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Exar (NYSE:EXAR)

Q3 2014 Earnings Call

January 29, 2014 4:45 pm ET

Executives

Laura Guerrant-Oiye

Ryan A. Benton - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Louis DiNardo - Chief Executive Officer, President and Director

Analysts

Timothy M. Arcuri - Cowen and Company, LLC, Research Division

Vernon P. Essi - Needham & Company, LLC, Research Division

John O'Brien

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Brian Freckmann

Craig A. Ellis - B. Riley Caris, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Exar Corporation's Fiscal Year 2014 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call is also being recorded. I'll now turn the conference over to Exar's Investor Relations, Laura Guerrant. Please go ahead.

Laura Guerrant-Oiye

Thank you, Colton, and good afternoon, everyone. Thank you for joining us for Exar Corporation's Fiscal 2014 Third Quarter Financial Results Conference Call. With us today are Louis DiNardo, President and Chief Executive Officer; and Ryan Benton, Chief Financial Officer.

Before we begin, I would like to remind you that we provide our investors, financial analysts and the general public with a business and financial update each quarter in the financial results, news release and conference call. Please note that the fiscal 2014 third quarter results release was disseminated this afternoon after the market closed and can be viewed on the company's website.

After Mr. Benton's prepared remarks, Mr. DiNardo will be presenting from a live webcast. You can view the live webcast on the company's website at ir.exar.com in the upcoming earnings event section.

Exar will not provide any further updates on the company's performance during the quarter unless it is as a news release or other manner that is compliant with Reg FD and Reg G, as the case may be and other applicable regulations.

The company's guidance and remarks are based on current information and expectations as of today, January 29, 2014, and we undertake no duty to update such statements. The company reports financial results in accordance with GAAP. However, for the periods presented today, we are disclosing various non-GAAP measures. The company believes that non-GAAP measures are useful to the performance of financial analysis. The reconciliation from non-GAAP to GAAP financials for the most recent or prior periods or events that may be discussed today can be found in today's financial results release or the company's applicable SEC filings.

And lastly, during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties and are not guarantees of future performance. You are encouraged to review the Safe Harbor statement contained in today's press release as well as the other risks detailed from time to time in the company's SEC filings.

And with that, I'll now turn the call over to Ryan Benton. Ryan?

Ryan A. Benton

Thanks, Laura. Let me start by reviewing highlights of the third quarter. Third quarter net sales of $30.7 million were consistent with the low end of our guidance. Q3 was down $3.3 million sequentially and down $0.3 million year-over-year. Non-GAAP gross margin was 48.6%, just shy of our guidance. And non-GAAP earnings per share of $0.04 marked our 7th consecutive quarter of profitability.

On a year-to-date basis, sales were up 7% to $97.3 million from the $90.9 million reported a year ago. Year-to-date non-GAAP gross margin was 51%, up from 47.7% the same period last year. And lastly, year-to-date non-GAAP net income is up 43% to $11.9 million.

As we look at third quarter sales by end market, we saw strong component sales in the industrial market, but this was not enough to offset the anticipated decline in the Networking and Storage market. In Q3, Industrial & Embedded Systems sales grew for the third consecutive quarter. Q3 sales of $18.4 million were up 3% compared with the $17.9 million reported last quarter and were up 14% from the same period last year. Industrial & Embedded Systems accounted for 60% of third quarter sales. On a year-to-date basis, Industrial & Embedded Systems sales grew to $52.9 million, up 10% or $4.7 million. On the deal front, shortly after the close of the quarter, we recently announced the acquisition of Stretch, Inc. With the acquisition of Stretch, we immediately expand our footprint in the growing surveillance market. Lou will provide more detail and color specific to our opportunities with Stretch in his presentation.

As anticipated, Networking & Storage sales declined sequentially. Third quarter sales decreased to $7.1 million or 23% of third quarter sales. This represents a decrease of $3.2 million from the $10.3 million reported last quarter. In the short term, we were clearly impacted by the supply chain inventory for our data compression products exceeding demand. On a year-to-date basis, even with the pause this quarter, Networking & Storage sales has grown to $27.3 million, up 17% or $3.9 million. With the production release of our next-generation Compression and Security Coprocessor, we are convinced as ever that our design win traction will lead to growth and as equally important customer diversity.

Communications Infrastructure sales of $5.1 million were 17% of third quarter sales, were down $0.6 million compared with the $5.7 million reported last quarter and down 3% from the same period last year. On a year-to-date basis, Communications Infrastructure declined $2 million to $16.8 million. This was primarily as a result of the expected decline of our traditional SONET business. In Other, which includes consumer, continued to account for less than 1% of our net sales for the third quarter.

On a non-GAAP basis, third quarter gross margin was 48.6% compared with the second quarter gross margin of 52% and 49% in the same quarter a year ago. This equates to gross profit of $14.9 million for the third quarter compared with $17.7 million for the second quarter and $15.2 million a year ago. As anticipated, third quarter non-GAAP operating expenses increased slightly to $13.2 million from the $12.9 million reported in the second quarter. These non-GAAP amounts exclude certain charges, such as stock-based compensation, the amortization of acquired intangibles, M&A costs, restructuring charges and changes in the fair value of the contingent consideration.

