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RF Micro Devices, Inc. (NASDAQ:RFMD)

F3Q10 Earnings Call

January 26, 2010 5:00 pm ET

Executives

Doug DeLieto – Vice President Investor Relations

Robert A. Bruggeworth - President, Chief Executive Officer & Director

William A. Priddy, Jr. - Chief Financial Officer, Corporate Vice President, Administration & Secretary

Steven E. Creviston - Corporate Vice President & President, Cellular Products Group

Robert M. Van Buskirk - Corporate Vice President & President, Multimarket Products Group

Analysts

Ittai Kidron – Oppenheimer & Co.

Analyst for Uche Orji – UBS

Edward Snyder – Charter Equity Research

Mike Burton – FBN Securities

Mark McKechnie – Broadpoint AmTech

Tore Svanberg – Thomas Weisel Partners

Tim Luke – Barclays Capital

Harsh Kumar - Morgan, Keegan & Company

Stephen Ferranti – Stephens, Inc.

[Banc Nothomooney] - J.P. Morgan

Nathan Johnson – Pacific Crest Securities

Sanjay Devgan – Morgan Stanley

Aalok Shah – D. A. Davidson & Co.

Anthony Stoss – Craig-Hallum Capital Group

Richard Shannon – Northland Securities

Suji De Silva – Kaufman Brothers

Quinn Bolton – Needham & Company

Operator

Welcome to the RF Micro Devices third quarter 2010 conference call. During today’s presentation all participants will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday January 26, 2010. At this time I would like to turn the conference over to Doug DeLieto, Vice President Investor Relations for RFMD.

Doug DeLieto

At four o’clock today we issued a press release. If anyone listening did not receive a copy of the release please call Samantha Alfonso at the Financial Relations Board at 212-827-3746. Sam will fax a copy to you and verify that you are on our distribution list. In the meantime the release is also available on our website www.RFMD.com under investors.

At this time I want to remind our audience that this call includes forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to statements about our plans, objectives or presentations and contentions and are not historical factors and typically are identified by use of terms such as may, will, should, could, expect, plan, anticipate, believe, estimate, predict, potential, continue and similar words although some forward-looking statements are expressed differently.

You should be aware that the forward-looking statements included herein represent managements’ current judgment and expectations but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publically announce the results of any revisions to these forward-looking statements other than as is required under the federal securities laws.

Our business is subject to numerous risks and uncertainties including risks associated with the impact of global macroeconomic and credit conditions on our business and the business of our suppliers and customers, variability in operating results, the rate of growth and development of the wireless markets, risks associated with the reduced investment in our wireless systems business, our ability to execute on our plans to consolidate or relocate manufacturing operations, our reliance on inclusion in third party reference designs for a portion of our revenue, our ability to manage channel partners and customer relationships, risks associated with the operation of our wafer fabrication facilities and molecular beam epitaxy facility, assembly facility and test and tape and reel facilities, our ability to complete acquisitions and integrate acquired companies including the risks that we may not realize expected synergies from our business combinations, our ability to attract and retain skilled personnel and develop leaders, variability in production yields, raw material costs and availability, our ability to reduce costs and improve margins in response to declining average selling prices, our ability to bring new products to market, our ability to adjust new production capacity in a timely fashion in response to changing demand for our product, dependence on a limited number of customers, dependence on Gallium Arsenide or gas for the majority of our products and dependence on third parties.

These and other risks and uncertainties which are describe in more detail on our most recent annual report on Form 10K and other reports and statements filed with the Securities & Exchange Commission could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.

In today’s press release and on today’s call we provided both GAAP and non-GAAP financial measures. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or unusual items that may obscure trends in our underlying performance.

Now, for some housekeeping, during tonight’s call our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measure please refer to our earnings release issued earlier today on our corporate website www.RFMD.com under the heading investors. Similarly, for an explanation for how RFMD calculates return on invested capital or ROIC, please refer to today’s earnings release.

Finally, during tonight’s call all references to normalizing RFMD’s September 2009 quarter to 13 weeks implied dividing dollar amounts by 14 and multiplying by 13. In fairness to all listeners, we ask that participants please limit themselves to one question and a follow up. After each person in the queue has received a turn we will give participants an opportunity to ask a second question as time allows.

With me today on the line are Bob Bruggeworth, President and CEO; Dean Priddy, Chief Financial Officer; Eric Creviston, President of our Cellular products group and Bob Van Buskirk, President of our Multimarket Products Group as well as other members of the RFMD management team. With that I’ll turn the call over to Bob Bruggeworth.

Robert A. Bruggeworth

The global RFMD team delivered an outstanding December quarter highlighted by great execution across our organization on a diversification and margin expansion plans. The December quarter was RFMD’s second consecutive quarter of record operating profitability and the third consecutive quarter of sequential and annual increases in gross margin, operating margin and earnings per share.

Quarterly revenue was $250.3 million representing an increase of approximately 24% on a year-over-year basis. Viewed sequentially, RFMD’s gross margin expanded 30 basis points to 38.4% and our operating margin increased 140 basis points to 17.8%. Viewed in absolute dollars results are equally as impressive, quarterly operating income was a record $44.6 million and earnings per share totaled $0.14 which underscores the earning power in our operating model and speaks to our ability to deliver record results going forward.

On the balance sheet free cash flow in the December quarter was $41.9 million and RFMD has generated approximately $122 million in free cash flow through the first three quarters of fiscal 2010. We continue to forecast being net cash positive by the end of fiscal 2011. In CPG, order trends were strong throughout the quarter with particular strength with Smartphones and 3G devices.

Sales of Y band CDMA front ends including the rapidly growing TD-SCDMA segment increased approximately 80% year-over-year and sales in to Smartphones and 3G devices approach 50% of our cellular front end revenue. RFMD is enjoying broad strength in cellular handset supported by strong unit forecasts, expanded participation across customer programs and increasing adoption of connected devices whether they be data cards, netbooks or Smartphones. We are a primary beneficiary today as our customers expand the Smartphone experience from the upper tier to the mid tier and we continue to forecast being in production in support of all the major Smartphone manufacturers over the next 15 months.

Across all our markets our success relies heavily on innovation and RFMD is sharply focused on R&D. We lead the industry in R&D and we’re on a record pace of new product introductions. Our cellular products group introduced 14 new products during the December quarter and CPG is on pace to introduce more than 40 new products this fiscal year driving our customer diversification and margin expansion.

We also expanded our portfolio of process technologies with a qualification and release of a CMOS technology optimized for cellular switches and switched base products. RFMD CMOS switches switch filter modules and switch duplexer modules deliver meaningful performance, size and cost benefits in Smartphones and 3G devices and we expect significant customer adoption driven by leading Smartphone manufacturers.

