before taxable income.

Net loss on a U.S. GAAP basis for the second quarter was $0.8 million, or $0.01 per diluted ADS, compared to a net loss of $1.5 million, or $0.02 per diluted ADS for the first quarter of 2009.

Our financial results continue to be impacted by lower demand levels in the consumer electronic segment during this prolonged downturn. We are committed to executing a strategy to return to long-term growth.

As a reminder, included in the calculation for net loss for the quarter were non-cash, stock-based compensation expenses of $1.1 million and non-cash depreciation and amortization expenses of $1.3 million, or in total $0.03 per ADS for the second quarter of 2009.

Moving to the balance sheet, cash and cash equivalents together with time deposits, trading securities, and both current and non-current marketable securities, totaled $259.4 million as of June 30, 2009, compared to $261.8 million at the end of the first quarter. The slightly lower cash balance as of June 30, 2009, resulted from the increase of a $2.2 million in our [inaudible] construction and the $2.9 million short-term loan payback.

Of the $259.4 million total, $76.3 million was in cash, time deposits, and short-term, interest-bearing investments that are generally issued by large domestic banks in the greater China area for terms no longer than 3 months and then can be redeemed at any time.

$159.3 million was in marketable securities that were principally guaranteed investments with higher interest rates and 3 to 12 month terms, mainly issued by the top-flight, state-owned banks in China.

We also booked $23.8 million into financial products with terms of 1 to 2 years that generate higher yields while maintaining the same low-risk profile as our non-current marketable securities.

We continue to believe that our solid balance sheets and a strong cash position sets Actions apart from its peers and will enhance our ability to withstand the slowdown in the P&P markets and a challenging upgrading environment globally.

Accounts receivable and notes receivable were $4.1 million at the end of the second quarter, down slightly from $4.3 million at the end of the first quarter.

Inventories were $6.3 million at the end of the second quarter, down $0.4 million from the prior quarter. We were pleased to see that our stringent inventory control enabled us to further decrease inventory levels in the second quarter from already low levels in the prior quarters.

In the second half of the year we do anticipate the inventories to increase incrementally as we prepare for the historically peak season and adjust our inventories to support the rent in our new cost down series 3 and the series 2 product lines.

Through this sales product introduction we will continue to strategically manage inventory levels.

We continue to buy back shares, spending approximately $0.8 million on the share repurchase program during the second quarter. At the end of the second quarter of 2009, the company had invested approximately a total of $22.4 million in the program, representing over 9.3 million ADS shares.

Under the current program, we may repurchase up to another 10.7 million ADS shares through December 31, 2010.

Recently, we made a decision to decrease our ownership space in our subsidiary, Actions Beijing, to approximately 35% from 80%, by limiting our participation in their additional round of funding to $1.5 million provided that this additional $7.5 million run completes as planned in the third quarter.

Actions Beijing has primarily focused on the design of IPs for the additional photo friend markets. We made this decision because Actions Beijing has been operating at a loss since its conception and its market demand of official photo friend is highly unpredictable under the current economic downturn.

We believe that decreasing our stake in the subsidiary will help in Actions comp and net income.

Beginning in the third quarter our financial results will no longer include the revenue, cost of the sales, and operating expenses from Actions Beijing as a subsidiary and the shareholding will be reflecting as an operating method investment.

For information purposes, in the second quarter of 2009, Actions Beijing reported $1.3 million in revenue, $4.9 million in cost of sales, and $0.06 million in operating expenses.

Next I would like to comment on our view looking forward. In the near term, as a result of the continuously challenging operating environment, we are finding it difficult to accurately forecast future results. While the second quarter is typically our seasonal bottom, we do not necessarily expect a significant improvement in our business during the third quarter, given the ongoing volatile market dynamics.

After the ramp up of our cost down version in the low end and advanced product lines, we expect economy of scale to help offset the ASP [inaudible] and to gradually improve our gross margin in the second half of 2009.

As such, we currently expect that third quarter 2009 revenue, excluding Actions Beijing's contribution, will be in a range of $11.0 million to $13.0 million, gross margin of 25% to 30%, and operating expenses trending slightly higher on a sequential basis.

Due to a global interest rate decline since the financial crisis, we made [inaudible] in significantly lower interest yields in the third quarter. The third quarter estimates include the share-based compensation expense of approximately $0.9 million to $1.0 million.