Third quarter non-GAAP R&D expenses were $6.4 million, which is unchanged from the second quarter. Increased new product tapeout expenses were offset by lower variable compensation expense. Non-GAAP SG&A expenses for the third quarter were $6.8 million, up from the $6.4 million reported in the second quarter. This increase is partly attributable to higher travel expenses by the sales organization and higher legal expenses.

Non-GAAP operating income for the third quarter was $1.7 million compared with $4.8 million in the second quarter and the $3.6 million reported a year ago. Third quarter non-GAAP net income was $2 million compared with $5.1 million for the second quarter and down from $4 million in the same quarter a year ago. Third quarter non-GAAP earnings per fully diluted share was $0.04 compared with $0.10 reported last quarter and $0.09 in the third quarter of last year. The number of shares used in the third quarter calculation of non-GAAP results decreased to 50.4 million shares. In the third quarter, we purchased 156,000 shares of stock as part of our buyback plan.

On a GAAP basis, third quarter gross margin was 42%, up from 41% in the prior quarter and down from the 46% in the same quarter last year. The year-over-year variance is due to higher purchase intangible amortization associated with our recent acquisitions. GAAP operating expenses for the third quarter were $16.1 million compared with the $14.5 million reported last quarter. Last quarter operating expenses were impacted by a credit for the reduction in estimated contingent consideration.

Third quarter GAAP net loss was $1.6 million compared with the net income of $6.5 million in the second quarter and the net income of $1.5 million in the same quarter a year ago. Q3 includes a $1.4 million credit for the lease of a FIN 48 reserve related to a tax filing for fiscal year 2010, while last quarter includes a $6.8 million income tax benefit recorded as a result of the Cadeka acquisition. These results translate to a GAAP loss per share of $0.03 compared with income for fully diluted share of $0.13 in the second quarter and income per fully diluted share of $0.03 in the same quarter a year ago.

Turning to the balance sheet. Third quarter total accounts receivable increased to $23.4 million from $20.5 million in the second quarter. Accounts receivable increased in absolute terms due to higher networking sales in the second quarter, which have longer [ph] contractual payment terms. At the end of December, over 90% of our AR was current, which is in line with historical norms.

Net inventory increased to $25 million compared with $20 million last quarter. The majority of this increase was attributable to 2 factors. First, we completed the initial high-performance analog product line inventory builds, including building necessary stock in order to account for one of HPA's foundry partners going dark for maintenance for an entire year. And second, we made the decision to build additional Connectivity product inventory to support growth opportunities in the industrial market. This increase was split evenly between finished goods and web.

Now a few cash flow measures. For the third quarter, total depreciation and amortization was $3.2 million, of which $1.4 million was included in the non-GAAP results. This translates to a healthy non-GAAP EBITDA of $3.1 million for the third quarter, marking the 7th consecutive positive quarter. As a result of the working capital changes just discussed, we used $6.3 million of free cash flow, which includes approximately $1.5 million in annual EDA tool payments and $1 million in capital expenditures. We ended the third quarter with $176 million in cash and short-term investments, down $9 million from a quarter ago. Cash was also impacted by $2 million of capital lease payments and $2 million paid towards the share buyback program.

That ends my prepared remarks, and I'll now turn the call to Lou for his presentation. Lou?

Louis DiNardo

Thanks, Ryan. And thank you, everybody, for joining us. Now we're going to do this the way we've done for the past couple of quarters, where I'm going to speak to a prepared slide deck. So if you haven't had an opportunity to log on to the website and get access to the deck, now would be the time to do that. I do that for 2 reasons. One, I think frankly, there's more content that gets communicated. And secondly, I simply hate reading a script. So I'm going to skip over the intro slide, Exar, our new direction; and I'm going to skip over the fair disclosure slide, as Laura did such a fine job in covering that material. And as we go through the deck, I think it's fair to say I'm going to not really focus heavily on the numbers. Ryan does such a good job at his presentation. I certainly will revisit revenue, gross margin, and a few other critical metrics to give you a little bit more color. But I don't need to go into the level of detail that Ryan has already covered.

So if you could, and I hope you have the deck, if you could go to Slide 3, which is a bunch of blue boxes. I think it's important at this point -- we're coming off a pretty rough quarter. We ran into a little bit of a buzz saw in the Networking business. But it's fair to say that, I think we as a team, we specifically have more confidence in our prospects for growth in our -- coming fiscal year than I would have said a quarter or 2 or 3 quarters ago. And I think it's certain to me that this company is more well positioned now for long-term consistent and profitable growth than it's been in quite some time, certainly during my tenure and maybe in many, many years prior to my tenure.

