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Volterra Semiconductor Corporation (NASDAQ:VLTR)

Q4 2009 Earnings Call

January 25, 2009 5:30 pm ET

Executives

Mike Burns - Chief Financial Officer

Jeff Staszak - President & Chief Executive Officer

Analysts

Alex Gauna - JMP Securities

Joanne Feeney - FTN Equity

Nicholas Aberle - Caris & Company

Suji De Silva - Kaufman Bros

Anthony Stoss - Craig Hallum

Vernon Essi - Needham & Co

Ramesh Misra - Brigantine Advisors

Christopher Longiaru - Sidoti and Co.

Shawn Simmons - Oppenheimer

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Volterra fourth quarter earnings conference call. During today’s presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for question. (Operator Instructions) This conference is being recorded today Monday, January 25, 2010.

At this time I would like to turn the conference over to Mike Burns, Chief Financial Officer. Please go ahead sir.

Mike Burns

Thanks and welcome everyone to Volterra’s fourth quarter 2009 conference call. Joining me today is Volterra President and CEO, Jeff Staszak. We issued a press release today with our financial results, which is available on the Investor section of our website at www.volterra.com.

On this call, we’re going to discuss certain non-GAAP financial measures which exclude the effect of stock based compensation expense net of tax. We’ve provided a GAAP to non-GAAP reconciliation that’s also available on the Investor section of our website. Unless we specifically state otherwise, our guidance refers to non-GAAP. Our comments will include forward-looking statements that are based on the company’s current views and expectations that are subject to several risks and uncertainties.

Please refer to today’s press release, our Annual Report 10-K filed with the SEC on March 4, 2009 and our most recent 10-Q filed with the SEC on November 4 for specific risk factors that may cause actual results to differ materially from the forward-looking statements. Volterra undertakes no obligation to update or to revise the forward-looking statements.

With that I’ll turn the call over to Jeff to provide an overview of the business and our results.

Jeff Staszak

Thanks Mike. Good afternoon and thanks for joining us today. First I’ll provide a short recap of the Q4 ‘09 financials. I’ll then give an update on our four focused markets, and following this I’ll talk about Q1 2010 and provide guidance for the quarter. Finally I’ll hand it over to Mike to review the details of our financial performance for the quarter and 2009, and then we will open it up for any additional questions you may have.

In Q4 ‘09, revenue came in above the high end of our guidance at $34.2 million, versus $21.9 million in Q4 ‘08, and $29.7 million in Q3 ‘09. 2009 annual revenue came in at a record $104.9 million, exceeding 2008 annual revenue of $104.2 million. As a result, Volterra had its ninth consecutive year of revenue growth and sixth consecutive year of profitability, of which everyone at Volterra is very proud of.

Non-GAAP EPS was $0.34, versus $0.09 in Q4 ‘08 and $0.19 in Q3 ‘09. Non-GAAP gross margins were up from 59.7% in Q3, to 63.4% in Q4. Margins continued to improve due to product mix, heavy emphasis on companywide yield improvement activities, low scrap rates and cost reductions with all suppliers.

I would like to thank our margin improvement team that we formed about 18 months ago which consists of members from our finance, operations, and manufacturing engineering groups for doing a truly outstanding job of exceeding our target goal of 60 points in a shorter timeframe than we expected.

As I mentioned on our last call, we expected fourth quarter growth with new product cycles and customer launches continuing in our server and storage market. Growth was even stronger than we expected, mainly due to the demand from our two largest server customers, IBM and HP.

In addition to our server and storage business, we also had unexpected upside from Cisco and Juniper Networks in our fourth quarter as their business recovered. Our communications business surprised us to the upside as it came in stronger than original forecasts.

Overall, 2009 turned out to be a phenomenal year with this record setting quarter for Volterra. The current macroeconomic situation continues to improve, and is having a positive impact on our business while our long term growth and profitability prospects remain very strong.

We continue to stick to our proven strategy of gaining market share by adding new customers and further penetrating our existing base of customers as new products and platforms are launched within our four target markets. Now we would like to elaborate and add some color on these four focused markets by reviewing with you both our current and future business opportunities.