And now we will open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Adele Mao - Susquehanna Financial Group.

Adele Mao - Susquehanna Financial Group

I am trying to understand a little bit more in terms of why revenue ramp ups in low end and advanced segments have led to lower gross margins. You mentioned that these are the segments that you have not achieved scale economy. Maybe you can go over the volume mix again on your low end, mid-tier, and advanced segments, and discuss their respective gross margins at present.

Patricia Chou

Sure. Great question, Adele. For the low end, such as the automotive, get to the near and [inaudible] devices, in the second quarter the shipment volume from this category accounted for around 20% of our total shipments.

And if we move forward a little bit to including the mono display, which is also part of the low end P&P, that total shipment volume would be around 50%. So you can tell, the fastest growing low end shipment accounts for a bigger and bigger slice of the total P&P marketing mend.

And ASP for this category are relatively low comparing with the mentoring and the high-end mp4 product.

Adele Mao - Susquehanna Financial Group

So what is the gross margin for low end automotive products at present?

Patricia Chou

Currently we would say it's around a little bit below our average gross margin. However, after our continual cost down for this product segment, we believe we can increase the gross margin for even these low end products, gradually. In fact, our new product lines of series 2 and series 3 are mainly addressing these fast-growing segments.

So that's why we believe that the gross margin in the second half of this year will gradually increase a little bit.

Adele Mao - Susquehanna Financial Group

So, when you mentioned that you would like to reach scale economy from the low end and the advanced segment, improve your gross margin in the second half, are we talking about towards 30% or 30% to 35%, as you have guided in the past quarter?

Patricia Chou

We are not so sure how fast that we can return to the previous 30% or above but we are confident that we will enjoy the benefits of the cost down after the ramp up of series 2 and series 3 in the second half.

Currently we are very close to 30% so it depends on how soon we can really reach the economy of scale.

Adele Mao - Susquehanna Financial Group

I think over the past several quarters you have mentioned that aggressive pricing or just to squeeze out some smaller competitors. Now that we have seen the ASP coming down pretty significantly, how would you characterize the current competitive landscape? Have any smaller competitors exited, or whether you're seeing more pricing war down the road.

Patricia Chou

Very good question, again. In fact, after the financial crisis, the competition landscape has been changing. It's really dynamic. There are quite a few new late comers in the low end because the entrance barrier in the low end is relatively low compared to the high end. That's why the price has been reduced significantly in the low end.

But we believe after our dynamic and the aggressive pricing strategy we will be able to sustain or improve our market share in the low end.

Adele Mao - Susquehanna Financial Group

Could you update us with your total headcount for the quarter and your R&D headcount and what is your goal by the end of 2009.

Patricia Chou

Headcount. We are still recruiting, as we planned, for this year. Our business plan allows us to increase around 114 people, mainly for the engineering field. And up to the second quarter, we increased around 62 people.

And in total we had approximately 700 employees in all of our sites. And around 2/3 to 70% of our total workforce is for R&D function.

Adele Mao - Susquehanna Financial Group

In terms of G&A, it was down pretty meaningfully, quarter-over-quarter. Besides the 20% pay cut that you mentioned, which I thought that was already reflected in the first quarter, is there anything else in terms of headcount reduction in G&A, or if there is anything else that is one-time, that contributed to the decline?

Patricia Chou

Very good question again. Indeed, we had a one-time G&A expense reduction in the second quarter.

Adele Mao - Susquehanna Financial Group

And that was primarily from what?

Patricia Chou

That was a big refund from one of our vendors.

Adele Mao - Susquehanna Financial Group

Refund from one of your vendors? Could you quantify that amount?

Patricia Chou

That's around $400,000 to $0.05 million which is a big refund for the whole year, not just for one quarter but since it's one-time credit we simply put it in the second quarter.

Operator

Your next question comes from Richard Fearon – Accretive Capital Partners.

Richard Fearon – Accretive Capital Partners

Nice job controlling expenses this quarter. It sounds like there may have been a one-time expense reduction but did you also say that you further reduced the executive compensation by 20% or was that the 20% that you implemented in the first quarter?

Patricia Chou

For a drastic level, we had one pay cut established in January this year. Then it continued.