So if you take a look at this slide, what I'm trying to communicate here is when we got here about 2 years ago, January of '12, we sat down and said, "What markets do we want to serve?" We have 14,000 customers; we've been in business for 40 years. Now the industrial marketplace is clearly one of our strongholds. The Networking & Storage business are -- called it Compression & Security at the time, we had a burgeoning product line, and Communications Infrastructure whether it was based on our legacy SONET business or our power management connectivity and all the products that we make. With the 3 markets that we set down and said, "You know what, these are our target markets." We're too small a company. We're not interested in the consumer space. There's lots of room for us to grow with highly differentiated higher ASP, higher gross margin products. So we skipped down to the next box, and what products did we have available? Remember, the company hadn't invested in its component businesses for quite some time so what we had to sell was what we had to sell, connectivity products, power management, and really what was the new and different data management product or data compression and security engine, the Coprocessor. And we spent the last 2 years building new products. And frankly, I think we executed quite well on what we set out to do 2 years ago: to find and develop new products and take market share in existing sockets with existing customers where we enjoyed business already. So we managed to pump out 6 consecutive quarters of growth while we restructured the company, brought it back to profitability and most importantly, down to the next box on the left-hand side, developed new products. So you've seen, I think just in the past few weeks, new Connectivity products. And I'll cover a little bit more of that later on in the presentation, the Connectivity products in the way of UARTs.

Power Management products. Really trying to carve a path for ourselves that truly differentiates ourselves. Being an IC supplier in the power management business, it really -- you're up against 75 competitors, 100 competitors, maybe 150. And what you saw introduced, I think a week ago, Monday, our first power supply module, a fully integrated module in a 12x12 package, single input, 4 outputs, completely digitally controlled, input caps, output caps, inductor or magnetics and a complete power supply in a package limits the competitive landscape to just the 2 or 3 best-in-class suppliers that, frankly, are interested in making a profit. Now where there's 150 that are in the really hardcore semiconductor IC part of the business, some of those marketplaces can get pretty ugly pretty quickly.

Data management. We've talked for the last 2 years about the upcoming and now released Panther II product. I think it's amazing how fast we're gaining traction there. So when we talk about networking and the inventory build, the Panther II product, which was released about a month ago or so now, just expands the horizon of use cases for us. So it brings us into higher end compression because it's faster, it's bigger, it's better. But it also is a security engine and it opens up a whole new landscape.

All along, we expected that we'd do some tuck-ins. We'd buy some companies, either intellectual property or companies that were generating revenue to kind of fill out the portfolio or bring technology that was necessary for us. Really, to put a growth strategy in place for the future. We stumbled into a company called Altior. We talked about this acquisition a couple of times. We closed that acquisition on March 22 of last year. And I can tell you that the combination of the Altior software running on Panther I, with the 8200 IC or the 1845 card, Altior software running on their own card, which was a Stratix V based FPGA card, and now the Altior software, running on Panther II with a 9200 and DX20 -- 2000 series, has given us a landscape where we were literally engaged with 10, 20, 30, 40 customers tracking somewhere well over $40 million in opportunities. A little bit more heavily weighted towards Panther II than Panther I, which one would expect. But then Altior software play, we paid $5 million for that company, and it's got us chasing $40 million plus of business now with exceptional gross margins.

We also recognized that our space -- our place in the industrial environment really begged for more content. We were selling UARTs, we're selling Power Management, we're selling Connectivity, but it was really, I think, incumbent on us to find that extra product line where we could bump up against transducer technology, so we could play in any metering application or we could have high-speed capacity where we could play in video applications. So we found a company called Cadeka. It's a team that is really well steeped in analog technology. We talked about them last quarter. They all hail from the ranks of COMLINEAR and have worked together for a long time. But the idea that we now have some of the best precision amplifiers on the market, second to none. We downgraded our specs on a recent introduction to second source an analog devices series of products. But if you want to talk about the Internet of Things or you want to talk about transducer technologies for wearable devices or transducer technologies generally, those precision amplifiers are an absolute must. So we do precision amplifiers, instrumentation amplifiers and data converter products. So our presence in the industrial space is just more content.

I think we also fell in love with a passion and a vision that the Cadeka team had for video. So take precision and put it aside, if it's got a meter, we have products. If it's got a screen, if it's got a video display, we have products. So it drags us into a very, very high growth market in video surveillance and security. A very unique approach to how you can transmit data over long cable lines without repeaters and eliminate 3, 4, 5, 6 repeaters in 1,000 meter cable so that you can get video signals from the camera back to the DVR.

That brings us to Stretch. We closed the Stretch -- well, let me back up, Cadeka we closed on July 5 of last year, and here we are 2 quarters into it. We don't report by product line any longer, but I think since we did an acquisition and we held out the promise of quick revenue, I can tell you that we did nominally $2 million in revenue with the high-performance analog business last quarter. One other facet of that business that I find very interesting is because of the legacy and history that the team has had in the high reliability market, we have a very nice presence in the Hi-Rel market, particularly here in the United States.