It’s also worth noting that these new products and our entire switch and signal conditioning product portfolio are growing RFMD’s serviceable market and expanding our dollar content opportunities per device. Equally important, our CMOS based products support further improvement on our return on invested capital or ROIC and provide greater supply chain flexibility as we continue to grow our business.

For MPG, customer demand and order activity improved quarter-over-quarter and is seeing an improved demand environment going forward. Each of MPG’s four product lines grew sequentially in the December quarter. In cable TV, which declined the most through last year’s down turn we’re seeing the beginning of a recovery. Quarterly sales I to our largest cable TV customers more than doubled sequentially in December and we are forecasting continued growth in cable TV revenue in to the March quarter.

We saw growing momentum behind our GaN technology in December bolstering our diversification strategy and setting up another leg to our gross margin expansion plans. We completed our first GaN foundry shuttle run and a major North American cable TV customer continues to move forward with broad based adoption of our GaN technology.

In terms of product introductions MPG introduced a total of 86 new and derivative products from the December quarter and MPG is on track to release more than a product a day this fiscal year. RFMD’s industry leading R&D and our steady flow of new product introductions give us increasing visibility and enthusiasm for the upcoming fiscal year.

In addition to product revenue RFMD continues to pursue R&D contracts with the United States Department of Defense and Department of Energy related to multiple end product applications. The RFMD team also continues to make measureable progress in our efforts with the National Renewable Energy Lab to commercialize our compound semiconductor technology for concentrated photovoltaic cells.

We believe the combination of NREL and RFMD brings unique and defensible competitive strengths to the solar industry and our efforts to date suggest we can achieve the industry’s lowest cost and highest efficiency concentrated photovoltaic cell. To that end, the first technical milestones we set for our team is manufacturing the world’s first photovoltaic device on a high volume commercial Gallium Arsenide six inch line. We look forward to announcing this industry leading achievement in the near term and subsequent milestones as we achieve them.

Turning to our outlook, RFMD is capitalizing on major global secular growth trends such as mobile broadband, smart grid, AMR and green technologies while entering lucrative new product segments like switched based products for Smartphones and Gallium Nitride based amplifiers for communications and defense systems which expand our serviceable market, diversify revenue and expand our margins.

As the global demand for data mobility accelerates, the adoption of Smartphones, netbooks, data cards and other connected devices is significantly increasing the available RF dollar content to RFMD. In addition, the increasing demand for smart grid applications and green technologies is creating new incremental opportunities to diversify revenue and expand margins by leveraging RFMD’s leadership and RF components in compound semiconductors.

With that, I’ll turn the call over to Dean for a detailed look at our financial results.

William A. Priddy, Jr.

First a quick reminder that the income statement results in comparisons will be non-GAAP. RFMD’s business model continues to deliver strong operating results and superior capital efficiency. Last quarter RFMD set targets to sequentially grow revenue and earnings per share normalized to 13 week comparisons, maintained consistent gross margins and continued generating strong free cash flow. We’re very pleased to report that RFMD delivered on all these important financial metrics.

Revenue for the December quarter was $250.3 million up 24% year-over-year and normalized 6% sequentially. Our cellular products group delivered another very strong quarter. RFMD is capitalizing on several secular growth trends within the handset industry. These include the proliferation of data enabled wireless devices and increased RF dollar content per device. The multitude of RFMD new product releases are driving revenue growth and diversification at the customer and product segment level with margins that are accretive to corporate average.

MPG posted solid 16% normalized sequential revenue growth with all business units growing. As Bob indicated the end markets served by MPG are beginning to recover but MPG’s revenue growth continues to lag the cellular industry in year-over-year comparisons. With that said, MPG’s backlog is strong and we expect solid year-over-year growth in our March quarter.

Gross profit was $96.2 million yielding an expansion in gross margin to 38.4% compared to 38.1% last quarter. RFMD’s improved margins continue to be fueled by customer and product diversification. Operating expenses were $51.6 million with G&A of $8.7 million, sales and marketing of $11.4 million and research and development of $31.5 million. Normalized expenses were essentially flat compared to the September quarter.

Operating income was a record $44.6 million or 17.8% of revenue. RFMD’s core business defined as RFMD’s total business less the impact of cellular transceivers saw both gross and operating margins expand to above 41% and approximately 17% respectively. Our core business is growing profitability and continues to support our immediate and longer term expectations for strong growth in earnings per share.

Other expense was $1.1 million with lower interest expense as a result of the purchase and retirement during the quarter of convertible bonds. Non-GAAP net income for the December quarter was $38.8 million or $0.14 per diluted share based on 286 million shares using the if converted method. GAAP net income was $24.9 million or $0.09 per diluted share.

Now, going to the balance sheet; cash flow from operations was $44.5 million. Total cash and equivalents was $202 million. During the quarter RFMD purchased $197 million of convertible notes through July 2010. RFMD expects to become net cash positive by the end of our upcoming fiscal year. December free cash flow was $41.9 million. During the first three quarters of fiscal year ’10 RFMD has generated $122.2 million in free cash flow. Also, I’d like to remind our audience that RFMD has active bond and stock buyback programs in place.

RFMD’s inventory was $121.5 million with 5.2 turns consistent with last quarter. Net PPE and was $262 million compared to $278 million last quarter. Capital expenditures during the quarter was $2.6 million with depreciation of $18 million an intangible amortization of $4.7 million. RFMD’s return on invested capital or ROIC improved to 34.6% in the December quarter from 30.6% in the September quarter.

Regarding capital expenditure modeling for future years; RFMD is currently running at about 70% fab utilization. Our smaller dye sizes are driving significantly more saleable units per wafer giving us a meaningful increase in fab capacity and we will ramp CMOS based switches in our fiscal 2011 giving us the added flexibility to outsource or in source switches. Accordingly, we’re confident we can significantly grow our front end business without additional capital expenditures for at least the next couple of years.

In other areas of the supply chain capital investments will be made on a make versus buy analysis using return on invested capital as the metric. As long as our suppliers are in line with pricing we’ll continuing using the outsource model. If pricing isn’t in line then we’ll in source. For capital expenditure modeling purposes we think a range of 2% to 4% of sales for cap ex is appropriate going in to FY ’11 and 4% to 5% of sales longer term.

