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Executives

David H. Allen – Director of Investor Relations

Dr. Craig H. Barratt – President, Chief Executive Officer

Jack R. Lazar – Chief Financial Officer, Vice President of Corporate Development

Analysts

Adam Benjamin - Jefferies & Co.

Allan Mishan

Mark Mckechnie - Broadpoint Am Tech

Auguste Richard - Piper Jaffray

Tore Svanberg - Thomas Weisel Partners

Daniel Morris - Oppenheimer & Co.

Dunham Winoto - Avian Securities, LLC

[Mike Barton] – FBN Securities

Romit Shah - Barclays Capital

Raj Seth - Cowen and Company

Daniel Amir - Lazard Capital Markets

Jonathan Goldberg - Deutsche Bank Securities

Arnab Chanda - Roth Capital Partners

[Robert Pickover] for Craig Berger - FBR Capital Markets & Co.

Quinn Bolton - Needham & Company

Apurva Patel - Ticonderoga Securities

Atheros Communications, Inc. (ATHR) Q4 2009 Earnings Call January 25, 2010 5:00 PM ET

Operator

Good afternoon and welcome to the Atheros fourth quarter and full year 2009 financial results conference call. (Operator Instructions) Now I will turn the meeting over to David Allen, Director of Investor Relations. Please go ahead.

David H. Allen

Thank you, operator. Good afternoon everyone and welcome to Atheros Communications fourth quarter and full year 2009 financial results conference call. Joining me today are Dr. Craig Barratt, President and CEO and Jack Lazar, Chief Financial Officer and VP of Corporate Development.

Before we begin, I’d like to remind you that various remarks we make on this call, including those about our projected future financial results, including revenue, expenses and earnings, as well as remarks relating to economic and market trends; product benefits and our future plans; prospects and growth opportunities; the continued adoption of our products; the anticipated benefits of our diversification strategy, including our recent acquisition of Intellon; and our customers competitive position, market share and leadership position in various markets constitute forward-looking statements. These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. These forward-looking statements speak only as the date hereof and we do not undertake any obligation to update these forward-looking statements. We refer you to our annual report on Form 10-K for the year ended December 31, 2008 and in particular to the section entitled Risk Factors and to other reports that we may file from time to time with the SEC, including our Form 10-Q for the third quarter of 2009 filed in October, for additional information on the factors that can cause actual results to differ materially from our current expectations.

We report net income or loss and basic and diluted net income or loss per share in accordance with GAAP and additionally on a non-GAAP basis often referred to as pro forma. The company’s management believes that non-GAAP information is useful because it can enhance the understanding of our ongoing economic performance. We use non-GAAP reporting internally to evaluate and manage our own operations. We have chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how we analyze our own operating results.

A full reconciliation of GAAP to non-GAAP financial data can be found in our earnings press release issued earlier today, and we ask that you review this information in conjunction with this call. All numbers that are discussed in today’s conference call are non-GAAP unless otherwise noted. In addition to this reconciliation schedule, we have also posted on the Investor Relations section of Atheros.com a spreadsheet with supplemental financial data for your reference.

Now I’ll turn the call over to Atheos President and CEO, Dr. Craig Barratt. Craig?

Dr. Craig H. Barratt

Thanks, Dave, and thanks to everyone for joining us today. The fourth quarter was another outstanding quarter for Atheros. Our revenue of $185.7 million represented an increase of 19% sequentially and was above our guidance of $170 to $175 million or 9% to 12% growth.

Net income for the fourth quarter was $41.2 million or earnings of $0.62 per diluted share, $0.08 above the high end of our $0.51 to $0.54 guidance. Fourth quarter gross margin of 50.2% also exceeded the guided range of 48% to 48.5% and operating profit increased to 23.4%.

For the full year, our revenue increased 15% from 2008. Our operating margin increased to 16.3% from 14.7% and our EPS increased to $1.36 from $1.14 in 2008. In addition, we recorded the best free cash flow from operation in Atheros’ history and ended the year with over $400 million in cash.

The fourth quarter was a strong end to a year that started with much economic turmoil and uncertainty. Jack will discuss the numbers in more detail and provide our guidance for the first quarter.

Before reviewing the quarter in detail, I would like to take a moment and look back at 2009, which was another exceptional year for Atheros in many ways. To start with, 2009 was Atheros’ eighth consecutive year of annual revenue growth. During the year we introduced important new products in each of our existing product families, wireless LAN; Ethernet; Bluetooth and GPS. We also made meaningful progress toward our goal of revenue diversification, as over 20% of our 2009 revenue came from outside our core wireless LAN business, and this percentage accelerated as we exited the year.

In mid-December, we took another step in our diversification strategy by completing our acquisition of Intellon Corporation, thereby securing the leadership position in the power line communications or PLC market. We believe that hybrid wireless LAN, PLC and Ethernet solutions are critical to enabling simple, ho-hum connectivity for consumers. The integration of the Intellon business is off to an excellent start and we enter 2010 as a unified, focused organization. We are already engaged with multiple customers to develop new products that integrate wireless LAN and Ethernet and PLC in innovative ways to improve the consumer experience and expand the applications for our technologies.

Let’s now review our PC, networking and consumer channels. The PC channel accounted for 36% of our fourth quarter revenue and was up 8% sequentially. Our strength in PCs was broad, spanning many customers and products. We have a comprehensive portfolio of wireless LAN, Ethernet, Bluetooth and GPS products targeting the PC market. Our Align technology is the fastest ramping product line in Atheros’ history and Align solutions are already designed into netbooks or notebooks from nine of the top ten PC OEMs. Our single stream Align products were also the first to achieve 11n WiFi line certification.

In the mid and high end, our multi-stream XSPAN products have been widely adopted by all of the top ten PC OEMs. Our mid range wireless LAN products now include the new AR9287, our third generation, two stream XSPAN solution, featuring enhanced and unparalleled integration. At the high end, we recently introduced our feature rich, three steam, AR9300 based on our XSPAN with signal sustained technology three or SST3, which is targeted at premium consumer and commercial platforms by providing up to 450 Mbps PHY rates. While only recently launched, we have already won multiple high volume designs with this product and are quite excited about its prospects in 2010.

During the fourth quarter, we introduced the industry’s most power efficient and smallest gigabit Ethernet and fast Ethernet controllers, the AR8151 and AR8152. After entering the Ethernet market three years ago we have now shipped over 100 million Ethernet chips and eight of the top ten PC OEMs use our Ethernet solutions. Due to continued market share gains, we expect sequential growth for our ETHOS product lines in what is typically a seasonally difficult first quarter.

While only a small contributor to our revenue in 2009, Bluetooth is an important part of our PC product family in 2010. We continue to be encouraged with our design win progress and the growing adoption of Bluetooth in the PC market. Indeed we have secured design wins at multiple customers with our AR3011 Bluetooth solutions and expect to ramp our combo Bluetooth wireless LAN solutions this year.

We continue to believe we are well positioned to provide strong revenue growth in 2010 from our PC channel. With our expanding connectivity product portfolio, we expect to capitalize on a number of trends including an expected corporate refresh cycle; the ongoing adoption of Windows 7; a decreased emphasis on CPU and wireless LAN bundling; an increasing Bluetooth attach rate; the emergence of wireless LAN enabled desktops; and the continuing expansion of the netbook and emerging smartbook markets.