Server and storage revenue was up 33% from Q3 ‘09 mainly due to the continuation of the Intel Thurley server platform ramp as well as new AMD Opteron refresh ramp using a six core CPU at HP, referred to as Gen 6, which was announced at our last earnings call. These new Intel servers at our top server customers IBM and HP and the AMD servers at HP have been very well received based on the demand they are seeing.

Both new Intel and AMD server platforms have increased total system efficiency and provide higher density over previous models. As a result, their customers are upgrading datacenters to take advantage of the performance and energy cost savings which provides a quick payback which in some cases is less than one year.

I would also like to announce that in Q4, Dell began shipping a two processor, one in using Volterra products to power the processors memory and other voltage regulator functions. This first large win at Dell was the other reason we saw 33% growth quarter-to-quarter.

As a result of this win at Dell, we can now say we are shipping volume to the five top server OEMs, IBM, HP, Dell, Fujitsu Technology Solutions, and Sun, which represents 80% of the total market. The first quarter revenue for servers is normally a down quarter when compared to the fourth quarter.

However, we expect to see moderate growth as our customers continue to benefit from the most recent upgrade cycle and better IT spend with the improving economy. Our notebook revenue was down about 10% in Q4 from Q3, as our customers reduced builds of the ordered Montevina platform to manage the transition and launch of their new Intel Calpella notebooks taking place in Q1.

At the end of 2008 we introduced our third generation of notebook products to both OEMs and ODMs for use on this new generation of Intel notebooks. As a result of our significant improvement in cost performance with these new products, we’ve seen even stronger acceptance at existing customers as compared with previous generations and helped us bring on new customers.

Our new fine a load and V core voltage regulators provided these customers increased battery life, component reduction and space savings through our integrated power solutions. We are please to announce that in Q4, we added the number one notebook manufacturer, HP, to our existing list of customers Dell, Lenovo, Fujitsu and Sony.

HP launched a very high performance notebook utilizing Intel’s Clarksfield processor; the model called the NV15 which is very sleek and a low profile notebook. We’re very excited about our notebook growth opportunities in 2010 as our integrated solution gains momentum at both OEMs and ODMs with the launch of the new Intel Calpella platforms.

We expect to see strong revenue growth in both Q1 and Q2, 2010, as these customers begin to aggressively promote their higher volume Calpella based models using Intel’s new AMD processor. To see healthy growth in Q1 for notebooks is contrary to what is normally a slow quarter and is a direct result of our market share gains with design wins in over 20 Calpella models.

You can anticipate further customer and product announcements during our second quarter earnings call, once our customers have officially launched their Calpella platforms. Our communications revenue was up 26% in Q4 from Q3. We are now participating in both high end metropolitan class equipment and higher volume enterprise classes of equipment at both Cisco and Juniper networks.

Some of the growth in higher demand this quarter is a result of our enterprise design wins during the first half of last year, as well as a return to higher IT spending in the industry. In Q1 2010, we expect our revenue to be slightly up from Q4 as this market continues to recover. Our graphics revenue was down 33% in Q4, from Q3, as the channel pipeline began to fill which has been the pattern for discrete graphics card launches.

Our Gen 5 products were very well accepted in graphics market as the power delivery requirements continue to become more demanding with the launch of the 40 nanometer cards in Q3 2009. We had design wins with our customers on various platforms which included higher volume, low performance and main stream programs in addition to the high end performance and enthusiast cards like we have participated in the past.

We expect graphics revenues in Q1 to again be slightly down until the launch of new cards anticipated sometime in the spring or early summer timeframe take place. Design activities are in full swing for all of our market segments and we expect to continue gaining market share with our new generation of products. These additional wins will provide more growth in the second half of 2010 and 2011.

Guidance, finally, I’d like to talk about the business outlook for Q1, 2010. We are anticipating Q1 revenue to be in the range of $33 million to $36 million for the company. Non-GAAP EPS will be in the range from $0.23 to $0.29. We expect our non-GAAP gross margins to be in the 60% range.

At this point, I’ll turn the call over to our CFO, Mike Burns, for a closer review of the financials.