Now, for the business outlook and financial targets and comments to assist you in modeling the March quarter. Early data points for the March quarter our encouraging. In CPG, quarterly revenue is expected to be better than normal seasonality in the March quarter. In MPG, quarterly revenue is expected to be flat to up sequentially in the March quarter. Non-GAAP operating margin for the fiscal 2010 full year period is expected to approach RFMD’s annual target of 15%.

RFMD expects strong free cash flow in line with recent quarterly performances and cash taxes are expected to be in the range of $4 to $5 million. In terms of share count we anticipate approximately 278 million shares outstanding of common stock at the end of our fiscal 2010 using the if converted method.

With that, we’ll open the call up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ittai Kidron – Oppenheimer & Co.

Ittai Kidron – Oppenheimer & Co.

Dean, I wanted to drill a little bit in to your guidance on CPG for better than seasonality, is this handset market seasonality or your own historical seasonality that you are benchmarking against?

Steven E. Creviston

We’re benchmarking against the handset industry seasonality which we would say looking over the past five to 10 years has been 10% to 15% down in March averaging about 12% on average so we’re confident we’re going to beat that.

Ittai Kidron – Oppenheimer & Co.

Focusing on the cost side of the equation Dean, gross margin since you’re going to have a change in revenue mix in the March quarter in favor of MPG, which correct me if I’m wrong is a higher margin, is there an opportunity for your gross margin despite a decline in revenues to actually stay flat? If not flat, actually move up? Then also on the op ex should we assume flat heading in to March?

William A. Priddy, Jr.

There’s always an opportunity for the margin to stay flat but I think in terms of more conservatism and given our view of current product mix we would expect some decrease in gross margin in the March quarter versus the December quarter.

Ittai Kidron – Oppenheimer & Co.

And the operating expenses?

William A. Priddy, Jr.

Operating expenses will probably tick up somewhat in the March quarter. We’re probably looking somewhere in the 3% to 5% range.

Ittai Kidron – Oppenheimer & Co.

Why would they go up from March to December?

William A. Priddy, Jr.

For one thing we recently reinstated our 401K match. We also took a year off from giving salary increases and that will be layered back in to the March quarter. So nothing major in terms of expense increases. There’s always the increase in FICA taxes every year beginning in the March quarter for those people who may have maxed out on FICA taxes during the year.

Operator

Your next question comes from Analyst for Uche Orji – UBS.

Analyst for Uche Orji – UBS

I just wanted to drill down on your CPG revenue for the December quarter. I’m just wondering if you can provide some color as to sequential growth from the September quarter? And also if you could provide some color as to some areas of strength or weakness from various customers or geographies?

Steven E. Creviston

I can say that the December quarter for CPG was really very stable. It was broad based I think in terms of the growth and we were obviously up sequentially on a weekly run rate or normalized basis, 13 weeks to 13 weeks and it really was across China and Korea as well as our leading OEM customers so I would say it was very broad based, no particular pockets to point out either way.

Analyst for Uche Orji – UBS

There have been some reports of shortages in the component for the handset, I’m just wondering if you were impacted by any of the shortages or did you benefit from shortages at your competitors?

Steven E. Creviston

I think that was more a factor in the September quarterly probably than the December quarter and certainly today going in to March again as Dean said, we’re seeing a very strong start to the quarter and don’t appear to be impacted by any supply shortages.

Operator

Your next question comes from Edward Snyder – Charter Equity Research.

Edward Snyder – Charter Equity Research

Several questions here actually, I’m trying to dig down in to some of the strength that you see and you mentioned in the press release that you gained a lot of ground on the media tech references designed in to China, is that ongoing? How much do you think you have gained and is it ongoing basically? Then the flip side of that is of course it seems to be no secret that one of your competitors is gaining some ground as Nokia is trying to diversify their supplier base a bit. Any indication on how far that will go? In a perfect world what would you have Nokia as a percentage of revenue? I know you guys felt it was a bit high at certain points too and then how are these two going to balance themselves out? Then, I have a follow up.

Steven E. Creviston

There was a lot there, I guess let me take it this way, it should be very clear that we’re confident that we will remain the top supplier to the world’s largest handset manufacturer so speaking of share transitions there I think we’re very confident in our position there over the long term horizon so we’ll remain number one there. Beyond that, as you point out the reference design opportunities in China have gone extremely well for us. I think we have been talking for about two years now about our focus really in China and Korea and we’ve been showing how we’ve really been delivering results there and executing demonstrating the diversification and so that is on track as well.

I guess the way we see it unfolding is best summed up by just saying that we expect in FY ’11 that we’re going to grow our front end business in balance. We’re quite confident that as a matter of fact and going forward year-over-year we believe in balance we’ll continue to grow.

Edward Snyder – Charter Equity Research

In that regard, why the big change in China? I know you’ve been targeting it for several years here and it’s been an area where years ago you actually played more strongly than you had in recent times, is it just that you’ve had more compelling designs? Is it a price issue because you’ve got extra capacity now? Why the gains in China and why do you think they’re going to continue to grow, not just that you are shipping product but that you can continue to grow there?

Steven E. Creviston

I wouldn’t call it a price issue by any means based on extra capacity. We talked at our analyst day actually in 2008 I suppose, we showed a picture of the 716X family of products that we were bringing out and how we expected to achieve product leadership both in the cost to produce the product but also in its functionality. Since then we’ve talked many times I think about how we brought out a complete product family about that pin out so our customers can develop one board layout and then release anything from a dual band GPRS up to a quad band edge solution with that same phone board. That concept is really catching on and we’re seeing to your first question that this is definitely continuing. We’re making a lot of progress. We think we’ve got a long way to go there as well.

Edward Snyder – Charter Equity Research

Then finally just one quick one for Dean, obviously with all the upheaval in late ’08 and all of ’09 most everybody has gotten away from any kind of detailed guidance but you’ve had kind of a real stable run here improving performance overall, do you see yourselves going back to giving more specific guidance or are you guys comfortable with this approach and just going to take the volatility? Then, I want to clarify you said in the coming quarter that 15% target operating margin is where you think you might head, is that GAAP or pro forma.

William A. Priddy, Jr.

To clear up the guidance for the coming quarter we said that for the full fiscal year ’10 timeframe that we would converge on 15% non-GAAP operating margin. So I guess you’ll have to maybe do a little bit of modeling to come up with your expectations for the March quarter but clearly we’re very confident of converging on that 15% type operating margin for the full fiscal year ’10 and that’s about a year ahead of where we thought we would be converging on that type of performance. We’re actually looking to be able to exceed that 15% operating margin in the fiscal year ’11 timeframe. I’m sorry, the first part of the question again was?

Edward Snyder – Charter Equity Research

Guidance, do you see yourself going back to giving more specific guidance or are you guys comfortable with this approach forever?