The networking channel provided 43% of our revenue in the fourth quarter and was up 32% sequentially. Within networking the retail, carrier and enterprise channels each provided significant sequential revenue growth. In terms of sequential dollar growth, the retail portion of our networking channel was the strongest, largely due to market share gains and the continued migration from legacy 11G to our single stream Align and XSPAN 11n router solutions. Today our Align and XSPAN wireless LAN products are used by all of the top five retail router OEMs. In addition, our high end jewel band, jewel concurrent solutions, used in products from industry leaders such as Linxus and Netgear have received strong performance reviews. The vast majority of our customers new router designs also include our Ethernet switching technology, either integrated into an SOC or as a separate switch chip.

Revenue from our enterprise channel was also quite strong, driven by several trends including customer’s ramping solutions that address SME markets and the continued build-out of hot spots and outdoor networks globally. In the carrier channel we saw growth across all geographies, with particularly strong momentum from our Asian customers. During the fourth quarter our carrier design win momentum remained strong and included our first AR9300 three stream 11n win.

Carrier interest in Atheros jewel band jewel concurrent 11n solutions, the video of the WiFi, continues to accelerate driven by ITP applications looking to leverage our carrier grade, quality of service features that enable seamless and cost effective wireless video delivery. The addition of PLC to our product portfolio provides us with a significant competitive advantage, with customers in multiple channels and geographies. Customer reaction has been very favorable. After we announced the acquisition, many carriers and retail customers indicated that they are eager to work with Atheros to develop and deploy [cumber] solutions that harness Atheros PLC, wireless LAN and Ethernet technologies.

We look forward to providing these customers unique, hybrid connectivity solutions and expanding the total market, the PLC, wireless LAN and Ethernet. Recently we announced our next generation power line solution, the AR7400 chipset. This fourth generation product, which supports both the IEEE P1901 and HomePlug AV standards, delivers PHY rates in excess of 500 megabits per second, a two-and-a-half times improvement over currently deployed HomePlug AV products. The AR7400 is optimized to streaming HD media applications and delivers faster PLC connections, using the home’s hidden backbone network, its’ electrical wiring.

The consumer channel contributed 21% of our revenue in the fourth quarter and was up 14% sequentially. Consumer revenue includes wireless LAN, Bluetooth and GPS for mobile devices, as well as wireless LAN and Ethernet for digital home media devices such as televisions, game consoles and media players. In the fourth quarter gaming was once again a strong growth driver, with several new Atheros space products hitting the market, including Nintendo’s DSi LL which boasts a 31% larger screen, and Microsoft’s 11n adapter for the Xbox game console.

Revenue from non-gaming [rock’em] mobile products increased more than 75% sequentially and design win momentum is strong as our rock’em products were selected for many new handset, 3G router, smartbook, e-reader and PND devices. Customer feedback on our recently launched AR6003, our first rock’em mobile 11n solution, has been excellent. It features the industry highest performance and lowest power consumption in our smallest footprint yet and has already provided us a variety of design wins, including multiple tier one OEMs.

In the handset market, wireless LAN and smartphones and even feature phones is becoming a key selling point for consumers looking to use their phones for web browsing and media sharing. Moreover, service providers are now encouraging wireless LAN adoption in handsets to offload data from their increasingly over burdened, wide area cellular networks. In the fourth quarter, new smart phones from Samsung, HP, NEC, Sony Ericsson, Toshiba, Panasonic and a variety of other OEMs featuring Atheros rock’em solutions were brought to market.

In GPS we recorded several significant design wins in the fourth quarter, including PNDs at a new tier one customer and a variety of design wins in the China market. We also introduced our third generation’s single chip GPS receiver, the AR1520, based on the new Atheros fixed location core which targets a variety of navigation applications including PNDs, netbooks, smartbooks, portable gaming devices, media players and smartphones. The rapidly expanding need for connectivity in consumer devices was showcased at this month’s Consumer Electronics Show in Las Vegas. Many products at CES used Atheros technology, including Sony’s new Bravia TVs and Blu-ray devices; Lenova’s IdeaPad U1, a revolutionary, sleek, lightweight Windows 7 laptop that doubles as a Lenox PC; and Lenovo’s android based [la] phone.

There were many other rock’em enabled devices introduced at CES but I wanted to mention two of the more novel products, the Valups Tivit, a CES Best of Show winner, beams live mobile over the air digital television to your iPhone, Blackberry or other smartphone; and the Parrot AR Drone, a CES Innovation Award honoree, a flying helicopter that uses rock’em for remote control and live video on your iPhone.

Looking ahead, we’re excited about the many new consumer opportunities and we expect that this channel, which represented over $100 million in revenue for Atheros in 2009, will be one of the fastest growing portions of our business in 2010. We have secured many exciting new design wins including WiFi and Ethernet embedded in televisions and Blu-ray players; and WiFi plus Bluetooth in e-reader, smartbook and gaming products. We look forward to discussing these and other applications after our customer’s products have been launched.

In conclusions, Atheros clearly recorded very strong results in the fourth quarter. Looking ahead, Atheros is well positioned for another year of strong growth in 2010. Our powerful and expanding product portfolio has enabled us to secure design wins in many exciting, new products and markets. As we discussed at our analyst day in November, we are at an early stage of rapid growth in the types and number of connected devices throughout the home and office. Put simply, the number of IP addresses in the home and office is increasing exponentially. Atheros, with its expanding portfolio of connectivity solutions, is well positioned to take advantage of this trend.

We’re excited and well positioned to drive the adoption of high performance, low cost technologies into the connected home and office. We look forward to sharing our continuing progress with you over the upcoming quarters as we continue to work hard to build a growing and diversified communications company that will provide our shareholders strong profitability both now and in the future.

With that, I will now turn it over to Jack who will provide more details on our fourth quarter results and our first quarter guidance. Jack?

Jack R. Lazar

Thank you, Craig, and thanks all of you for joining us today. First I’ll outline our financial results for the fourth quarter ended December 31, 2009, and then I’ll provide our first quarter 2010 guidance.

Note that our Q4 results include the partial quarter impact of the Intellon acquisition which closed on December 15. In Q4 PLC revenue and operating expenses were approximately $100,000 and $1.1 million respectively. In summary, Q4 was clearly our best quarter to date in terms of both revenue and profitability. While we anticipated strong revenue growth up 9% to 12% from record Q3, demand for our products was better than initially expected, resulting in revenue growth of 19%.

We are particularly proud to have achieved record operating and net income, both in dollars and as a percentage of revenue. Additionally, our cash flow generation even after the use of $56 million in conjunction with the Intellon acquisition, was exceptional and we ended the quarter with $402 million in cash. With strong product cycles, market share gains, and increased revenue from our diversification initiatives, our fourth quarter EPS came in $0.08 above the high end of our guidance.

As a reminder, our fourth quarter guidance was for revenue of $170 to $175 million and EPS of $0.51 to $0.54. Q4 was a record $185.7 million, up $29.1 million or 19% from $156.6 million achieved in the third quarter. The revenue gains were broad based with all channels reaching record levels both in terms of dollars and units shipped. Revenue in the fourth quarter increased $87.4 million or 89% compared with the $98.3 million during the prior year comparable quarter.