Mike Burns

Thanks, Jeff. We grew fourth quarter revenue 15% sequentially and 56% year-on-year, to a record $34.2 million. The revenue from our four market segments was as follows. Server and storage contributed 71%. Networking and communications contributed 10%, portable and consumer contributed 8% and desktop and workstation contributed 11%.

We expanded fourth quarter non-GAAP gross margin to a record 63.4%. This was better than originally expected primarily due to favorable product mix, higher production volume and improved yields as well as the relatively minor 0.5% positive impact from the sale of products previously considered excess inventory

This strong end to the year brings our 2009 full year non-GAAP gross margin to 60.1%, up 3.3% from the prior year. 2009 gross margin benefited approximately 1.7% in total from the sale of previously reserved products. We increased quarterly R&D expense $0.5 million sequentially for increased product development costs as expected.

For the year, despite the economic downturn, we maintained our R&D investment of $24 million, while increasing our output of innovative new products. We grew quarterly SG&A expense which is now presented excluding litigation, 4% sequentially to $5 million.

For the year, we grew SG&A expense 4% to $17.4 million, primarily due to increases in our global sales force. We’re now presenting litigation expense as a separate line item from SG&A in order to help facilitate understanding of spending trends for the year. We’ve previously disclosed litigation expense on our earnings calls and we have now provided a summary of prior quarter spending on our website.

Just as a reminder, the historical quarterly breakout for litigation expense was $332,000 in the fourth quarter of 2008, $650,000 in Q1, 2009, $1,256,000 in Q2, 2009 and $1,688,000 in Q3, 2009. Litigation expense for the fourth quarter of 2009 was down slightly at $1,631,000, or the equivalent of approximately $0.06 per share.

As a reminder, Volterra filed a lawsuit against Infineon/Primarion in November 2008. Claiming among other things that Infineon/Primarion PX4640 and PX4650 integrated power products infringed certain Volterra patents. Based on our progress and initial indications from the court in 2009, we continue to believe in the strong likelihood of success in our case against Infineon/Primarion and we continue to expect the case to go to trial this year.

In response to the lawsuit, Infineon has publicly announced certain legal tactics such as counterclaims, patent re-exams and just last week, a patent infringement lawsuit. Based on our initial review, we believe none of Infineon claims have any merit. Our tax provision was negative this quarter due to a non-recurring benefit from a recent change in U.S. tax law regarding net operating loss carry backs.

The bottom line in the quarter is that we expanded our GAAP net income sequentially which includes $1.5 million of stock based compensation expense, to $7 million, or $0.30 per share basic and $0.28 per share on a diluted basis. On a non-GAAP basis, we expanded our net margins sequentially to 25%, increased our non-GAAP net income to $8.4 million, and earned a record $0.34 per share diluted.

Without the $1.6 million litigation expense, non-GAAP net income would have been approximately $0.40 per share. This information is available on our website. During the quarter, we used $2.4 million in cash, to repurchase 171,000 shares at an average price of $13.92 per share. $2.6million remains under our current buyback authorization. A few other cash flow related items to note for the quarter.

Our cash inflow from stock option exercises was $2.2 million. Depreciation expense was $428,000 and capital expenditures were $386,000. All areas of the balance sheet are healthy. We ended the year with $74 million in cash and investments, 74 days inventory, 42 days receivable and no debt. Looking back at 2009 as a whole, Volterra executed very well.

On an annual basis, despite a very sharp industry downturn, we ended up growing our server and storage business, our notebook business, and our total company revenue. We expanded gross margin to the top of our long term model. We increased our output of new products while keeping R&D spending relatively flat. We grew SG&A moderately to make select hires.

We spent $5.2 million to make significant progress in litigation that protects our intellectual property and our core business. We increased cash $16.4 million used $7.5 million to repurchase shares at an average price of $9.10. We earned non-GAAP net income of $16.3 million, or $0.67 per share. Excluding the litigation expense, non-GAAP earnings would have been approximately $0.88 per share.