William A. Priddy, Jr.

We already given an awful lot of guidance on the call and at various conferences and throughout the quarter so I think the days of RFMD giving revenue will be X and earnings will be Y, I don’t see a need to go back to that kind of old fashion way of giving guidance.

Operator

Your next question comes from Mike Burton – FBN Securities.

Mike Burton – FBN Securities

Can you talk a little bit on the CPG guidance from a geographic perspective where some of that strength is coming from and if it is outside of some of your hub customers, your level of comfort maybe you could talk a little bit about your visibility in to those businesses?

Steven E. Creviston

I think the March quarter so far is shaping up to look a lot like the December quarter. Really again, the demand is pretty broad base, certainly there’s strength in 3G, I mean that’s growing much faster than the market obviously in terms of dollars in particular as well as units so we’re seeing strength there but it is also across many, many different customers? Also I guess maybe something specific to RFMD we have talked about launching our switch and signal conditioning product line so those products are getting in to the market now and we’re definitely expecting that to have huge sequential growth in the March quarter and then throughout FY ’11 as well. I think that it’s really across the board.

Mike Burton – FBN Securities

Than on margins, you mentioned that the new products are going to help out going forward with your margins, should we expect to see that on the gross margin line? Then on the operating margin side with the aggressive product launch plans that you have, you’re obviously talking about even exceeding your 15% operating margin target but do we kind of see that as a little bit of a headwind that maybe as we start to look in to fiscal year ’12 we can see even further upside?

William A. Priddy, Jr.

I’m not quite sure I understand the part about the headwinds but clearly what’s driving the margin performance is number one how we structure the business and number two is the resulting customer and product diversification that we’re seeing across the business whether it’s in the cellular products group with some of the products that Eric had mentioned in 2G and 3G, new customers that we’re bringing on going in to production with all the major Smartphone manufacturers.

MPG has not realized its full potential coming out of the downturn. Most of this market has been a little slower to recovery so we’re seeing those markets begin to pick up steam and as you know the margins in the MPG business are quite a bit accretive to corporate margins. So just about everywhere we look we see room for margin improvement. We mentioned that for every $1 of incremental revenue that we expect in fiscal year ’11 we’re going to be dropping 60% plus to the bottom line so that’s pretty good fall through.

Robert A. Bruggeworth

Just to clarify something, what we said was for fiscal ’10 for the entire fiscal year we would approach 15% and what Dean’s comments were earlier in fiscal ’11, I know you mentioned ’12, in fiscal ’11 we should be able to exceed the 15%.

Mike Burton – FBN Securities

Then just lastly, 10% customers in the quarter?

William A. Priddy, Jr.

Within CPG we had two and there were no 10% customers in MPG during the quarter.

Operator

Your next question comes from Mark McKechnie – Broadpoint AmTech.

Mark McKechnie – Broadpoint AmTech

Can you help out just the mix of MPG versus CPG in the quarter?

William A. Priddy, Jr.

That was roughly 80/20.

Mark McKechnie – Broadpoint AmTech

Then by technology can you break that out for CPG?

William A. Priddy, Jr.

Well we mentioned that Y band or 3G was about 50% of the cellular front end business so the rest of the cellular front end business would be 2G technologies and the transceiver business was in a range between 10% and 15% of revenue.

Mark McKechnie – Broadpoint AmTech

When you’re looking out to March, maybe this is for Eric or Dean, how’s the visibility relative to normal times? Are you giving yourself a bit more backlog coverage or is it about in line? What’s the visibility however you can quantify it?

Steven E. Creviston

It is a little hard to quantify it, you’re right. We believe the visibility is very good right now looking in to the March quarter. Certainly, the order patterns are very strong, lead times are very good and so it appears we have very good visibility in CPG.

Robert M. Van Buskirk

In MPG I think along the lines of the prepared comments as you’ve already heard we’ve actually seen some strengthening across a broad range of our end markets and our order book reflects that. We’re off to a really good start for this quarter especially as compared to last quarter.

William A. Priddy, Jr.

In other words Mark we’re 100% booked for the type of revenue guidance that we have laid out.

Mark McKechnie – Broadpoint AmTech

Just a housekeeping question, for the full fiscal year fiscal ’11 if you look out, Dean what should we think about in terms of tax rate?

William A. Priddy, Jr.

We don’t really look at it as a percentage basis. I think it all depends on how much money that we’re making when you compute the cash taxes and we expect to be more profitable in fiscal year ’11 than we were in fiscal year ’10 so you can expect cash taxes will be going up. You’re probably still in the range of maybe another $1 million to $1.5 million a quarter on top of what you’ve seen on average this quarter. But once again, it all depends on the profitability and where that profitability occurs because there are different tax rates in different countries.

Mark McKechnie – Broadpoint AmTech

Is the relatively lower tax rate are there NOLs that are being absorbed there or is it just based on where you bill?

William A. Priddy, Jr.

A couple of reasons why we use cash taxes, for one thing we do have considerable NOLs, we have federal NOLs of about $100 million, $97 million to be specific and federal R&D tax credits of $41 million so we still have quite a bit of those to work through on a GAAP basis. So, we thought the investors would be interested in cash taxes and how it would impact the company’s free cash flow.

Mark McKechnie – Broadpoint AmTech

One last one and if it’s too much you can take it offline but just the remaining convert schedule, I guess you paid off your’10 when are the next ones do and how do they ladder out?

William A. Priddy, Jr.

We’ve got a small amount of ’10s left, about $10 million due the first of July and then in 2012 there’s about $198 million and 2014 roughly $135 million.

Operator

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

Tore Svanberg – Thomas Weisel Partners

First of all Dean I think you mentioned 2% to 4% cap ex as a percentage of revenue in fiscal ’11, how much revenue would that potentially support?

Robert A. Bruggeworth

With our factories running roughly 70% coupled with the increasing dye per wafer that we’ve got planned, we can grow significantly. A lot of that capital will be continuing to expand our engineering capabilities for new products and new technologies along with Dean pointed out some of our backend processes that has our suppliers, we grow with them we’ll make versus buy decisions.

William A. Priddy, Jr.

Remember a large part of MPG is outsourced so it’s a completely different model in many regards than our cellular products group. Within CPG I mentioned that our fabs are operating at roughly 70% capacity utilization and we’re only in about the fourth inning of the dye shrinks actually having an impact so we could easily increase our front end revenue by 50% or so without adding wafer fab capacity. A lot of this gets back to the strategic decision to buy what was formally the Philtronics six inch facility in the UK about three years ago. That’s really paying off big time for the company.