Based on the product mix data, the breakdown of revenue from our wireless LAN chipsets was as follows, combined 11g and AG was 48% of wireless LAN revenue and 11n was 52%. Our 11n revenue reached record levels both in terms of revenue and units shipped in Q4 driven by increasing demand for our lined, single stream 11n products and the continued strength of our XSPAN shipments. Sales of our 11n products to our PC OEM, retail and carrier customers were particularly strong. Our one by one Align product, which was launched at the end of 2008, became the fastest ramping chip in our 11 year history.

Our combined 11g and AG shipments [technical difficulty] sequentially in terms of both dollars and units, driven by mobile gaming, handset and consumer electronics product ramps, which now make up approximately half of our 11g revenue. The percentage breakdown of revenue by channel based on the data supplied by our OEMs was as follows. Networking was 43% of revenue, PC OEM was 36% and consumer was 21%. Revenue from our networking customers reached record levels in Q4, increasing 32% or $19.3 million sequentially. This increase was driven by the strength of 11n shipments to our retail and carrier customers, as well as strong 11g and AG shipments to customers serving emerging markets.

Revenue from our PC OEM customers was a record $68 million, increasing 8% or $5 million sequentially, due to the adoption of our line and XSPAN 11n products, coupled with the continued growth of our Ethernet revenue. This was partially offset by a decline in combined 11g and AG products, as PC customers continue the transition to the newer 11n solutions.

Consumer revenue achieved record levels, increasing 14% or $4.8 million sequentially. A broadening adoption of our rock’em mobile wireless LAN products in gaming, handset and new consumer electronics products drove record revenue and units in our consumer channel. The non-gaming portion of our consumer business was once again up sequentially, driven by strong rock’em mobile wireless LAN sales.

Fourth quarter gross margin was 50.2%, up 180 basis points from Q3 and was above the high end of both our 48.5% guidance and our recently updated long term model of 46% to 48%. The improvement in gross margin was due to relatively stable pricing, favorable product mix and continued supply chain cost reductions.

Total operating expenses were $49.8 million, up 9.5% sequentially and above the high end of our guided range of $46 million. The increased operating expenses in the fourth quarter related primarily to the addition of Intellon operations from the close date of December 15; increased variable compensation as a result of better than anticipated performance; additional headcount; and an increase in our tape out costs. Operating profit reached record levels in the fourth quarter, up 43% to $43.4 million. Our operating income of 23.4% represents a sequential increase of 400 basis points and was above the 18% to 20% in our long term target operating model. Compared with Q4 2008, operating income increased $35.9 million.

Interest and other income in Q4 was $1.4 million, up slightly from Q3. The effective tax rate was 8% in Q4 and 9% for the full year. Net income was a record $41.2 million or $0.62 per diluted share for the fourth quarter. This compares with net income of $29.3 million or earnings of $0.46 per diluted share in the third quarter and was $0.08 above the high end of our EPS guidance of $0.54. Average fully diluted shares outstanding were 66.2 million in Q4 and 64.2 million in Q3.

Despite a very weak first quarter, revenue for the full year was a record $542.5 million, a 15% increase over 2008. Gross margin was 48.7% and operating expenses were $175.7 million. Net income for 2009 was $86.7 million or earnings per share of $1.36. During 2009, we grew our cash balances by $108 million, demonstrating continued strong operational performance and working capital management.

GAAP net income for the fourth quarter was $15.6 million or $0.24 per diluted share and this compares with GAAP net income of $38.6 million or $0.60 per diluted share in the third quarter of 2009. Included in our GAAP net income for the fourth quarter were the acquisition related costs of approximately $9.6 million related to the Intellon transaction. A full reconciliation of GAAP to non-GAAP financial measures can be found in our press release.

Turning to the balance sheet, as of December 31, total cash, cash equivalents and short term marketable securities were a record $402 million, up $19.4 million from Q3. During the fourth quarter we generated $63.3 million of cash from operations and our net cash outlay for the Intellon acquisition was $56 million. In the second half of 2009, we generated over $100 million of cash flow from operations.

DSOs were 28 days in Q4, down from 35 days in Q3 and well below our target range of 45 to 55 days due to strong shipments early in the quarter and exceptionally strong cash collections. Inventory turns were 5.3 times compared with 7.5 times in Q3, while days of inventory increased from 48 to 69 days, due in part to the addition of inventory related to our acquisition of Intellon. Inventory turns were in our target range of 5 to 6 times.

The company continues to have no long term debt. The total current liabilities at the end of Q4 were $141.1 million. During the fourth quarter of 2009 our capital expenditures were $1.7 million and depreciation was $1.6 million. As of December 31, we had 1,302 full time employees, up 203 from the end of Q3, the majority resulting from our acquisition of Intellon.

I’ll now move on to our guidance for the first quarter, which includes a full quarter of PLC revenue. Over the past three quarters our business has improved significantly as a result of strong product cycles, continued market share gains and a significant increase in revenue related to our diversification efforts. In the first quarter of 2010 we anticipate a seasonal decline in our consumer business and we expect our PC OEM revenue will be flat to slightly down.

Offsetting this, we anticipate strong growth from our networking channel primarily due to the addition of PLC revenue and increased sales to both our retail and enterprise customers. While we will not be providing specific guidance on our PLC business going forward, this quarter we do anticipate approximately $20 million of revenue contribution from these products. Given these trends, we currently anticipate Q1 revenue will be in the range of $195 to $205 million, up approximately 7.5% at the mid-point. The overall pricing environment for our products will continue to be competitive in Q1.

With the anticipated strong sequential growth of our Ethernet business and the seasonal decline of our rock’em consumer products, we expect a higher mix of lower margin products. We anticipate that this will be partially offset by the addition of revenue from our PLC product line. Accordingly, we currently project our first quarter gross margin will be in the range of 48.5% to 49.5%.

We will continue to invest in the people, product tape outs and infrastructure necessary to take advantage of our continued growth opportunities and our entry into new markets. In the first quarter we anticipate total operating expenses will be in the range of $57 to $59 million, with the vast majority of this increase related to the addition of our new PLC team. We expect interest income to be relatively flat and our estimated pro forma tax rate for Q1 is expected to be approximately 13%.

Accordingly, for the first quarter we anticipate EPS to be in the range of $0.48 to $0.52 based on fully diluted shares outstanding of approximately 71.5 million.

We are pleased with our fourth quarter results and the progress we’re making towards our long term vision for Atheros. Our diversification efforts are progressing well in addition to the significant opportunities we see in our core wireless LAN market. Our cash flow generation in the past year has been quite strong and positions us well for continued growth in 2010 and beyond.

With that, let me hand it back to Craig.

Dr. Craig H. Barratt

Thanks, Jack. Operator we are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Adam Benjamin - Jefferies & Co.

Adam Benjamin - Jefferies & Co.

First on the strength in the networking in Q4 obviously driven by the retail part of that as well as the carrier supply chain, can you talk a little bit about the sustainability of some of that business going into Q1? I know you had some big share gains and I’m just curious as to how you see that folding into Q1, Jack.