Stretch, we closed, I think that was January 14. And Stretch was probably the quickest acquisition I have ever been associated with. When we really kind of circled the wagons around the surveillance and security play, we have, with the high-performance analog, signal path product. It became quite clear, we needed an end-to-end solution. So we needed to be able to do video processing on the transmit side and video processing on the receive side for our end-to-end solution and for our long cables to really be a total solution where customer could count on performance end-to-end.

Stretch is right here in Sunnyvale. I think the kind of soft value of this acquisition is probably as significant as the hard value. It's a world class team, all A-ball players. Craig Lytle comes out of Altera, most of the rest of his team comes out of Altera. Thomas Danner [ph] comes out of Synopsys. This is a team that can just blend [ph] very, very quickly with the pretty well-schooled semiconductor team that we have here. Stretch did, and again, we don't -- we won't on a go-forward basis report by product line. But I think it's incumbent on me to let you know that this was an acquisition that was timely from the standpoint that it got us technology. And frankly, it was timely from the standpoint that it brought revenue to the table. Stretch did about $12 million in revenue last year. We expect a couple million or more in revenue this quarter. And while we have this little buzz saw in the Networking business, it's nice to backfill with new revenue. And when the networking business turns back on, which inevitably it will, that will be all incremental sitting on top of what's a really nice baseline of revenue.

I guess, at this point, it's also important to say we're not done. These -- the ability to pick up Stretch for less than one-time sales, Altior for $5 million, Cadeka for a very reasonable price, add revenue as well as acquire good teams and good technology, there are other opportunities out there. We will cast a wider net and we'll continue to do this. Between Altior, adding that software value on top of Panther I and Panther II, Cadeka bringing us into the transducer business in a bigger way and the surveillance and security market coupled with Stretch doing video processing, I feel far, far stronger about our opportunities for success in our fiscal '15.

So go to the bottom of the page, and I'm spending a lot of time on this slide because I don't intend to spend a lot on the balance. Today, we have Connectivity. Lots of new products coming out, we'll touch on those in a minute. Power Management, a strategy to really kind of pass that limits competition, adds value, plays at higher ASPs and gross margin. Data management, which is our data compression and security play. High-performance analog goes into the industrial space in all venues, including video transmission. And then Stretch bringing us to the video processing capacity to do that end-to-end solution. So I think we're in real fine shape.

We'll touch on, as we go to Slide 4, revenue -- very quickly go through a couple of numbers here. Revenue at $30.7 million, down from $34 million, it was solely on the back of the Networking business. Our industrial business is doing quite well. The HPA business came up nicely. We hadn't acquired Stretch yet. We have an inventory situation out there. It will bleed off, it's an opportunity for us to take our focus on that $40 million that we're chasing, diversify our account base so that it's not structured data for IBM, HP, EMC and Teradata. It's structured and unstructured data across 25 customers. It's compression, as well as security. And I'll touch on, as we talk about the networking market specifically in a couple of slides, I'll talk about our opportunity in security applications, our application delivery controllers and customers that you all know the names of.

On a non-GAAP basis, operating income of $1.7 million. Everybody knows I'm not happy with that number, but the reality is we're better positioned today. I'm happy that we're burning off the inventory. We have seen robust forecasts that say, now, several months maybe a little bit more. But in the meantime, we're counting on no revenue, meaningful revenue from these major OEMs in the networking business this quarter. So our guidance, as we get to that, is what I believe will be a low watermark upon which we can grow with all of our component businesses: High Performance Analog, Power Management, Connectivity and the Stretch product line. And when the Networking business inevitably comes back months or so from now, I think we'll be in real fine shape.

Now, full year -- fully diluted earnings per share of $0.04 says -- speaks for itself.

When we look at guidance on Page 5. We've built this guidance again with the expectation that we are going to burn off inventory this quarter, that we are going to see no demand on us from the big networking customers. I've seen their forecast. They're building product. They just have a bubble of inventory to build off -- excuse me, to burn off. But again, when I look to the June quarter, our prospects for growth are quite high. We've got a baseline here of $30 million to $32 million in this March quarter without any contribution in a meaningful way from this couple of big names that I talk about. And now, we're laying Stretch in on top of it. We've got HPA hitting its stride. We've got new Connectivity solutions, and we've got new Power Management products.

Gross margin really is a byproduct of mix. And as the networking business comes back, as we see growth in the Stretch product line, and HPA leveraging our operational excellence into 2 companies that were basically venture backed and weren't as focused on the kinds of things we are as a semiconductor company that pumps out hundreds of millions of ICs. We can bring leverage to bear on pricing. We can bring leverage to bear on entire supply chain, so I think we have an opportunity both with the spec -- the network bouncing back, as well as gross margin expansion in our underlying component businesses.