Tore Svanberg – Thomas Weisel Partners

Just looking more in the near term it looks like you’re already booked for the quarter. How’s linearity? Are you expecting turns orders to maybe slowdown a little in the quarter? I’m just trying to understand why you’re being a bit more conservative if you’re already very much booked for what your goal is?

William A. Priddy, Jr.

I think there’s no uncertainty, I think most companies are a bit conservative on their guidance. In terms of linearity we expect a strong first half of the quarter, probably take a little breather during the lunar New Year time frame as most companies would expect and then our customers are telling us to expect a strong back half of the quarter.

Robert M. Van Buskirk

MPG typically has some turns business during the quarter. My comments earlier about order strength would lead you to believe and I think properly lead you to believe that we’re expecting fewer turns as a percent this quarter as we have seen over the past few quarters.

Tore Svanberg – Thomas Weisel Partners

Finally for Bob, Bob you mentioned shuttle run of GaN already going on right now. When would you expect to start to see some revenues?

Robert A. Bruggeworth

We actually have some pretty insignificant level of revenues already. It’s going to slowly build, the foundry business takes a while to get the funnel filled. The funnel is pretty full right now at more than 20 customers in that funnel right now. We have quite a few design kits out there and we’re interfacing on a daily basis. I would say that the meaningful revenue would start to come in over the next few quarters. I might also mentioned that because we’ve opened the doors as a foundry, we’re also engaging with large customers and large potential strategic partners about actually sharing our GaN technology not only as a product but perhaps as a foundry or a technology. So we’ve got some interesting dialog going there also.

Operator

Your next question comes from Tim Luke – Barclays Capital.

Tim Luke – Barclays Capital

I was wondering if maybe Bob might be able to provide some color on which areas with MPG are helping to deliver sort of sequential growth or flat to slightly up revenue in the March quarter? It sounds like the CATV business is coming back a bit.

Robert A. Bruggeworth

We actually are expecting I think we said in the prepared comments that all the business units that we have, the four major areas, should grow but we’re looking for continued growth in Wi-Fi access points and CPE with the opening of Wi-Fi for handsets in China. That’s an interesting development, a lot of Wi-Fi applications in handsets now are also becoming dual band which provides some opportunity for our front end modules there.

The AMR smart grid area is an area that we should see some growth sequentially as well as our defense and power applications. Our defense and power business has been growing quite nicely over the past few quarters and actually on a year-over-year basis. We also indicated that cable TV should also see some growth. So I think as Bob may have mentioned in his prepared comments, it is very broad based. We’re starting to see quite frankly all of our diversified end markets heal and recover and start to show some opportunity for growth.

So it’s not one particular market. That’s the message I’d like to leave you with. It is across a broad range of our end markets but we do expect all of our major end markets to grow quarter-over-quarter. There’s been a pause as you know from a wireless infrastructure standpoint the second half of last year which we forecasted. We are even starting to see some indication that that might also start to return to growth in the first half of this year.

Tim Luke – Barclays Capital

For Eric or for Dean, when you say that CPG is expected to be better than normal seasonality, could you just remind us what normal seasonality has been and any framework around what that may mean?

Steven E. Creviston

I think we commented earlier that we are comparing ourselves to the handset industry seasonality which we would benchmark it as 10% to 15% typically, about 12% on average and that’s what we intend to do.

Tim Luke – Barclays Capital

So you think you’ll be at the lower end of that decline scale of 10% to 15% or you think that you’ll be better than that?

Steven E. Creviston

At the lower end of that I think.

Tim Luke – Barclays Capital

Maybe just a broader question for Dean, clearly just with respect to the linearity of the December quarter, the overall revenue seemed to come in slightly below the consensus number for the revenue, what was the delta there with that although you had improved margins?

William A. Priddy, Jr.

The consensus was probably within a million or so dollars. Linearity was actually pretty good during the quarter. I would say if there was any one area that was a bit of a headwind actually goes back to the September quarter and some concerns about inventory build with a particular customer in Korea. So, if there was any short fall that probably accounted for that million or couple of million or so eroding. It was pretty much in the noise but I think maybe what is more important is the run rates have been established subsequent to the December quarter the [pull] rate has been pretty strong.

Tim Luke – Barclays Capital

I wouldn’t like to close out without providing you guys the opportunity just to clarify on the relationship that you have with the large Scandinavian handset manufacturer and how you see your position there given the recent ebb and flow in terms of reports on different market share changes within Nokia?

Steven E. Creviston

Maybe you were offline for a bit, we did answer that question earlier and essentially we’re very confident in remaining the top supplier with our largest customer and the world’s largest handset manufacturer. We’re very confident in that position in the long term and beyond that we’ve got a lot of products coming out that we’ve been talking for a couple of years now about our ability to continue to gain in the rest of the market. We’re demonstrating those gains so we’re confident we’re going to grow, net/net in balance we’re going to grow year-over-year.

Operator

Your next question comes from Harsh Kumar - Morgan, Keegan & Company.

Harsh Kumar - Morgan, Keegan & Company

A couple of questions, can you remind us how long you expect the POLARIS tail to last? Also, I think you said your core business margins of 41% or thereabouts, what will that do to your margins in the near term let’s just say six to nine months out and then ultimately longer term?

William A. Priddy, Jr.

Harsh, I can comment on the gross margins a little bit longer term. What may appear to be a bit of a headwind is actually a tailwind to gross margins longer term. The POLARIS business up against the roll off we’re going to see an improvement in our gross margin for a couple of reasons, number one it is low margin business, very low margin compared to company averages and number two, we’re picking up significant new product design wins both with cellular front ends and also with switch and signal conditioning products and MPG coming back that are all very much accretive to corporate margins.

So we’re replacing low margin business with high margin business so as POLARIS rolls off – it’s a three margin point drag today basically is what it is. So with that Eric can speak to how long POLARIS is going to last.

Steven E. Creviston

Customer forecasts continue to show that we’ll have about two more quarters of roughly the same absolute dollar level that we’re in today and then it will ramp down over about a four quarter period.

Robert A. Bruggeworth

The one thing I want to comment on there Harsh, it’s something I know we take questions from time-to-time, why don’t we end of life it. I think what’s most important is our customers can determine at the rate it can decline and goes to end of life and we’re going to support them the whole way through whether they need more or less, we’re in lock step with them and we’re going to support them through this. So, given the visibility that we have today, that’s the view we see that Eric gave you.