Jack R. Lazar

I will tell you that the strength in networking was actually almost each of the sub-channels was up almost an equivalent amount percentage wise in the last quarter. So it’s pretty broad based. It was pretty much everywhere. Going into the upcoming quarter, we see more strength on the enterprise and the retail side and then of course PLC gets added into networking in the upcoming quarter, so we don’t have a compare against that one. But retail will continue to remain strong in Q1 and the enterprise market we see picking up a bit.

Adam Benjamin - Jefferies & Co.

And then specifically, Jack, on your share gains, do you expect to see continued growth beyond the market I guess into the March and June quarters?

Jack R. Lazar

I think it’s a little too early to be able to speculate there. I mean clearly we’ve done well at some of the retail guys more recently and some of the products that we’ve been putting out there have been received pretty well by the consumer. I don’t think inventories in those channels have been all that high, so we’re just seeing a lot of demand for the product right now. I think we’ve got to get closer to Q2 and Q3 to see how that’s going to look.

Adam Benjamin - Jefferies & Co.

And then just a follow up on the gross margin, obviously you guys have been bouncing around the 50% for some time. You raised it at the analyst day but you’re back above 50%, you do have a little bit of tailwind on Intellon being about 10% of the revenues now and having some cost downs coming throughout the year that should help margins as well. How should we be thinking about gross margin? I know everyone asks this every quarter but you’ve always talked about 50% being the number long term that Atheros needs to operate in. Now that you’re above that once again, even though you’re guiding it lower, is this something that you expect to see the company above as we progress through 2010?

Jack R. Lazar

In the long term we would like to try and move the margins up over time into the 50% area. We’re going to peak in there some time. Sometimes we’re going to be a bit below it but you have to remember what our goal is. Our goal is really to build a diversified communications company and in doing that along the way we’re going to find times when the margins are going to be high and sometimes when the margin’s going to be a bit lower, and what I always try to remind folks is that when they are going lower, be patient with us. We generally do tend to fix it. And when they’re going higher, you know, we’ll take advantage of it during those timeframes. I think we’re trying to have the right mix of products to get there eventually but frankly it’s not the number one focus for us right now.

The number one focus for us is to grow the size of this company so we can be a relevant player in the communications industry.

Adam Benjamin - Jefferies & Co.

On the connectivity side, on the mobile side, can you talk a little bit about your plans there? You guys have shied away from combo chips so far for the mobile space. Can you talk a little bit about what you think you’ll need to have in 2010 to satisfy the market and demands for designs that’ll happen this year for revenue in 2011, 2012?

Dr. Craig H. Barratt

As you know I think we’re being pretty clear about our strategy here. As a smaller player clearly step number one is to really prove and validate each of our technologies and I think we’re making terrific progress. Clearly our WiFi solutions really lead the industry and in the last year we’ve made excellent progress with GPS and Bluetooth technologies as well. So that’s clearly a critical step.

And I think our strategies around combos I’d describe more as a surgical strategy. And so we certainly agree that combos will become more important in the marketplace and I do want to reflect that we do have combo development for mobile devices underway today. And all along we’ve said that we’ll do it when the market is ready and when the customers really need those solutions. So I think we’re being quite deliberate in our strategy and I think we’re making very good progress in that regard.

Operator

Your next question comes from Allan Mishan.

Allan Mishan

A quick question on the guidance, your PC revenue flat to slightly down, is the difference between that and seasonality primarily the Ethernet revenue increasing or is it WiFi share gains or are there other factors at play?

Jack R. Lazar

The Ethernet business is still a relatively small portion of our overall PC business so while Ethernet is strong on a percentage basis as a total of the overall PC business it’s probably not significant enough to make a big impact. I think what we’re seeing is that Ethernet’s clearly got some very nice market share gains, that it’s experiencing right now, so we’re kind of riding that into Q1 and what would certainly normally be a down Q1 for Ethernet won’t be.

The other side of this is that I think the overall WiFi business in PC’s is probably a bit stronger than what we had originally thought and probably a little better than seasonal coming into Q1.

Allan Mishan

And then a clarification on Intellon, did you say it was only $100,000 of revenue for those two weeks and if so why such a low number?

Jack R. Lazar

Because we were focused mostly on making sure that the transition of the employees, etc., were happening on a timely basis. We really focused on the employees up front. Customer wise you’ve got to remember it was the last two weeks of December and so frankly a lot [inaudible] on holiday anyway, so it was actually a perfect time to do a crossover. So we took the time to get the systems right and really make sure that we were ready to go as we headed into the new year. Obviously because we do see $20 million of demand for the product in Q1, you know, there’s clearly a lot of customer excitement for the products and we’re going to continue to fulfill that in Q1.

So, yes, it wasn’t very good for our bottom line in Q4.

Allan Mishan

Lastly for Craig, what are your thoughts on G.hn and will you guys pursue it?

Dr. Craig H. Barratt

I think we talked about this at analyst day as well. I think we’re actually excited about the home networking wire technologies becoming more standards based. Today we really have three sort of defector standards but not really broadly accepted industry standards. With our power line technology we’ve made great strides toward establishing an IEEE standard for power line networking, in particular IEEE P1901. And as I said in the prepared remarks, the AR7400 is the industry’s first product, which is P1901 compliant. Certainly there are other standards being developed to try to create any wire capability like G.hn. We currently think that standard is a little bit further away but it’s something that of course we’re participating in.

And honestly the best outcome over time is for more and more of these [masent] markets today to move together into a common and larger market. And that’s certainly what we’re trying to crystallize through our standards strategy and through our product strategy. We certainly would like any wire around the home to be used with our technologies and I think that’s definitely a promising direction. So the move to standards is important, certainly fewer standards covering more of the technologies is important and we’re definitely a supporter of the drive towards standards.

But I do want to mention that we think IEEE P1901 is actually a very important step forward because it does guarantee backward compatibility with the installed home plug AV devices.

Operator

Your next question comes from Mark Mckechnie - Broadpoint Am Tech.

Mark Mckechnie - Broadpoint Am Tech

A couple of questions, the first is the visibility on your March guidance. If you won’t give us how much you’ve got covered, could you just give us how that compares to your normal visibility going into a quarter?

Jack R. Lazar

Yes, we obviously don’t disclose percentages going into a quarter. I would say that as we go into this particular quarter it’s certainly as good as it usually is if not maybe a little better. So I think we have a pretty good feel for what our quarters look like at this point. But I think a lot of that is just the investment we’ve made in design wins that are carrying out right now and the other relatively long term, so they give us a little more visibility.

Mark Mckechnie - Broadpoint Am Tech

Another question is I guess Craig you talked about some kind of cut over in WiFi versus the bundled designs. Are you starting to see any impact from that in your business or is that more of a second half event?

Dr. Craig H. Barratt

Just to clarify, you’re referring to the remark I made about the trend in the PC market for reduced bundling among one of our bigger competitors there. Is that correct?

Mark Mckechnie - Broadpoint Am Tech

Exactly. Yes.

Dr. Craig H. Barratt

I think we’ve started to see some early signs of that. To be honest it’s hard for us to predict how significant or how rapidly a transition would occur there. Certainly we’ve seen some opportunities which have resulted from that, certainly it’s a positive effect. But I think it’s difficult for us to predict how significantly the mix in the market might change.