Slide 6 is one I show all the time. I'm not going to repeat much of it here because I covered it in the first few slides. But it shows you those 6 quarters when we came out of the restructuring in March of '12, that June quarter, $29.3 million going to $30.6 million. We were growing nicely, 5 5 1 -- it was 1 1 5 and 4. Networking, unfortunately, again took us by surprise here in the December quarter. Gross margin expansion, while we were seeing very nice growth in the data compression business and that will come back. You can go to bottom of the slide. You'll see EPS $0.03, $0.06, $0.09, $0.10, $0.10, $0.10 and $0.04. The model is the same. When we have Stretch hitting on all cylinders, with HPA, with Connectivity, with the new Power Management products and the Networking business leveraging 30 customers rather than the 4 or 5 that are in a structured data environment, this $45 million with the bottom right-hand corner of $0.25 for a quarter is something that we feel confident in.

Now we'll touch on market-by-market. And it'll be a little bit more meat here. Again, there's a little bit more in the way of words on these slides than I would normally show in a presentation. But I know a lot of you folks like to download these slides rather than have to try to read the transcript and tie it back to the slide. I thought I'd put a little more content. So Networking & Storage at 23%, I think it was down from 30% of our business in the prior quarter. Customers and opportunities in this market, it's Big Data. As I said, structured, unstructured which we call Hadoop, switches, routers, ADCs, storage providers of all kind. Now with Panther I really hitting its stride. The product has been in the market for 2 years. Lots of good traction, lots of new opportunities. Panther II in the marketplace, to be quite honest, I'm very surprised at the quick uptake in certain sockets for Panther II. You combine that with the Altior filed system compression and we have a world-class set of solutions for compression and security over a really diverse set of use cases and diverse account base.

Now the design win development, it's really robust. I expect that we'll see some first orders, kind of leading edge orders, but nonetheless orders for our Panther II card, which will be a DX2040. It will be one of our ICs on a card, and we could expect that from China as early as this quarter. It's interesting that probably our 3 first opportunities were well-booked business on both the Altra Hadoop, as well as the Panther II product are coming out of China. They're moving very quickly. I think it's also interesting to note all product categories have appropriate solutions for this market. We can sell Power, Connectivity, as well as data management and even high-performance analog. And customers are all the names you know and love. Some quarters, we don't love so much and, some quarters, we love more: IBM, HP, Teradata, Huawei, EMC, Cisco, Oracle, Opengear, skip down to Sangfor, Baidu, Taobao. Even in Europe, you've got Fujitsu and NEC. We do have engagements and we're talking to folks like Facebook and Google as well. In those circumstances, they're building their own boxes, they're designing their own architectures. Compression and security is certainly foremost in their minds as well.

Moving to Page 8. Our bread-and-butter market, Industrial, at 60%. This will likely always be our largest market, but it is a pretty diverse market. It's medical electronics. It's high reliability now with the advent of Cadeka coming onboard, any metering application fits in here. We'd put the surveillance business in the industrial market as well. It's industrial PCs and all the computer-aided equipment that goes into factories and the workplace. The high-performance analog products, through the acquisition of Cadeka, just give us more content. A sales guy calling on an account where he could have sold an RS-232 chip, Power Management chip, and maybe get $2 or $3 worth of content. Now can get $5, $6 or $7 worth of content. He's got analog to digital converters, digital to analog converters, as well as operational amplifiers and instrumentation amplifiers. They're highly differentiated. There's significantly less competition. Therefore, there's less price pressure, better gross margins, better ASPs.

In this market, and I think this will be one of our real growth engines as we move forward, is our power modules. We do well with our integrated circuit solutions, and we'll continue to design and develop ICs, trying to carve out those places where we can differentiate. But this module, just to give you a sense and I should have put a picture here, this module is less than the size of a dime, and it's a complete power supply with a single input, 4 outputs, so it's completely digitally controllable. So you can look at the power module. You can look at a recent introduction, I think it may have been earlier this week or late last week, the Switching Controller, Constant-On-Time Controller. And probably what is one of the most significant kind of general purpose products we introduced again as I relate this last week or early this week, the 6274, which I'll touch on in a minute, which is a low-voltage ultra low dropout regulator that just has a plethora of end applications and use cases. And here, we could list 14,000 customers. We picked a few names just to give you a sense of the pedigree of the customers. But this is that marketplace that -- where our 10,000 to 14,000 customers reside.

Comm Infrastructure. And again, our original presence here was a decade or more ago when we had a really wide portfolio of SONET Solutions for that last generation roll out. Now today, we can sell all of our product segments. We can even have, frankly, data compression opportunities. There's a kind of crossover where the networking guys and the carrier class guys have similar use cases. So we could sell off to our product lines, Power Management, High Performance Analog, Connectivity, as well as Compression. Again, the recently released power modules, drop in and run. And when these guys sit down and they need to design a power supply at the 11th hour after they've designed their line card or some other part of their system, they're usually crushed for space. They really don't have the opportunity to get the kind of power in a number of rails that they really need. You take that power module, cut the design and run. I've also again noted here the ultra-low dropout regulator as well for this particular end market. And, of course, our connectivity solutions. And we've got RS-232 multi-protocol. You saw new UART come out for the Intel Low Pin Count Bridge and Low Pin Count Bus, and you'll see some new Bridges coming out this coming quarter. Again, here it's a more limited account base and these will all be names that you know as well, Alcatel/Lucent, ZTE, China Telecom. You can look through the list, but engagements or active customers in all cases there.