Thanks to the strong contributions from our 205 employees, we continue to create and protect ongoing value for our customers and our shareholders. Looking forward to the first quarter of 2010, despite Q1 typically being down sequentially for the industry, we’re planning for the quarterly ref revenue of $33 million to $36 million. The midpoint of this range would be up 89% from an unusually low first quarter a year ago and up 1% from the fourth quarter.

We expect non-GAAP gross margins to return to the approximately 60% range, primarily due to more normal production levels and lower inventory reserve benefit. The plan to increase spending in the first quarter, primarily for additional hiring and wage related expense. We expect interest income to remain low and we expect our tax expense to return to the approximately 50% range.

If we achieve our goals on revenue, margins and spending, we would expect to earn non-GAAP EPS of $0.23 to $0.29. We also want to provide a little more detail on expected litigation expense going forward. For 2010, we suggest modeling the litigation expense as a separate line item, of $1.9 million in Q1, $2 million in Q2, $2 million in Q3, and $1.3 million in Q4.

Litigation expense is inherently very difficult to predict and it’s subject to a high degree of variability based on the timing of events. We will provide an update on these quarterly as matters progress. We plan to next update our financial results and guidance at our first quarter conference call which is tentatively scheduled for Monday, April 26, 2010. We’ll put out a press release to formally announce and schedule the call when we get closer to that date.

During the quarter, we plan to participate in a number of Investor Relations events. On February 9, I’ll be presenting at the Thomas Weisel technology conference in San Francisco, on February 18 and 19 I’ll be marketing in Boston in the Mid-Atlantic with Collins Stewart.

Jeff is scheduled to be in Kansas City, Denver and Texas on February 23 and 24 with Caris & Company. In the 2 and 3 of March to be marketing in the Midwest with JMP Securities. The following week, I’ll be in New York presenting at the Jeffries conference March 9 and the Wedbush conference March 10.

Jeff will be in Southern California for the Roth Capital conference March 16. In addition to be the evidence we’ll continue our bimonthly virtual visit programs. We hold virtual visit 101 session investors who are either new to Volterra or who have not had contact with us in the past 12 to 18 months and we hold a virtual visit 201 sessions for investors that are more familiar with Volterra, but want to get caught up on more current topics and industry issues.

Please contact Heidi Flannery, Investor Relations, at 510-743-1718, if you would like to participate in any of these events. That’s it for our prepared remarks. Before we begin the Q-and-A in the interest of time we ask that each analyst please limit themselves to two questions. If time allows at the end we’ll go back to anyone that may have a follow up question.

With that we’ll now turn the call over to questions

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Alex Gauna - JMP Securities.

Alex Gauna - JMP Securities

I was wondering within that range of $33 to $36 million in guidance, is there any particular swing issue where there’s less visibility? I would assume networking and servers offer some relatively better visibility. Is that accurate or can you clarify on that?

Mike Burns

Alex this is Mike. Yes, you’re right, networking and server business tend to have and this quarter do have better visibility for us. Customers have been very good about getting their orders in plenty of time so that’s true the graphics space tends to be the less visibility there. So that’s right.

Alex Gauna - JMP Securities

Then if I could ask, you mentioned more than 20 new platforms that you’re in but with the spring refresh as new products come out you’ll be able to tell us more. Is that mean go beyond the 20 wins or you‘ll be able to give us more color within the framework of the 20 platforms that you’re in?

Mike Burns

We’ll be able to give more color. I think some of the platforms we’ll launch during the quarter. Typically we give a little bit of detail there. We don’t list every platform. We’ll give you some color there and there maybe more details forthcoming there.

Jeff Staszak

We should be able to talk about there will be more than 20 platforms with refresh. This is kind of out of the gate and like I mentioned when I was talking, we should see some we’ll talk about additional customers at the next earnings call, in addition to the five that we currently have, as well as new models that are being launched.

Operator

Your next question comes from Joanne Feeney - FTN Equity.

Joanne Feeney - FTN Equity

So if we could go into perhaps a bit more detail on the server side, congratulations on the new wins. How do you see the balance of the ramp if you could between the Thurley and when do you expect to see new drivers from the newer AMD server chips coming out this quarter or next?