Operator

Your next question comes from Auguste Richard - Piper Jaffray.

Auguste Richard - Piper Jaffray

Can you talk a little bit about what lead times are doing across your product line and just a little bit about sort of the stability of pricing and sort of what to expect to happen in pricing going forward?

Dr. Craig H. Barratt

To clarify you mean as we look back into our supply base or as we look downstream into our customers?

Auguste Richard - Piper Jaffray

Into your customers.

Dr. Craig H. Barratt

I think we’re seeing probably somewhat improving visibility from our customers. Certainly if we look back a year ago the visibility was very, very poor and customers really weren’t ordering to lead times. So I think we’re seeing a little bit better visibility. Our sense of the channel I think is that it’s at reasonably rational levels. We don’t see it getting too far ahead of itself. We really think that the growth in our business really reflects some real demand that we’re seeing among our customer base.

Auguste Richard - Piper Jaffray

Just in terms of access to capacity, you know you guys are fairly comfortable. I know you use about nine foundries. You can get the product and sort of get the turns down from the higher end of your range to the lower end.

Dr. Craig H. Barratt

Yes, I mean I think as we look back into our supply base, clearly as you’ve seen our revenue over the last three quarters has grown very, very strongly and the unit growth of course therefore is being tremendously strong, too. The fact that we have a diversified supply base is certainly helpful but I think what you will see is as you saw in the fourth quarter we will be focused on getting our inventory up to somewhat more reasonable levels. You know the well in excess of 7 times turns that we exited the third quarter on clearly wasn’t sustainable nor a good thing, given the revenue growth rate that we’re seeing in our business. And so I think you know bring our inventory up if it is a deliberate strategy and making sure that if the overall semiconductor business becomes potentially stronger in the second half of the year, should that happen, we want to make sure that we’re well positioned with our suppliers to get all the capacity that we need.

And I should say that our suppliers are very committed. Clearly we’re one of the fastest growing semiconductor companies in the industry and so I think we have received and we will receive very good support from our suppliers.

Auguste Richard - Piper Jaffray

Your PC revenue growth was up 8% sequential, you know, and when I look at the microprocessor guys sequential revenue growth sort of in the order of 13%, you know, what’s the disconnect there in terms of growth rates? I would have expected you to grow your PC business a little bit more strongly in the fourth quarter.

Dr. Craig H. Barratt

I think it’s hard to compare apples to apples here just in terms of the timing of shipments and so on, so I think it’s a little bit difficult to compare head to head. I think if we look on a full year basis for example on unit growth, we really believe that we’re outperforming the market in terms of total laptop and netbook units versus our unit shipments. So those metrics really suggest that we’re continuing to grow share.

Jack R. Lazar

Yes, and let’s not forget the growth rates that we had in Q3 and Q2, which were dramatically ahead of the industry. So you know we ship in probably a little bit earlier is what it would sound like to me.

Operator

Your next question comes from Tore Svanberg - Thomas Weisel Partners.

Tore Svanberg - Thomas Weisel Partners

First of all you mentioned in your prepared remarks that your super business will be a great growth driver in 2010. It is going to be down sequentially in Q1 so I’m just trying to get a better feel of when that business is going to start ramping higher. Do you have design wins now for already a ramp up in Q2 or will this be more of a second half event for consumer?

Jack R. Lazar

Yes and yes I guess is the answer. So, Tore, when we look at the consumer business one of the nice things about it is it you get a fair amount of visibility. The design wins take time and as they play out, they generally play out on the timetable that’s pretty straightforward. So we have quite a lot of design wins for the rock’em based products, both the 6002 and the 6003 and then increasingly more for our GPS products. I think we mentioned a new tier one GPS win. So we’ve got some relatively large things happening this year in those particular areas of the consumer market.

In the end, this is all about connectivity to the consumer. People just want this stuff, whether it’s their phones or their e-reader or whatever it might be, they just want to be connected all the time. And that’s what we’re here to do and hopefully we have the right set of solutions for them.

Also I would point out that our strategy of serving standalone wireless LAN plays extremely well into this market. So there are many folks out there who just want to be connected. Craig talked about a couple of the, you know some of the unique ones that we saw at CES which are the type of applications where they don’t want a combo, they just want a straight standalone, low power WiFi type solution. We think over time there will be more and more demand for those combo type products. But there’s plenty of these opportunities out there and there’ll all going to start kicking in this year and I think this is one of the reasons that we’re so enthusiastic about the consumer part of our business.

Tore Svanberg - Thomas Weisel Partners

Have you seen an increase in design wins for 11n, especially after the standard got ratified back in November? And you know especially for the consumer market is where I’m trying to understand it and it getting more traction.

Dr. Craig H. Barratt

It really varies by a particular channel and customer. I think it’s reflected you know clearly retail launched 11n products, in fact starting well over three years ago, just based on an early draft standard. And that said, the adoption in for example carrier and enterprise is actually at an early stage and 11n adoption in the consumer markets is also at a relatively early stage. The drive to video and video streaming will really be the catalyst for 11n adoption in a variety of devices. For example our newly announced AR6003 not only sets new benchmarks in terms of power consumption and performance, but it also implements 11n mobile devices. So well inside the power envelope of a [praw] generation of 11g solution we can now offer data rates which are more than three times higher in a very, very small footprint.

Additionally for example Sony at CES, we reflected started showing a number of Bravia TV models that include our WiFi solution and those are 11n based solutions because those TV’s can stream IPTV, media from YouTube and Hulu and other Internet based video sources straight to the TV. So those are 11n based solutions. So I think we’re starting to see 11n come into those markets as the demand for video and other applications increases.

Tore Svanberg - Thomas Weisel Partners

Jack, I know we shouldn’t look at Intellon and Atheros differently going forward but when you look at Q1, you know, 180 on Atheros 20 Intellon, just from a visibility perspective will visibility be equal for both those numbers or does the Intellon revenue have a little bit longer lead time?

Jack R. Lazar

You know I think that all that really matters is what the combined numbers look like, Tore, and I think because of the extended period of time that we had to actually do the integration, we’ve gotten very familiar with each other and the patterns of each others customers and now they’re all the customer of just the one company. And that’s really the way we look at it, honestly. So I think as I mentioned visibility’s pretty good at this point so I think we’re pretty confident in our guidance for the quarter.

Operator

Your next question comes from Daniel Morris - Oppenheimer & Co.

Daniel Morris - Oppenheimer & Co.

I just want to follow up on that last Intellon question. Can you tell us how much Intellon revenues were in the fourth quarter? And as you look at the Intellon business should the seasonality kind of track what your networking business has done?

Jack R. Lazar

So the revenues in the fourth quarter were basically nothing. It was $100,000 and we had operating expenses of about $1.1 million. So it was, you know, $0.015 of EPS that didn’t happen. So full quarter that’s not for us to actually disclose so you know I don’t think that information’s out there. What I can say is there are plenty of people who were covering the company prior. I don’t think that things were outside of expectations for the company.

The design wins are solid there. The PLC business is going to be a very important part of our hyper networking strategy. They’ve got over 50 of these carriers that are with proven products launched out there and it’s frankly only growing. So I think that that particular business is in relatively good shape as we move into Q1.