Richard Fearon – Accretive Capital Partners

And have you also reduced the pay of the R&D level employees?

Patricia Chou

No, we had pay cuts starting in second quarter for all of the VP and divisional heads.

Richard Fearon – Accretive Capital Partners

So there is an additional pay cut that's reflected in the second quarter and we won't see any further cuts. In fact, we'll see some increases in headcount in the third quarter.

Patricia Chou

We will continue to increase our headcount but mainly in R&D function. Other than that, we do not expect to increase any non-R&D headcount. In fact, as Nan mentioned in his script, we already are in the mode of a hiring freeze. For non-R&D functions.

Richard Fearon – Accretive Capital Partners

Okay. So except for the one-time expense reduction that really goes away in the third quarter, SG&A should remain fairly flat for the third quarter.

Patricia Chou

Yes. The one-time reduction, including the second quarter, which will not occur in the third quarter again, but rather than that our operating expenses should increase a little bit following the increase of the headcount.

Richard Fearon – Accretive Capital Partners

Can you just comment a little further on the ASP erosion? Can you quantify that? How much were ASPs down?

Patricia Chou

In the second quarter the ASP went down around 10%, which is not too significant comparing with the first quarter. But in the third quarter we expect the ASP would further go down because of our product mix, which goes more toward to the lower end with the lower price.

However, please don't take me wrong. I'm not saying we will further push the price war. But just naturally because of the shift, the shift of the product mix to the lower end, the ASP will go down.

Richard Fearon – Accretive Capital Partners

I don't fully understand why you would want to enter into any price wars in the first place if there are very low barriers to entry and others can enter this market as soon as you want to start raising ASPs. It sounds like the theory is if you run some folks out of business with this price war that you gain market share. But as soon as you try to increase ASPs, competitors are going to jump right back in, aren't they?

Patricia Chou

Our goal is not to initiate the price war. We will try to keep our pricing strategy dynamic and aggressive to sustain our market leader position. However, we also try to sustain a reasonable profitability.

Richard Fearon – Accretive Capital Partners

And what do you estimate your market share could be in the various segments that you consider your markets?

Patricia Chou

Our operating expense in average is about $7.0 million to $8.0 million per quarter. And the market share, if we try to be break-even, I would say around 35% to 40%.

Richard Fearon – Accretive Capital Partners

I'm not sure I understand. You need to maintain a 35% to 40% share of the market, you're estimating, to break even?

Patricia Chou

That's correct.

Richard Fearon – Accretive Capital Partners

And where do you estimate you are right now?

Patricia Chou

In different segments, doing the mentoring and low end, we are still having 40% or above market shares. In the advanced and the import segments, we are chasing some segments up to 13% to 14%.

Richard Fearon – Accretive Capital Partners

And the mp4 segment is much higher margin business I take it.

Patricia Chou

Yes and no. After we comp down and enjoy the economy effect of scale, the gross margin on the high end, in theory, will be higher. But at this moment, we are not in that situation yet.

Richard Fearon – Accretive Capital Partners

And are the barriers to entry higher at the higher end market? I mean, presumably they are. And if you maintain that market share or grow it, are you fairly well protected?

Patricia Chou

Yes. The entry barrier, the technological entry barrier in the high end, is much higher than the low end. That's why we have been experiencing a much more severe competition in the low end because the technological entry barrier in the low end is relatively low.

Richard Fearon – Accretive Capital Partners

And I think you had mentioned that the cash in marketable securities, cash equivalents, around $259.0 million right now.

Patricia Chou

That's correct.

Richard Fearon – Accretive Capital Partners

And the total diluted shares outstanding at this point, is it 77.0 million?

Patricia Chou

Yes, that's about right. 86.0 million shares minus 9.3 million or 9.4 million shares, which we have bought back.

Richard Fearon – Accretive Capital Partners

That's roughly $3.37 per share of cash and marketable securities.

Patricia Chou

That's correct.

Richard Fearon – Accretive Capital Partners

And how many share were repurchased during the quarter? I didn't hear the number.

Patricia Chou

In this quarter?

Richard Fearon – Accretive Capital Partners

Yes.

Patricia Chou

Or up to the end of the second quarter?

Richard Fearon – Accretive Capital Partners

I know that in the first quarter you were a little more aggressive. I didn't hear how many shares were purchased this quarter.