Harsh Kumar - Morgan, Keegan & Company

Now that you are very, I’d say today, very close to cash breakeven on a per share or per stock basis net, what is your game plan for cash? Is it to kind of continue to build it and then eat away at this debt that you’ve got? Any kind of color will be helpful.

William A. Priddy, Jr.

Well, I think all options are on the table Harsh. Yes, I mentioned that we continue to have an active share buyback and bond buyback program in place. We’re not going to rule out strategic options that would be accretive to the company’s earnings so basically everything is I feel like for the first time in a good year, year and a half, that all of our options are open to us.

Harsh Kumar - Morgan, Keegan & Company

If I can squeeze in one last question, are you guys concerned at all, we’ve seen this from a lot of companies here recently having better than excepted March. Is there any concern within your management team that this may be coming at the expense of the June quarter or even quarters beyond?

Robert A. Bruggeworth

I think I can speak for both Eric and Bob Van Buskirk, we’re not seeing any indications of that. in fact, we’re really looking forward to calendar 2010 growth in many of our end markets. Bob listed several that we’re expecting to be up quarter-over-quarter and we think that’s going to continue. Clearly, when we look at the handset market we’re expecting double digit growth coupled with as you know Smartphones and the number of 3G phones continue to grow in their percent of the cellular market that significantly increases our dollar content coupled with the new product segments that we talked about in the switch and signal conditioning product line driving a lot of our growth in the Gallium Nitride in our MPG business.

So we’re seeing what we believe is pretty good outlook for our markets coupled with the new product introductions and our new technologies that quite honestly 2010 calendar year is setting up to be a strong year. Dean and I have also commented, you know fiscal ’11 we know is going to be better than fiscal ’10 but I’ll allow Bob and Eric to add any color.

Robert M. Van Buskirk

On the MPG side of things as we’ve indicated it’s been a very steady recovery in a very broad based sense. There aren’t any spikes that we’re looking for in the March quarter that would cause us any heart burn going beyond March and we haven’t seen any indications that anyone is doing anything in March ahead of June. So I would say because of it’s a broad nature for us and its steadiness we’re not losing any sleep over that particular item. We may be losing it over other things of course but right now it looks to be very steady and very broad based.

Operator

Your next question comes from Stephen Ferranti – Stephens, Inc.

Stephen Ferranti – Stephens, Inc.

Dean I guess one for you, the 60% contribution margin that you mentioned earlier, does that assume any material change in product mix CPG versus MPG?

William A. Priddy, Jr.

No, that’s with the current projected product mix.

Stephen Ferranti – Stephens, Inc.

Then just to clarify earlier I think you said 60% dropping to the bottom line? I just want to clarify that’s correct versus dropping to the gross profit line.

William A. Priddy, Jr.

Well, it’s going to drop to the gross profit but we don’t see any meaningful increases in expenses during calendar ’10 or FY ’11 so I would say the fall through is going to be pretty much one-for-one.

Stephen Ferranti – Stephens, Inc.

Then just the last one for me, Skyworks is out there they’re over 20% op margin on the December quarter, is there structurally anything that would prevent you guys from sort of trending up towards that level over time?

Robert A. Bruggeworth

Structurally absolutely not, I think there’s no reason why we can’t trend that direction. We’ve laid out our plans, you look at the fall through Dean talked about and you just discussed on our gross margin coupled with the growth that we expect in the industries and clearly we can achieve that.

William A. Priddy, Jr.

In fact, when you look at our core business our gross margins are already above 41% so that’s very close and operating margins were 17% so we give it a bit of revenue growth in our core business and 60% of that falls through, it adds up real fast.

Operator

Your next question comes from [Banc Nothomooney] - J.P. Morgan.

[Banc Nothomooney] - J.P. Morgan

I wanted to dive in to your gross margin guidance, I think you said it’s going to be down sequentially. Now, is this a function primarily of lower revenue and lower utilization or do you expect the POLARIS business to be strong again which would obviously have an impact on gross margins?

William A. Priddy, Jr.

We were very vague on specific gross margin guidance. I mean we can construct various scenarios but expectations if revenue does drop and you have a certain amount of fixed expenses then gross margins are likely going to drop as well. But, I think the thing that we’ve been getting across to investors is don’t expect any significant fall off in gross margins in the March quarter because of seasonal factors.

[Banc Nothomooney] - J.P. Morgan

Then I think Eric you already mentioned this, for the next couple of quarters you’re expecting solid growth in the cellular handset market but internally for your planning purposes what is your expectation for overall handset growth in units for 2010? Is it in the area of 10% or do you think it’s higher than that?

Steven E. Creviston

Yes it is, 10%.

[Banc Nothomooney] - J.P. Morgan

Then obviously from an ASP standpoint you continue to expect ASP growth because of your penetration in to Smartphones?

Steven E. Creviston

Yes, that’s correct.

[Banc Nothomooney] - J.P. Morgan

Then Dean one other question for you, in terms of the inventory obviously inventory dollars have gone up in the last couple of quarters though inventory base has stayed roughly flat, is there any concern about an inventory buildup especially if the June quarter doesn’t pan out as you expect?

William A. Priddy, Jr.

Indirectly we answered the question because we expect a very strong January timeframe and before Chinese New Year so we’ve actually put inventory in place to make sure we’re well covered for this demand period and then we also expect a very strong back half of the quarter as well with just a little bit of a let up during the Chinese New Year.

Robert A. Bruggeworth

Coupled with our cycle times if you’re insinuating maybe there could be changes in demand, I feel real comfortable we can adjust to that so we see our inventory levels at the right levels per Dean’s comments on January. And, when we looked at our end customers’ inventory levels we still think they’re one to two weeks below what’s typical or normal. We look at the whole industry not just our own inventories.

[Banc Nothomooney] - J.P. Morgan

That was going to be my next question to see what the inventory levels at distribution and at your OEM customers were but it looks like that’s at a comfortable level as well?

Robert A. Bruggeworth

Yes. We think it’s actually below what they normally run by one to two weeks.

Operator

Your next question comes from Nathan Johnson – Pacific Crest Securities.

Nathan Johnson – Pacific Crest Securities

I just wanted to come back a little bit to China and was wondering how much, if any, of the better expected seasonality for CPG is due to increasing revenue mix from China ahead of the Chinese New Year? Then following up on that, just how we should expect that end market to progress as we head in to the June quarter and pass the New Year holiday? Do you expect that market could continue to grow or do you think that we’ll see a little bit of a seasonal decline?