Daniel Morris - Oppenheimer & Co.

Craig, you had mentioned in your comments about the PC business, you had mentioned a PC upgrade cycle as being one factor and a positive factor you’re looking forward to in 2010. You know historically I think you guys have been a little bit under exposed on the enterprise side of the PC space so I was wondering if you could talk a little bit about some of those opportunities on the enterprise side.

Dr. Craig H. Barratt

Yes, speaking personally I’m looking forward to upgrading my three-and-a-half year old Windows XP machine sometime this year. You know actually we’ve really increased our focus on the commercial platforms and that’s true especially in our WiFi strategy. You know the AR and three stream wireless LAN product is clearly targeted at many of these high performance platforms which are typically in the commercial segment.

The other observation is that the Sentrina bundling that was an important part of the market until recently was actually focused also a lot more in those commercial platforms. So when we talk about the impact of the unbundling, clearly at the low end netbook it makes no difference because there was no Sentrina presence there, but those commercial platforms are where there is a lot more opportunity.

And actually finally on the Ethernet side, our strategy there is to also develop more Ethernet capabilities such as hardware acceleration for some of the security protocols and so on that a typical commercial platform, so you’ll see us also address those platforms with more than just WiFi technologies going forward.

Daniel Morris - Oppenheimer & Co.

When we look at the gross margin, the 50.2% you’ve mentioned a few factors but could you just talk a little bit more specifically about what really drove the upside relative to the original expectations?

Jack R. Lazar

Well I think it’s a couple of things. A couple of our wireless LAN products including some of the Align products actually had a particularly good quarter and that certainly helped. Consumer was a bit stronger than what we had anticipated going into the quarter. We actually anticipated that Ethernet probably would have been a little bit stronger but it was materially within where it was supposed to be.

So I think overall the things that we’re driving at, and some of the enterprise kicked back in this last quarter which we didn’t really see coming as quickly as we had originally thought. So I guess if I’d point to three things it’s probably consumer, enterprise and then of course some of the Align products didn’t hurt.

Operator

Your next question comes from Dunham Winoto - Avian Securities, LLC.

Dunham Winoto - Avian Securities, LLC

My questions have to do with Intellon so I think Intellon prior to the acquisition their gross margin were running maybe one to two points higher than you guys. Going forward can you give us a sense of whether you’d be able to maintain that outperformance or maybe even bring it up even higher than when it was an independent company?

Jack R. Lazar

I think this gets back to the question of what your strategy is with PLC, so our strategy with PLC is wide market adoption. And to do that we will take an approach that can give us growth at a good margin and if we get growth at a good margin then we’re fulfilling our job. What we’re trying to do is connect the home and PLC’s a very important part of that and if it can help us achieve that goal and we can do it at a good margin then that’s the way we’d like to do it.

You know we can go back and forth on a couple hundred basis points of PLC margin. I don’t think we’re really going to know until we play this out further into the year. I can tell you that you know in Q1 there is a higher concentration of some of the lower margin customers in our PLC business than we had. There’s just additional demand from those customers. So that’s probably impacting it. We’re probably not getting as much of an uplift from PLC as we could.

Dr. Craig H. Barratt

And Dunham, long term I just want to reflect a couple of other things. I mean there are a number of factors that really got us excited about this deal. I mean clearly having the best team in the world to solve the toughest problem in wide networking around the home power line was clearly one big motivator, but related motivation is that taking the power line capability of the team that is now part of Atheros and combining it with the very, very strong analog and seamless design capability that we’ve used so successfully in WiFi, Ethernet and GPS and Bluetooth and so on, we think allows us over time, this is not a short term effect, but over time we see a very interesting opportunity to engineer and develop some truly leading products that will have high degrees of integration, will implement multiple functions of course in single chips. And I think over time that allows us to really drive this market in an aggressive way with a set of performance and features and also cost structure that will be very favorable.

Dunham Winoto - Avian Securities, LLC

Jack, maybe just one more thing for you on Intellon, as far as operating expenses I know that there’s a bump up here in Q1 and that’s because you guys are taking on some headcount but for the rest of the year what’s your expectation there? Would you be able to keep it flat to down? What’s the opportunity for you to reduce operating expenses there?

Jack R. Lazar

Reducing operating expenses is not something we’re focused on. We are a growth company. I think we will have amongst the highest revenue growth of certainly established semiconductor companies of reasonable size this year. I mean we’re certainly in you know a higher growth echelon I guess. And so if that’s the case, we have to grow the OpEx of the company. We have to get big. What we’re trying to do is grow it at reasonable margins. I mean frankly right now we’re at 23% operating margins. That’s not where we try to focus on. You know our long term goals for operating margins are 18% to 20% and I think that’s a pretty good return.

We’ve got to be prudent. We’ve got to invest in the future. If we don’t do that, then we can give you a lot of great short term operating results but in the end it probably won’t be the story that people are interested in. So we’re not really focused on reducing OpEx but on the other side of that I think we’ve shown a pretty good track record of being pretty prudent in the past, even during these times [inaudible] very, very difficult over the last year, we really kept our OpEx under control.

So it’s really a discipline thing. Craig’s focused on it, I’m focused on it and the whole management team is focused on it. It’s part of our culture but it’s also part of our culture to get big and get better.

Operator

Your next question comes from [Mike Barton] – FBN Securities.

[Mike Barton] – FBN Securities

Some of your competitors have commented about benefiting from favorable wafer pricing on contracts they did back early in ’09. Has that helped you? Will it help you going forward or is wafer tightness more of a headwind for your margins going forward?

Dr. Craig H. Barratt

Clearly our strategy on the operating side is to balance both of those things. I mean clearly we have to get enough supply to fuel the growth that we have seen and the growth that we expect. But of course we expect to get very good support from our suppliers and so in general I think our very best suppliers have been able to do well in both of those categories. They’ve been able to handle a lot of the pretty large upsize that we’ve thrown to them and I think they’ve been able to give us good support on the business side as well.

[Mike Barton] – FBN Securities

And beyond that on availability standpoint, is it also helping or is it a headwind to margins?

Dr. Craig H. Barratt

It’s difficult to really break that out. I mean clearly the overall margins for the business relate to many factors and you know clearly we’re focused on delivering the best products that have differentiation. We’re clearly focused on having a very strong operational capability that gets us good cost structure as well and we have to put all of those pieces together. It’s hard to point at one factor or another as being a particular contributor to the gross margins. But as our business grows we certainly expect to get continued leverage on the supply chain side.

[Mike Barton] – FBN Securities

Jack, you talked about lead times extending out a little bit and could you talk a little bit about your outlook on the market as it relates to possible double ordering? I know we’ve talked about looking for this in the past and perhaps a little bit of the process you go through to mitigate any risk there.

Jack R. Lazar

Yes, I mean the process we go through is to stay very close to the customers and that means not just the ODM or the OEM but both. So we spend a lot of time with them, we get a pretty good read about what’s going on. We absolutely assemble market data, too, and we correlate it all together to see whether we believe that there is any sense of double ordering going on. We don’t see that. We just frankly don’t see that today. It doesn’t mean that things can’t change quickly but we certainly don’t see that today. We’re more focused on fulfilling the needs of our customers at this point because we’ve seen tremendous growth and tremendous demand over the last three quarters.