I think this Slide 10, for me, says a lot. The first slide, where I talked about our kind of building the foundation for growth, taking markets that we've selected, the products that we target for those markets and finding ways to develop products internally, bringing in intellectual property via an acquisition like Altior, bringing in real products, 400 SKUs came along with Cadeka acquisition, designers in the precision space that are second to none, and then bringing in a team and products for the end-to-end security solution with Stretch, those are all great things. But Page 10 tells you what we've spent the last 2 years doing and where we've been spending our research and development dollars. This is a snapshot, it happens to be what came out most recently. But first, you see the 9710 and 9711, single input, quad output modules. Interesting architecture in that it's 2 fully integrated 6-amp outputs, that's with driver MOSFET and then 2 PWM outputs. So if you have a long run to your point of load or you want more current, more power, you can select your driver and your MOSFET appropriately and place them on the board wherever necessary and all controllable with a digital interface.

Constant-On-Time Controller, really nice general purpose product, 4.5 volts in, 22 -- 4.5 to 22 in, 0.6 to 18 out at 1% accuracy, really fine product. 6274 is that ultra low dropout regulator. It operates down to a little over 1 volt and can drop 75 millivolts, input to output at 2 amps. That is a world-class -- if there's anything that can even touch it, I don't know if world class is really the right way to describe it.

When we talk about the 9200, this is Panther II. We'll stop using the Panther II name and start to call us what it is, the 9200, as well as the next product, which is the DX2040, and that is one of our ASICs on a card. So it's a fully integrated and complete PCI card end solution. But here you've got a device that runs at 40 gigabits per second, with a Gen 3 interface. It's been well, well received by the likes of all the customers we've talked about in the compression space for the past 1.5 years who are either entertaining or using the 1845 and 8200. But it opens up this entire range of security applications. And these are customers that can drive very, very nice volume, provide that diversity as well as kind of give us the scale that we think this business can reach. And it is the Riverbeds and Citrixs and A10s and RadWare and F5, those folks that are doing application delivery controllers and other security hardware.

Altra Hadoop is a software play that sits on top of all of our stuff. It sits on top of the 1845 card. You can run it on the 8200 series Panther I. It runs on the Altior GX series card, which we have a nice design win. We expect orders out of China this quarter. And it will run, of course, on the 9200 and the DX2000 series cards.

And just so rest of the businesses don't feel left out -- I'm running out of room on the slide. I couldn't put much more, but there is a really nice introduction of this 2 and 4 channel UART that supports the Intel Low Pin Count Bus. We call it an LPC, Low Pin Count, UART. And, of course, need to jump in here with the first introductions, new product introductions from the HPA Group, which were the 8051, 52 and 54, they're second sources to the Analog Devices precision amplifier family.

I'll end, and then we can take questions on the slide, I always show at the end of these presentations. We feel great about our prospects. Our position in the Networking & Storage business is very sound both with our existing customers who got to burn off some inventory, but more importantly, with a wide range of diverse customers that are using a multitude of our products, either in IC form or in card form, whether it's vintage Panther I, vintage Panther II with or without the Altior software. So we picked Networking, Industrial and Comm. Now we sell Power Management, Data Management, Connectivity, High-Performance Analog and we've added Video Processing. So all in all, feeling pretty good.

Ryan and I are ready to take any questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Timothy Arcuri with Cowen and Company.

Timothy M. Arcuri - Cowen and Company, LLC, Research Division

Lou, can you talk a little bit about Q4? The networking business was down more than we thought it would be down. What gives you the confidence on the timeline for the digestion of the inventory there and sort of when that's going to normalize? And then I had a follow-up.

Louis DiNardo

Sure, thanks for asking. In terms of Q4, are you talking about calendar Q4?

Timothy M. Arcuri - Cowen and Company, LLC, Research Division

Yes.

Louis DiNardo

Because we were going into our fiscal Q4. Look, I think -- one of interesting things about this is we are going to bottom out here. We're expecting no meaningful revenue from the top 2 or 3 customers there because we are going to burn off the inventory. We're going to ensure that the supply chain is well locked down. We know how much they're burning off. We get good visibility with respect to forecasts, whether those forecasts are actually what happens to the supply chain, where end customer, who will go nameless, end customer is building at FLEX or Jabil, who have inventory in finished goods and then they have inventory at their subs, and then the subs are looking for inventory, either at 3PL [ph] or a distributor. So I think our forecast visibility is good. Whether they do what they say they're going to do or not, there's variability around that. What gives me comfort is we're seeing material move. We are going to have a quarter here. We're going to muscle through it. We're going to muscle through it on the back of other businesses contributing to keeping us in that guidance range. And as we go forward from there, if it takes another couple of months, we've already set the low watermark and growth out of our other businesses should contribute 3% or 4% if that business comes back out of networking, it lays in right on top of that. So the way I think it's fair to think about what the future for the next few quarters could hold, is you take the non-networking business, apply some reasonable growth metric, which I think -- mid-single digits is a nice expectation. I don't have a forecast and I'm kind of speaking notionally. But I think it's a nice expectation that these businesses, particularly as we talk in Stretch and we've got a bigger and a broader sales force, and Cadeka and the HPA team has been onboard a little bit longer. So apply some reasonable expectation to that business, take out as -- take out next quarter and maybe take out the next quarter if you choose to be ultra conservative to burn off that inventory. But then you're going to get a snapback. You're going to get a nice snapback and you're going to see revenue have the bump of the underlying business plus the networking business come back kind of in full force. When that happens -- I say several months it could be a little bit longer. But every day, we get more visibility. And as opportunities to speak publicly, where I think provide fair disclosure, we get insights, we'll share them.