Steven E. Creviston

There is definitely some strength in China in the March quarter. I think your question is is that really driving our better than seasonality projection and I would say that is definitely part of it because of course China is typically down a bit in December and then comes back strong in March and we’re definitely seeing that pattern strong here so it is part of it. But, I would say we’re definitely seeing a lot of strength in Korea as well and then in 3G across all the OEMs. So it’s a part of it but I wouldn’t say it’s the driver for the guidance.

Then looking further in to 2010 we do expect that market to stay strong. We do expect that we’ve got the ability to continue to take share there as well so we’re definitely expecting a pretty good year.

Nathan Johnson – Pacific Crest Securities

Do you think potentially looking at the June quarter that share gains could potentially offset just the normal seasonal decline in that market?

Steven E. Creviston

It’s definitely possible where we have a lot of new products coming out for that market. It remains to be seen exactly which products that our end customers sell and which ones don’t. We should point out that TD-SCDMA as well has really, really taken off there very well and we’ve been working with [T3G] and others there. We’ve been on reference designs for several years in preparation for this ramp and it’s coming in and we’re definitely a benefactor there. We have a very big presence in TD so as that continues to roll out that will benefit us as well.

Nathan Johnson – Pacific Crest Securities

Just one other question for me, I just wanted to ask about AMR, you guys obviously highlighted that as an area of strength this quarter and I know it can be a fairly lumpy business but looking a little bit further out in to fiscal 2011 do you think that’s a business that could see another doubling or do you think that there’s something that will occur that will change the trajectory either to be better or worse than the year-over-year increase that you saw in fiscal 2010?

Robert A. Bruggeworth

I think your conclusion we would certainly concur with. With these often regulated mandated emerging markets they often go through what I call the deploy and digest phase. There’s a rapid deployment and then there’s some digestion of the product and then they restart so maybe that gets the lumpiness you’re talking about. We actually saw a little bit of that this year, as I said though we saw pretty good growth in our December quarter, we’re expecting to see that continue in the March quarter.

We’re actually on a doubling track for the last couple of years in the whole AMR/AMI smart grid and now we’re starting to also look at some ZigBee applications because of the AMI, a lot of the ZigBee applications are migrating in to the home and spreading that infrastructure out not only to the meters but to potential appliances in the home. So going back to the beginning, we expect to be doubling this year’s revenue over last year’s revenue.

We will be very disappointed if we don’t do that again next year. We also said in the beginning of the year that we thought we could get in the kind of double digits in the revenue and we’re on a kind of $8 to $10 million run rate as we exit this calendar year. So we’re still bullish on AMR/AMI and smart grid.

Operator

Your next question comes from Sanjay Devgan – Morgan Stanley.

Sanjay Devgan – Morgan Stanley

First question is can you give us a sense of what your internal utilization rates were in the December quarter and how you kind of project them to be in the March quarter?

William A. Priddy, Jr.

Utilization rates in the December quarter were around 70% which were roughly consistent with the previous two quarters. I don’t expect any major departures from that utilization rate in the March quarter. It could tick down just a bit, I mean we don’t expect to build inventory in the March quarter.

Sanjay Devgan – Morgan Stanley

The second question is if you look at your kind of linearity, I think you touched on the linearity the previous caller had asked about your linearity in December and you said it was a very linear quarter. Can you compare the linearity with the previous quarter, with the September quarter? Was linear better, about the same? I’m just curious how it tracked just given the disconnect in the two quarters?

Robert A. Bruggeworth

If you want to think about it, it’s typical that October, November, December usually increase over time and that’s kind of what we saw a little trailing off in December near the end. I mean, that’s pretty normal depending on again when the Chinese New Year is. As Dean said, that can stay pretty strong as we go in to January and February. So, if you want to go back to the September quarter, that’s usually July is rather week, August picks up and September is usually strong.

Sanjay Devgan – Morgan Stanley

Then just one last question, I think you mentioned the mix of MPG/CPG was roughly 80/20, any thoughts on kind of long term how we should view that mix as you gain traction in some of these growth areas in MPG?

William A. Priddy, Jr.

We’re just going to continue to pursue profitable growth opportunities and I think both business units have ample opportunity to grow. So it’s a little difficult to predict exactly where that will fall out. I look at both businesses and I’ve heard both Bob and Eric reiterate in fiscal year ’11 they expect to grow their businesses so it could pick up a point or so either way.

Operator

Your next question comes from Aalok Shah – D. A. Davidson & Co.

Aalok Shah – D. A. Davidson & Co.

If I had to I guess pick a little bit on your guys it’s on the margin front on the operating margins can you tell me one of your competitor is at over 20% operating margins right now and I know Dean you’re guiding for around a blended 15% for the fiscal year 2010 but is there room for you guys to get up to that 20% level and maybe beyond kind of matching one of your competitors out there?

William A. Priddy, Jr.

Oh, absolutely. You give us $30 million in additional revenue and we’re in that type of range with the contribution margin on revenue. So we absolutely can construct a scenario to get not only to 20% but above 20%.

Aalok Shah – D. A. Davidson & Co.

The $30 million in additional revenue, I’m not asking for guidance for 2011, but do you see a clear path to getting that additional? I mean is that really a whole lot of additional share gains? Is it possible just with the existing customers that you have and existing design win momentum do you think you can get an additional $30 million in revenue?

William A. Priddy, Jr.

I can definitely construct that scenario. I think the only potential headwind to that is our POLARIS or transceiver business and it’s very difficult to say exactly when that’s going to be trailing off but in our core business I think you can absolutely construct that scenario. I think from an investor perspective the total revenue is going to be dictated somewhat by what the transceiver business does but keep a very close eye on what the core business does because that is where we’re making our investments, where we’re taking share and where we have the opportunities for growth.

Operator

Your next question comes from Anthony Stoss – Craig-Hallum Capital Group.

Anthony Stoss – Craig-Hallum Capital Group

Your reduced dye size has been helping gross margins and I believe last quarter you said about 35% of your products shipping were on reduced dye size. Can you update us where you are at today? Then, I had a follow up.

Steven E. Creviston

We do continue to go down that curve. The December quarter actually our percentage of revenues on new products was lower than it was in September. It was a little under 30% as a matter of fact and we see that being roughly that level as well in March and then from what we see in the customer forecasts that will tick back up to around 35% mark during FY ’11.

Anthony Stoss – Craig-Hallum Capital Group

Your 50/50 2G/3G any changes to the mix in terms of design activity kind of exiting calendar 2010 or do you expect it to be roughly about the same?

Steven E. Creviston

Is your question regarding design win share? I’m not exactly sure how to answer that I guess. In terms of design wins there is more activity I would say in 3G generally but there’s still a lot of robust activity in 2G for sure, there’s a lot going on there for sure. We’ve talked about the emergence of the 3G entry category. For example, we think in 2010 you’re going to see a lot of that where our customers are really delivering the Smartphone type of features down to the mass market and so that’s generating an awful lot of kind of that mid tier but 3G type design activity.