Patricia Chou

This quarter we spent $0.8 million for buybacks and in the second quarter we bought less than 0.5 million shares of ADS.

Richard Fearon – Accretive Capital Partners

So the first quarter you repurchased roughly $5.5 million of shares and then this quarter you only repurchased $800,000?

Patricia Chou

That's correct. It's not because that we've slowed down our repurchase program but we were subject to a lot of limitations, especially the amount of liquidity currency. The trading volume of our stocks every day have been in a very low level. That's why we could not have bought any more.

Richard Fearon – Accretive Capital Partners

I will get off the call for the moment after this comment but I think it would make a lot of sense, it seems, to consider other ways of repurchasing shares, such as a tender offer.

And there are obviously different mechanisms for going about that, Dutch tender offers and the such, to repurchase shares in a much more aggressive way, and at $2.50 call it or $2.25 or wherever it will be tomorrow, and a $3.27 per share of liquid stock, which is marketable securities in cash, it would seem to me the very best investment the company could make.

And it sounds like you were trying to repurchase shares in the second quarter but not terribly successful when the stock price was obviously much lower.

You know, as people discover this stock and if the markets start correcting themselves and people start embracing more risks, this stock is very likely to run back above that $3.30 per share level.

So it seems to me there is an extraordinary opportunity here and perhaps the company might consider putting some of this cash towards a more aggressive tender offer of shares.

Patricia Chou

Thanks for our suggestion. We will definitely consider it.

Operator

Your next question comes from Charles Chen – Morgan Stanley.

Charles Chen – Morgan Stanley

My question is regarding the management, because managers got appointed to chairman of Realtek. So what does it mean for his responsibility at Actions Semiconductor for short and long term? And is there any compensation plan for long term? Can you give us some guidance about arrangement role?

Nan-Horng Yeh

I think what is sometimes both somebody were long and [inaudible]. However, you know that Realtek is a very powerful player in this industry, this business. And it has numerous [inaudible] inside the company. And so I immediately wish that those company can help visualize in the long term. Especially Realtek is a very powerful in connectivity. In nail working and wi-fi it's rich, in all those products, and it's brother is stepping into mono media. So they have mp portal and TV business right now. And actually it's a very powerful multi-media—you know, I think it's one of the biggest mono media players in the whole world. You know, we have only 400 engineers working for multi-medias. So I think [inaudible], first company we are closed licensed, joint partners, can help each other in the long run.

However, I still need to stay alive in the short term, you know. Those companies were a lot independently and they have the whole [inaudible]. Power and power.

Operator

Your next question is a follow-up from Richard Fearon – Accretive Capital Partners.

Richard Fearon – Accretive Capital Partners

Nan, could you just expand a little bit on what you were saying with Realtek and Actions working together more closely. Are you contemplating putting the two businesses together?

Nan-Horng Yeh

Can you repeat that?

Richard Fearon – Accretive Capital Partners

The question is, you were talking about Realtek and the way Realtek and Actions might work together. Are you contemplating a merger or an acquisition at some point?

Nan-Horng Yeh

No. No. We are not considering any mergers or any, you know, heavy acquisitions between the two companies. However, as I mentioned, those company has a powerful IP and core [inaudible]. I wish they are helping each other on the technology and joint projects or collaborate in the market.

Richard Fearon – Accretive Capital Partners

So you think there are some benefits to allowing one to work with the other ones products and vice versa and perhaps leveraging off of the distribution channels?

Nan-Horng Yeh

Yes. And you know what, playing the short terms.

Richard Fearon – Accretive Capital Partners

And Patricia had talked about Actions Beijing. It sounds like we've gone down to minority position in that company and it's been a drain on Actions Semiconductor anyway so it sounds like it makes some sense. Who are the other owners of that business that put in—did you mention it was $7.5 million or that $7.5 million would eventually come into the company from outside investors?

Patricia Chou

Right. The $7.5 million investment will come from new investors and also the [inaudible]. And after the completion of this $7.5 million additional investment, we will still sustain the major shareholder position.

Operator

I will now turn the call back to management for any closing comments.

Nan-Horng Yeh

Thanks again for joining us on today's earnings call. We appreciate your interest in and continued support of Actions. We look forward to providing updates on our business during the next conference call. Thank you.

Operator

This concludes today’s conference call.

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