Jeff Staszak

We said we would see some growth this quarter and it’s a result of that 12 core processor coming out, and also Intel is coming out with the some of their new processors, the 32 nanometer processors and that we’ve gained some market share at HP on some of their platforms there. So, both categories will see some growth this quarter and next.

Joanne Feeney - FTN Equity

Then if I could, as a second question, perhaps you could lighten us to what you know about the general state of the PC and server markets regarding inventory. We’re hearing that there maybe inventory build up and there maybe a pause. Are you seeing any indication of that from your order patterns?

Jeff Staszak

Not so far. Customers pushing us for pull-ins and pulling in dates, so we’re still I wouldn’t say last quarter, Q4 was kind of a heavy catch up and we’re still in that mode but we’re gaining some ground.

Joanne Feeney - FTN Equity

So was Q4 a catch up because the Montevinas were ramp down and the Calpellas were just beginning and their sort of timing issue what was that more Montevin.

Mike Burns

Joanne you were talking about servers. I thought you were referring to servers.

Joanne Feeney - FTN Equity

Both I was actually trying to get you to elaborate on both server and the notebook side?

Mike Burns

From the server standpoint we were in a catch up mode. From a notebook standpoint, I think everybody was positioning for transition to Calpella from an inventory standpoint. Inventories from our perspective are very low in the channel as well as with our customers, based on the order patterns that we’ve had. So, like I said, we should have very good growth in notebook in Q1 and Q2 as these new platforms launch.

Joanne Feeney - FTN Equity

These are still primarily enterprise platforms so this is in anticipation of good end demand do you think in enterprise or is it an inventory build up that you think is going on?

Mike Burns

No, it’s everything. I’ve just been talking to customers. I was in Taiwan and that last week. It’s not an inventory build. It’s just all these new products and the launch of all these new products to businesses.

Operator

Your next question comes from Nicholas Aberle - Caris & Company.

Nicholas Aberle - Caris & Company

Nice job on the gross margin. Just wanted to talk a little bit more about the gross margin, you guys are over 300 basis points above the high end your long term target range for gross margin in Q4 it sounds like it’s going to come back to the high end in Q1. Is that a sustainable level, 60% I mean it should we think about that as being a new baseline for 2010 or is it a bit of an anomaly here in the near term?

Mike Burns

I think that 63% was a bit of anomaly everything lined up really well in Q4 and that combined with the production ramp and several things, but I think the 60%, I think that is what we’re shooting for this year going forward. Now, as to maintain our gross margins at that 60 point range for 2010 and simultaneously to doing that growing our notebook business significantly.

Nicholas Aberle - Caris & Company

Then congrats on getting HP on the notebook side, sounds like you guys have one design win there. Are there more coming at HP and where do you expect them to rank in terms of revenue contribution within your whole network or notebook customer profile for this year?

Mike Burns

Yes, we expect to be in several models over the next two quarters and they would probably be ranked on one of our top notebook customers by the end of the year.

Operator

Your next question comes from Suji De Silva - Kaufman Bros.

Suji De Silva - Kaufman Bros

Just wanted to follow up on the last question in terms of you expect the gross margin to be around 60%, but you expect notebook I think to outgrow server was that the comment. Can you remind us what the margin differentials between the two businesses are so we understand that?

Mike Burns

Sure, still we have four segments. Our corporate average for those four is 55 to 60 points. We think we can stay at the top of that this year at 60. Server storage and networking and communications are our two higher margin segments. Our two other segments are the graphics, which is desktop and workstation and notebook and those tend to be on the lower end of that range.

So if that helps, so when that mix changes, if we get a lot a server of business in networking and server like we did in Q4 our margins tend to go up and then as we grow our notebook business, our challenge and we think we’re up to it this year is to maintain our gross margins at 60 points.

Suji De Silva - Kaufman Bros

Real quick question in terms of what’s your turn’s expectation in the guidance there, Mike?

Mike Burns

Relatively low this quarter. Tried to refer to in our three segments excluding graphics, our order coverage is quite good, but we do need some turns to get to that midpoint but it’s a little lower than what we usually require.

Operator

Your next question comes from Anthony Stoss - Craig Hallum.