Anthony Stoss – Craig-Hallum Capital Group

One last question for Dean, op ex by quarter any major changes or do you think you can hold it kind of consistent at your expected March levels through calendar 2010?

William A. Priddy, Jr.

We don’t see any major changes throughout the calendar ’10 or fiscal year ’11 timeframe.

Operator

Your next question comes from Richard Shannon – Northland Securities.

Richard Shannon – Northland Securities

A couple of questions for me, I’m kind of curious about the pricing trends within your CPG business. In 2010 is that expected to be kind of similar range you’ve seen in the past or could the possibly be a little bit better?

Steven E. Creviston

It’s a good question. We aren’t seeing anything significantly out of the normal range so far and don’t anticipate anything really in 2010. It’s a growing market, there is a lot of opportunity and so we don’t expect anything out of the normal range.

Richard Shannon – Northland Securities

Second question for me on the MPG Group, where does that group sit in terms of operating profitability? Is that something that is breakeven, close to it? Has it moved above in the current December quarter or how should we look at that?

William A. Priddy, Jr.

We haven’t historically broken out the individual group’s operating profitability. But I will say we have been able to achieve the significant improvement in financial results and we’ve been pretty clear that the MPG organization is just now beginning to recover so I think that speaks to the opportunity for additional improvement in financial results as MPG continues its recovery.

Robert M. Van Buskirk

The only thing I would add and what we’re trying to give you the flavor of is in terms of the MPG market looking backwards it looks like actually March of calendar ’09 was the trough for MPG and we had forecasted initially that it may take us in fact four quarters or so to get back to those levels and start to show some year-over-year growth. So our profitability from this point forward looks to be strengthening because we’re just now at a point where we’re actually delivering substantial growth from where we stand today and what we expect to see in March.

Operator

Your next question comes from Suji De Silva – Kaufman Brothers.

Suji De Silva – Kaufman Brothers

I want to hit the operating margin question just a little bit differently. With utilization having been around 70% the last few quarters does that $30 million bump you talked about Dean get you to a higher utilization? I’m trying to just reconcile that with the shrinks you have in the products in whether maybe perhaps lowering the capacity is another way you can get margins up or if that’s not the right way to go here? I’m just trying to reconcile all that?

William A. Priddy, Jr.

I think the biggest thing that has moved our margins has to do with the new products and the inherent margin structure on those products. So it’s customer diversification and new product introductions and new segments. The utilization hasn’t factored in so much now, if it were to improve it definitely would help margins.

Suji De Silva – Kaufman Brothers

I guess the real question I’m asking is are you at the right capacity level? Or, perhaps given the shrinks are you at too much capacity?

William A. Priddy, Jr.

Well, we certainly have the ability to take more business and I think that’s what we intend to do in our core business. So we’re aggressively going after new markets and new opportunities. 70% though I will say that’s a huge competitive advantage when it comes to cycle time. We can get material through the fabs faster than I would say any company in our space.

Suji De Silva – Kaufman Brothers

Then the mix of 2G versus 3G just to be clear, 3G includes edge, is that correct just as a clarification?

Steven E. Creviston

No it does not.

Suji De Silva – Kaufman Brothers

Edge is in 2G?

Steven E. Creviston

Just to be clear it includes what we call wedge which is edge in a Y band [inaudible] handset and almost all of those today are shipping as transient modules which have a switch that has a Y band pass in it.

Suji De Silva – Kaufman Brothers

And if I recall you said the mix is 50/50. Where do you expect that mix to be 12 months out? Is 3G going to grow faster? I imagine it would.

Steven E. Creviston

Yes, I’d agree I think it would.

Suji De Silva – Kaufman Brothers

Where do you think the mix ends up just say 12 months out just to get a flavor?

Steven E. Creviston

I don’t really have that right off the top of my head.

Operator

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

Quinn Bolton – Needham & Company

Two quick question for Eric. Eric, you talked about the [inaudible] mix of 3G, I’m just wondering if you could talk about your opportunity in data modems over the next year or so?

Steven E. Creviston

That’s been an area of real strength for us as you probably know and we started out selling our standard components in to that market we have now progressed where we’re actually releasing custom components for that market and I think the market leader there in data modems is a strong partner of ours. That’s going really well and we expect it to continue to go well.

Robert M. Van Buskirk

If I can interject there, the mobile broadband tsunami is starting to crash upon the shore. There are some startling statistics I think out there. Verizon I think has reported to date 31% year-over-year increase in data services revenues. There are operators in Europe that are talking about double digit data growth month-over-month in certain regions and it’s only at the beginning of this whole thing. There’s some indications from one of our major wireless infrastructure equipment providers that the mobile broadband effect on not only clearly data modems and connected devices that Eric pursues but on the infrastructure side could be very significant as we go forward.

They threw out a figure of merit which was kind of interesting recently where they said in a public forum at a supplier day that 20 million mobile broadband users consume as much cellular network bandwidth as four billion voice users and that the average Smartphone mobile broadband user uses a gigabyte of data per month and the data connected or mobile device data card person uses three gigabytes per month. It’s pretty significant so it’s going to have an effect on both of our businesses as this mobile broadband phenomena continues to spread.

Quinn Bolton – Needham & Company

Just a follow up on your comments about the TD-SCDMA market in China, do you have any feeling for how big that market could be in terms of unit shipments in 2010?

William A. Priddy, Jr.

I hesitate to put a number out there because those forecasts have been pretty tricky in that market. It’s clearly in the millions that we’re already getting up to that kind of run rate even at a quarterly basis I think so it’s definitely significant in 2010.

Operator

At this time I show there are no further questions. I’d like to turn it back to management for any closing remarks.

Robert A. Bruggeworth

As our quarterly results clearly demonstrate RFMD is generating an increasing percentage of our industry’s profitability as we deliver on our long term diversification and margin expansion goals. RFMD is an industry leader across multiple diversified markets and we are a primary beneficiary of multiyear global secular growth trends. We believe our December results are representative of the expanding earnings power in our operating model and we believe we are on track to deliver continued revenue and earnings growth in fiscal 2011 and beyond. We thank you for joining us and we look forward to reporting our progress as the quarter progresses.

Operator

Ladies and gentlemen if you’d 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 4199783 followed by the pound key. This does include the RF Micro Devices third quarter 2010 conference call. Thank you for your participation and for using ACT. You may now disconnect.

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