It’s been very hard to keep up with it at times, but our ops team is doing a good job and the sales guys are working very closely with the various different customers. And you know we believe we can continue to fulfill all the demand and that’s why you’re seeing 7.5% midpoint guidance for our growth for the upcoming quarter.

[Mike Barton] – FBN Securities

I know you talked about OpEx a little bit already but are there any other synergies we could see from Intellon at work beyond Q1 that we should be aware of?

Jack R. Lazar

There’s some that will show up, some of the administrative folks will actually roll off at the end of this quarter. But you know the place where we can create the most value is to execute on our hybrid networking approach. That’s where you get the revenue synergies and that’s what really can add just a tremendous amount of value. I mean that’s the reason to put these companies together. Charlie knew it, we knew it and you know we’re really excited about the feedback that we’re getting from customers about this hybrid networking approach.

So I think it’s all out there. You know you just can’t wait. It’s not all going to happen overnight.

Operator

Your next question comes from Romit Shah - Barclays Capital.

Romit Shah - Barclays Capital

Just on inventories, Jack, I know that they were artificially low or too low in the September quarter but still I guess the change from Q3 to Q4 stood out a little bit. Am I correct in assuming that you got about $5 or $6 million in Q4 from Intellon?

Jack R. Lazar

So the days of inventory was out, the Intellon acquired inventory would have been about 60. So it’s about a 10% reduction.

Romit Shah - Barclays Capital

Is that a number you guys are going to try to hold to in the coming quarters?

Jack R. Lazar

Honestly we’d like to try and get it up a bit. It was obviously really low, but we’ve increased our buffers but we haven’t increased them to maybe the levels that they were at years ago. So we are trying to make sure that we have product for our customers. I mean with the kind of growth that we’ve gone through over the last three quarters, we could get into a pickle if we’re not careful. But at the same time you know we’re not going to get caught in the trap.

Dr. Craig H. Barratt

Right. I should say many customers biggest concern in general, not just with Atheros, it’s just in general about really getting the supply that they need. I think for the last year the whole supply chain has worked with very short lead times all the way through and that’s caused a lot of urgent upsides and unexpected demand to come in. And I think now as things are starting to stabilize, I think everybody’s interested in bringing the inventory levels probably back to somewhat more normal levels rather than keeping them aggressively low just because the business does some quite stable and strong and the demand is real. And we want to make sure we can meet customer demands.

Operator

Your next question comes from Raj Seth - Cowen and Company.

Raj Seth - Cowen and Company

Craig, a question on the handset market. Have you had or do you have an opportunity outside the Qualcomm base and could you talk a little bit about the status of that partnership? Obviously they have internal solutions that they’ve been working on for awhile.

Dr. Craig H. Barratt

Sure. I mean we have a long history with close partners working on WiFi internally in a number of areas and it often turns out they work on it for quite some time. In general I think the relationship is actually going well. You are correct. They are working on internal solutions and have been so for the last several years but we still see some strong opportunities through that relationship. I should say so more importantly of course we are focused on a number of other base [spend] partnerships which have been in the works for over the last year and those are starting to bear fruit.

And of course our exposure to all handset customers has helped us build a direct relationship with the end OEM and that’s also proving more valuable now for new design wins, too. So if we put all of that together, you know the percentage of non-Qualcomm based wins is certainly going up. It’s probably in excess of a third. Remember more than a year ago it was the vast majority were Qualcomm based and now more than a third are non-Qualcomm based. But also the absolute number of those non-Qualcomm platforms is also much larger too as the overall scale of wireless LAN attach goes up. So I think the Qualcomm relationship continues to be important, we do work very closely with them, that we have multiple opportunities that we have executed on with other base spend partners and we continue to strengthen the direct customer relationship, too.

Operator

Your next question comes from Daniel Amir - Lazard Capital Markets.

Daniel Amir - Lazard Capital Markets

Back to the Intellon, what is the goals that you see for this year for this business? And kind of where do you see that you might see some positive surprises in terms of kind of the expectations for this business?

Dr. Craig H. Barratt

Really the base expectations of course are to execute on their current business plan which already is one that was undergoing quite good growth. But we see just terrific fan out in a number of opportunities among our carrier and retail customers. If we combine our customer channels, we have significant capability into essentially all of the major carriers and retail providers since one or the other is a customer of power line or a customer of WiFi. And so as we put these technologies together we’re actually pretty excited to see what can happen.

One thing to realize is the power line business today, which is actually quite a strong one with over 40 million chipsets shipped cumulatively, so really a large footprint. That’s largely happened with external power adaptors that allow power line to be connected into the wall outlet. So power line in general is not imbedded into the devices. It’s generally not in the Gateway, it’s generally not in the television or game console or other device. And so we see tremendous opportunity to grow the [tam] in this market by combining it in a hybrid with our other technologies and getting to integration levels and exercising customer relationships to where it can really be built in, so that the actual vision of power line can actually be achieved, which is that when you plug the device into the wall with one plug, it’s already networked.

Today the reality is it’s still very convenient but you still need two outlets, one for the device and one for the power line adaptor. That can really transform the market as we bring those devices together. So I think there’s a lot of exciting opportunities that we can work on together.

Long term there’s another very exciting effort that’s already been well underway with the power line team and that’s smart grid opportunities. In fact our pride at the close, Intellon it was announced was the recipient of one of the Department of Energy’s stimulus awards related to smart grid development. And the whole goal here is using power line technology as the technology for connecting many of the key appliances and devices around the home. These are devices that you don’t traditionally think of as networked or computer based devices, but actually they all have computers in them and they all can talk to each other.

And so power line is really the way to do that. So whether it’s large appliances, the thermostat or even in the end light switches and any device around the home, there’s just tremendous opportunity. And so this is why we refer to this exponential growth in devices around the home long term. Every single device you use ultimately will be networked. So it’s potentially a very large market.

Operator

Your next question comes from Jonathan Goldberg - Deutsche Bank Securities.

Jonathan Goldberg - Deutsche Bank Securities

What’s your sense of your customer’s sentiment right now? You have a little bit of an inventory build. Are the ODMs especially in Taiwan worried about supply constraints in the coming year? If you could just give us a sense on that and more broadly on how you think their tone and their attitude is right now.

Jack R. Lazar

I think that obviously can change on a weekly basis, sometimes on a daily basis. In general from the folks that I’ve spent time with and from folks that our team spent time with, I think they’re generally pretty positive right now. They’ve seen pretty good demand for their products that wasn’t just channel fill type stuff. So in general they just want to make sure that the suppliers that they have have the right products and are going to have product available for them. I don’t see them building up their inventories in a significant way. As we mentioned we believe that their inventory levels are very reasonable right now.

And at the same time I don’t think there’s any mode of panic or anything that they need to build up those inventories. They just want to make sure they got the right suppliers with the right products and that they’re not going to get caught short. So far we’ve been pretty much able to take care of folks and we’re really trying hard to do that because as we mentioned when you ship more chips in Q4 than you do in the first half of the year, that can be challenging from the operations side of things.

Operator

Your next question comes from Arnab Chanda - Roth Capital Partners.