Timothy M. Arcuri - Cowen and Company, LLC, Research Division

And just to follow up, Lou, can you walk us through the gross margin impact? Gross margin came in a decent bit below what you guided and you're just guiding flat off that. Can you maybe, Ryan, walk us through what the specific impacts were and sort of why they're not normalizing in March and can we expect them to come back in June?

Louis DiNardo

Look, it sounds trite to say, but it's all about mix. When you have a business that runs -- let's just call it what it is, north of 70% gross margin in the networking storage arena, and although we're offsetting by virtue of either organic growth, new product introductions, a little bit more hustle on our sales forces team for Connectivity and Power Management. But you've got businesses that run in at the corporate average. And maybe in some cases, if we're getting really hungry, even slightly less than the corporate average. It's just really mix dependent. And let's not forget that in the $30 million or $34 million quarter, whichever one you want to look at, that's between $300,000 and $340,000, is 100 basis points. That's a really tough sport to dial it in at closely. So while I'm disappointed, I can see in hindsight that we are so heavily sensitive to that mix. Now that being said, the High Performance Analog business has some surprise upsides. The Hi-Rel business that they enjoy is comparable, if not better, than what we see in the Networking & Storage business. But it's lumpy. The military were the Hi-Rel guys, they buy in chunks and then they disappear and they come by and they buy another chunk. So kind of long-winded but it's really all about mix. It's not about price erosion in any particular market or -- at this point, we're a pretty well-oiled machine. I mean, we still are harvesting some upsides, maybe Ryan can comment on where we are with copper conversion and other things, but it is the mix that's the heaviest burden.

Ryan A. Benton

Yes, so I'll jump in. Tim, thanks for the question. It really is the mix as we look at the data compression, as we burn off that inventory. The gross margin is going to kind of be in this range. On the copper conversion, again, the operations team has done a fantastic job and we really enjoyed upwards of close to $0.75 million in savings in the current quarter based on the work that they've done over the last year. So as they turn their guns to the new products that they'll -- going to get in their sights with the Stretch acquisition, they'll be able to make that same type of leverage with those products.

Operator

And our next question comes from the line of Vernon Essi with Needham & Company.

Vernon P. Essi - Needham & Company, LLC, Research Division

I was wondering if I could just clarify a point that you made here in your prepared remarks, Lou, and you were talking about Stretch. Did you say that you paid one-time sales or about $12 million for that organization?

Louis DiNardo

Much -- well, less. I'd say less. I don't think we've disclosed that number, but we paid off a bunch of venture debt and we absorbed some liabilities, but those liabilities would have been operating expenses anyway. So yes, less than one-time sales.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And just another sort of point to clarify here. And I know that you sort of in the slide deck and talking about the guide. I want to make sure I understand. When you're talking about your networking customers, you're just talking about literally that Networking & Storage bucket of revenue and you're talking about the guide being effectively not looking for any growth there. And in relation to Tim's question there, just sort of we could assume this could go on for a couple of months even beyond the first quarter, is that the same language?

Louis DiNardo

Yes, I think you're making the point that actually Ryan made to me before as we were going through the numbers. When we talk about networking, I think it was $7.1 million for the quarter in networking. We saw a lot of other stuff in the networking. So when I say networking, we're looking to essentially no material revenue. I'm talking about the data compression business out of that structured data environment. We have some licensing revenue, darn, I hope we pulled in these orders for the new product design wins. I'd love to see us post our first Panther II order this quarter and our first Altra Hadoop order. So there'll be some other things but that big chunk that we saw a rise to fame and which will return, we're counting on 0 this quarter. So that we can have the most conservative bottom line, conservative estimate of how fast they can burn off that inventory without us shipping anything new in. We should have, I think to Tim's first question, we should have far, far more crisp visibility.

Vernon P. Essi - Needham & Company, LLC, Research Division

Just to dive into that a little bit deeper. If you do have a Panther II win and your customer is comfortable, will you be announcing these milestones even if the revenue is further out or how would we know the progress there?