Anthony Stoss – Craig Hallum

Mike, can you comment about your inventory, it was up a little bit in the quarter do you expect it to also tick up again in March?

Mike Burns

Yes, we grew inventory a little bit, fairly significantly. As you may recall, we were quite light on inventory at the end of Q3. We came in at 64 days there and that was lighter than how we typically like to operate, particularly when we’re in a growth mode. So, we’re a lot more comfortable now, we’re in the 70, 74 days range. I think we would be quite comfortable keeping approximately that range for Q1. So, we’re not planning any real significant growth in inventory days.

Anthony Stoss – Craig Hallum

Also, then you mentioned HP in your rollout plans. Can you tell us a little bit more about Dell on the server side, what you expect from them in 2010?

Jeff Staszak

Pretty much this was kind of one of the last Thurley platforms that was launched and most of them have already been launched in Q1, Q2 and Q3. So we’re fortunate to get on this platform, it’s reasonable revenue for us and now we have a full bone effort on design wins on the Ramly platform where the design-ins right now are taking place across the board at all customers and for launch in the second half 2011.

Operator

Your next question comes from Vernon Essi - Needham & Co.

Vernon Essi - Needham & Co

Most of the questions here are answered. Just one thing I wanted to follow you had obviously are seeing demand on the communications side and high lighting your two major customers there. Should we be looking at that as more of a to some extent sort of a channel situation for them or do you get the impression from talking to them that there’s real end demand out there and they’re seeing a decent amount of investment?

Mike Burns

Yes, definitely real end demand they’re pushing us. One customer again is continuing to pull in product, so I think it’s a pick up in the end demand.

Vernon Essi - Needham & Co

Just in terms of notebook, are there any more granularities willing to provide us on how that might be growing over the next couple of quarters? I mean sounds like it’s going to have an accelerated rate of growth into the second quarter. Any thoughts as to how that might shape out relative to 2009?

Mike Burns

Yes, 2009 was a pretty unusual year when you look at it quarter-by-quarter because of what was going on in the economy. What we’re expecting right now is I’d say sequential growth each of the four quarters in 2010. On a percentage basis, probably stronger in Q1 and Q2 and then little more moderate in the second half. The exact run rates or growth rates in Q1 and Q2 will depend on our different various customers and what time how they launch their products, but pretty good growth percentage wise in Q1 and probably again in Q2 and then more moderate in the second half.

Operator

Your next question comes from Ramesh Misra - Brigantine Advisors.

Ramesh Misra - Brigantine Advisors

Jeff, in regards to Cisco, it’s been a while since you’ve spoken about them. Is there something we should read into that are there any new platform wins over there or design wins that you can highlight in regards to Cisco?

Jeff Staszak

Yes, I’ve been talking about them every quarter. In fact, in the earnings call today I mentioned that we had design wins at we have been in the metropolitan class of equipment at both Juniper and Cisco and the first half of last year, we had wins in the enterprise at both as well, which has contributed to the revenue so and that will continue in the second half of this year as some of these new programs launch at these customers and in addition to that, there’s revenue from Alcatel-Lucent and wireless base stations and we hope to be adding on the likes of the Nokia’s and Ericsson’s for wireless base station sales as well here in the upcoming years.

Ramesh Misra - Brigantine Advisors

In regards to your next generation I think Gen 5 product, when do you see that ramping up in 2010 and would that be having any impact on gross margins that you can expect right now?

Jeff Staszak

Yes, well Gen 5 is in production now. The new Gen 6 products for graphics and for the Ramly platform, those will the graphics will be in the later part of this year, spring, summer timeframe or whenever our customers launch and then you have the Ramly launching is so that’s all the design wins we’re competing for now are all Gen 6. That would be second half of 2011 and then our new notebook products would launch with a Huron River platform, that will supposed to launch first quarter of 2011.

So we have a whole slew of new products coming out. We did like Mike mentioned, we came out with a whole slew of products in 2009 at the same dollar, and basically the same or flat R&D amount and we expect to increase our output this year with a slight increase in R&D dollars. So we’ve got new products rolling out, primarily Gen 6 type products, for the next 12 months.