Arnab Chanda - Roth Capital Partners

Craig, obviously you have multiple growth drivers and maybe just to kind of reiterate, if you look at your 2010 from the five different product lines you have, what are the one or two drivers? If you could just enumerate those, that we should watch out for to see the growth in those businesses.

Dr. Craig H. Barratt

Meaning in each of the five product areas?

Arnab Chanda - Roth Capital Partners

Or whatever you want to address, you think which would drive growth for 2010?

Dr. Craig H. Barratt

I think we’ve covered it quite well in our prepared remarks and other commentary. There are really multiple drivers in each of our major channels. I think the PC market we covered quite well with the upgrade cycle and unbundling and market share gains. And really the key thing is that we’re just offering more technologies and more silicon and more content in each of those platforms going forward. Networking is obviously pretty exciting now with the addition of power line and the fact that we can now provide multiple technologies around the home.

And clearly our vision here is that if we can make them work seamlessly well together, so that the consumer doesn’t have to worry how to connect a device, they simply have a device capable of multiple technologies and it simply just connects. So the notion is that quality of service and security and admission and discovery is all abstracted from the underlying physical layers and that can create a much richer experience and make it much easier to roll out much more devices and services in the home. So I think that’s really a market with terrific opportunities.

And then finally consumer, I think we’ve touched on well. There’s really just an explosion of devices and types of devices. We see growing WiFi attach in smartphones and some feature phones, that there are many other devices as well. So whether it’s navigation devices, whether it’s gaming devices or now I think a big category this year will be e-readers and of course on Wednesday we’ll see how big tablets will be this year as well. And so I think there’s just a lot of opportunities as people use more and more devices.

Operator

Your next question comes from [Robert Pickover] for Craig Berger - FBR Capital Markets & Co.

[Robert Pickover] for Craig Berger - FBR Capital Markets & Co.

Looking at inventory, just to turn it around, what degree if any do you think Atheros capitalized in the quarter of your competitor’s being caught short of supply?

Jack R. Lazar

I think we had the right products. I actually don’t think it was so much a situation where our competitors were short of product. And that happens periodically and has happened in the past but we really didn’t see that as the driver for growth or even incremental growth in this last quarter. In the end what it came down to was we have a very good mobile wireless LAN solution and that product is selling extremely well right now. And the Align products, particularly for low end value oriented notebooks were clearly in high demand in the holiday season, are really the perfect fit. You know the Align products are a perfect fit for these types of products.

So I think what happened here we actually hit the right products at the right time and that’s been driving a lot of the growth for us.

[Robert Pickover] for Craig Berger - FBR Capital Markets & Co.

Can you please discuss your share position at the two dominant netbook vendors, Asustek and Acer, and what you expect your share to be at those customers? And if you expect to remain sole sourced throughout the year.

Jack R. Lazar

I’ll take that one, and let us not forget that we have Ethernet at those places, too. So a very simple answer, we’re not going to get into a discussion on share. I think we’ve proven that we’re a pretty solid provider to those particular customers and frankly a whole other set of customers. What we’re really focused on is just going after each one of these accounts, increasing the number of products that we sell in there whether it be WiFi, whether it be Ethernet, whether it be Bluetooth or even GPS. There’s plenty of products to be going after in those accounts and we feel pretty confident that we’ve built them up the right way, where we can make each one of them larger in the upcoming year.

Operator

Your next question comes from Quinn Bolton - Needham & Company.

Quinn Bolton - Needham & Company

Craig, I just wanted to follow up. You talked about the Blu-ray and TV wins at Sony, just wondering if those are two-by-two or three-by-three designs? And to the extent that you’re seeing more videos stream through the house, are you seeing an increased design effort at the PC OEMs whether they’re notebooks or desktops to move to higher stream, 802 11n?

Dr. Craig H. Barratt

Yes, I think it’s a great point. Just to my understanding the Sony Bravia TVs are actually two-by-two and actually interestingly they’re jewel band because I think 5 GHz is going to be particularly important to get clear spectrum for video streaming. And obviously in the PC market at the low end our pretty much single band is universal. And I think you’re exactly right, clearly one of our strategies is to push the market forward to adopt these mid range and high end solutions today, which honestly will become the low end and mid range solutions of the future. And that really does relate to having jewel band capability and multiple streams for delivering robust video. That won’t all happen this year obviously but clearly the trend of moving these technologies up market is important.

Another trend we see related to that is some of the newest carrier gateways are actually also going to jewel band and jewel band current so that they can offer data access and video streaming concurrently as well. So that’s another thing that increases the silicon content and on the WiFi side and also adds often a drive to gigabit and of course for power line, demands multiple hundred megabits per second of power line capability and all of those three things fit in with our products and technology extremely well.

Jack R. Lazar

And one last thing to throw in there, Quinn, you know Craig mentioned carriers going to dual band concurrent, that’s not something you can integrate into a DSL chip. So you know this is another example of things moving around, the standards changing all the time and why having standalone products like dual concurrent chips, like PLC, like Ethernet, having those and being able to attach them to the right designs when changes happen in the marketplace really provides the customer the flexibility that they need in order to actually bring the best products to market.

Operator

Your next question comes from Apurva Patel - Ticonderoga Securities.

Apurva Patel - Ticonderoga Securities

In terms of your OpEx, you know there’s a lot of questions about whether or not synergies are being across the board from posting to acquisitions. Just wondering, have all the synergies been absorbed or are there more synergies post acquisition left wanting to lag once the deal is closed?

Jack R. Lazar

I think there’s two things I guess we need to be clear about. So first of all, this deal was not done for operational synergy and in fact our mentality is that to the extent that we actually do take down some of the operating expenses, we’re really trying to reinvest it back into the company so that we can really drive PLC to the size of the market that we think it can actually go to. So I hope people don’t get too focused on operational synergies, operational expense synergies. What you should be focused on are revenue synergies. What we need to do is drive additional hybrid solutions that include our Ethernet, our PLC, and our wireless LAN. And I think that’s the true power of this deal. I think it would be frankly silly to take a company that was operating at a great pace already and you know when you have the opportunity to actually take some of that, you know this “savings” and put it back into the company to make it bigger and stronger, it was a no brainer for us.

So I think we’re very happy with where it’s going, the customer engagements that we have are frankly very exciting and they’re very interested in this hybrid networking approach that we’re talking to them about.

Operator

And this concludes our question-and-answer session of this call. I will now turn the call over to Dr. Craig H. Barratt for closing remarks.

Dr. Craig H. Barratt

Thank you. I’d like to thank all of you for joining us today. I would like to especially thank our employees who have worked so hard to provide our customers with great new products and industry leading technologies. And also I’d like to welcome our new PLC employees to the Atheros family.

Atheros will be participating in several investor conferences this quarter. On February 9, we will be presenting at two conferences, the Deutsche Bank 2010 Small and Mid Cap Conference in Naples, Florida; and the Thomas Weisel Partners Technology and Telecom Conference 2010 in San Francisco. We plan to attend additional conferences in March and we’ll update you during the quarter.

Thanks again for your interest in Atheros. Good bye for now.

Operator

And this concludes the conference call. You may disconnect.

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Source: Atheros Communications, Inc. Q4 2009 Earnings Call Transcript
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