Ramesh Misra - Brigantine Advisors

So, Gen 6 in terms of revenue and gross margin impact is more of a 2011 story.

Jeff Staszak

That’s right, yes.

Ramesh Misra - Brigantine Advisors

Very quickly, Jeff in terms of the litigation, since you’ve taken on this more aggressive sounds of protecting your IP, can you see if that has had any impact in terms of business prospects or in terms of pursuing any particular customers?

Jeff Staszak

No, I can’t speak to litigation impact on customers, but we’ve been involved in this litigation for over a year now and we expect it to continue at least through 2010 and continue to have significant expense there, but relationships with our customers are very good. I think we have very strong credibility and very long track record here in integrated power so far, so good.

Operator

Your next question comes from Christopher Longiaru – Sidoti and Co.

Christopher Longiaru – Sidoti and Co.

So I guess I wanted to ask a little about what you saw from an ASP perspective. The gross margins were pretty impressive there. Was there an unusually low level of ASP decline and also, do you expect this to continue going forward?

Mike Burns

There wasn’t anything unusual in ASPs in the quarter in terms of lack of decline. I think it was more a surge in our two highest margin segments, the networking which tends to be our highest margin segment and then server storage as well. We tend not to have the real short term type ASP declines just because our pricing tends to be set for the life of the programs that we’re in, but there was definitely a significant surge in gross margins there this quarter and that was just numerous things that all lined up in a favorable direction.

Christopher Longiaru – Sidoti and Co.

Has your visibility improved at all since the last quarter and can you kind of elaborate on how that might be?

Mike Burns

I think it has improved, yes, since last quarter. We’ve got a little bit better order coverage going into this quarter than we did for Q4. Although Q4 we ended up getting very nice turns business. We’ve seen now that Calpella platform has been launched by Intel and customers will be launching that in Q1.

So a quarter ago, that was still a few months out and now that’s happening as expected. So, in general and we’ve got nicely at that point, in Q3, we weren’t sure about Q1. We thought we might be able to grow sequentially from Q4 to Q1 and now we’re given a pretty wide range but we think we can hit that midpoint, it will be pretty modest growth from a pretty elevated Q4.

Operator

Your final question comes from Shawn Simmons - Oppenheimer.

Shawn Simmons - Oppenheimer

I guess I just wanted to talk about servers. What do you guys anticipate doing for this year? Do you guys see a server cycle happening in 2010, kind of a corporate refresh cycle?

Mike Burns

Customers, I spent some time with over the last month, maybe six weeks, and the inputs that I’m getting from them are basically what I highlighted in my script is that they’re telling us there’s an upgrade going on that these new Thurley platforms basically pay for themselves in a year and through electrical costs and things like that as well as just the overall performance is very good. So there’s a lot of these datacenters pulling out the old platforms, and replacing them with Thurley platforms.

Shawn Simmons - Oppenheimer

Then I guess do you guys see yourself as a market share taker this year or do you anticipate just maintaining share?

Mike Burns

No, I’d say we’re definitely market share taker in that you asked about server storage, but yeah, absolutely. I mean, as those Thurley ramps we’re gaining share and really all the types of platforms out there, the Intel based platforms, the AMD platforms in the power PC platforms and Jeff mentioned in his script, we’re now all five of the top five server OEMs and so we just need to continue to gain market share, increase our penetration with each of those.

Operator

Thank you and gentlemen. At this time there are no further questions. I’ll turn it back to you for any closing remarks.

Mike Burns

Great thanks to all of you for your questions. This is as exciting time for Volterra. Our revenue and profitability have never been better. We’re starting to see the cross fall nation of two OEM customers across our notebook and server segments. We’re very well positioned as the technology leader in integrated low voltage power solutions. We’ll post a webcast of today’s call on our website until Monday, February 22, 2010. Thanks for joining us today.

Operator

Thank you, sir. Ladies and gentlemen, if you would like to listen to a replay of today’s conference, please dial 1-800-406-7325, or 303-590-3030, using the access code of 4199059 followed by the pound key. This does conclude the Volterra fourth quarter earnings conference call. Thank you very much for your participation. You may now disconnect.

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