Louis DiNardo

That's always a very -- it's always a very sensitive subject. There are customers -- you guys cover companies that deal with Apple -- they'll chop your hand off if you do it, but there's other customers and I'm not sure how, for example, sensitive these few customers in China might be. But we will certainly ask and I think if we can't make overt announcements, we certainly talk in the public domain frequently enough under fair disclosure that I could say, look, we booked the order. There was hundreds of cards or there was tens of cards, or we've got visibility on thousands of cards. So we will -- we're not going to let you guys forget that we have a bunch of new products in this compression business that are going to provide diversity. So every chance I get to give you tidbits here or there as a group, we certainly will.

Vernon P. Essi - Needham & Company, LLC, Research Division

And you've in the past talked about just sort of the stress test, the pipeline, you've given a figure in the tens of millions. Are you updating that on this call or are you still sort of comfortable with your prior comments as to where that target was?

Louis DiNardo

That's a really -- I hate when people say this. That's a really good question. I know that's why you're asking. I have a Tuesday morning meeting, every Tuesday at 8 a.m. to go over the entire pipeline for the Compression and Security business. I think it's that important a business to us. Gaining the diversity of new customers, gaining the diversity of selling multiple types, 1845 cards, 2040 cards, 9200s. So things move. I saw the data from this week, and it's at the top line, it's about nominally the same, it's still -- just tick over 40 million. I forget if it was 42 million or something like that. But I did notice that there's been a little bit of shift from Panther I vintage products to where we're a little bit more heavily weighted [ph], it's almost is 50-50. Now we're seeing a little bit of a shift where it's a little more heavily weighted towards Panther II. And I think in part, that's because it's now in the marketplace. Software is backward compatible, so people were playing [ph] 1845s, 1845s and then now that they're seeing the 9200 and the 2040 are real, that may explain it, but we dig into that every week. So I feel very, very well-calibrated and up-to-date on what the opportunities are and I watch the things we lose as well as the things that are making progress and visit customers myself personally to try to -- not that I can add any value technically, but at least show up with a big business card, people tend to pay attention.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And I have 2 more questions here. Ryan, I just wanted to shift gears to the build of inventory. You talked about HPA and I guess, a foundry going mothballed or whatever the term was you used. Can you just walk us through that and sort of what the strategy is around that?

Ryan A. Benton

Yes, we have one of the foundry partners that came with it for HPA and they had their production line where we produced some of our products there that's going down for maintenance for about 6 months and so we thought it would be prudent to build inventory to cover for 1 year so have a little cushion in there and so we built about $2 million worth of inventory, which accounted for that.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And there's no -- I assume there were no price concessions with that or anything unique to the pricing around that?

Ryan A. Benton

There wasn't.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And then just finally on the power products front, you've had a lot of good announcements around these modules, which look like very leading-edge solutions. Can you just discuss sort of what your sales channels is going to look like for that? And then sort of the timing and milestones we can look at for the success of those in the market?

Louis DiNardo

Sure. Part of your question ties back to the same thing, will we be in a position to make announcements or we'll have to start to give consistent metrics and, I mean, I can in this call, and I think we should now that our new products are really starting to flow, we ought to start giving you folks visibility on how many design wins do we have for the quarter and what's the aggregate first year value. And I think it wouldn't be imprudent to do that for the past 6 or 7 quarters because, frankly, we weren't selling the new products. They're just starting to flow. But I do think it's timely now for us to start to provide those metrics. The sales channel, I think we have a -- we're a little bit blessed in this regard. Look at the pedigree of the management team, you got National Semiconductor, Linear Technology, Intersil guys lined up and down the walls here. So Power Management is not something we're unfamiliar with. And I think as is the case as we all build teams when we start new endeavors, we surround ourselves with people we know and we trust and that includes sales reps and distributor partners. So for me this is kind of -- I hate to say slam dunk, but with respect to our knowing how to sell these things. And delivering on the promise of good products to a market that's really receptive to this stuff. Our competition here is going to be Linear, Intersil and Monolithic Power as far as I can tell. I mean, it will certainly try to be others but those are the lead dogs and they've been out there, whether it's 1 year or 2 or whatever. There are no competitive solutions for single input, multiple output, which takes that effort to miniaturize and integrate, takes it to a completely new level. When you look at similar size module with a single input and a single output, it may be a different use case that maybe -- it maybe 10s of amps of power or current where we're focusing on lower voltage, lower power rails, what we call the point of load applications, within the communications infrastructure or networking environment. So it will be our traditional sales channels. Our guys already know how to sell the stuff. We've got a reasonable sized Power business to start. And so I think we're in pretty good shape to hit the ground running.

Operator

And our next question comes from the line of Jon Tanwanteng with CJS Securities.

John O'Brien

This is actually Jack O'Brien filling in for Jon. First off, was the Stretch deal done with all cash or was there stock and other [ph] provisions like Cadeka and Altior?

Ryan A. Benton

So the transaction was we paid cash for the outstanding stock of the company and obviously whenever we -- by buying the company as subsidiaries, as Lou said, we essentially took on their balance sheet so they had working capital, receivables, inventories and the like. And then we essentially absorbed about $10 million worth of liability and [indiscernible].

Louis DiNardo

And it was all in. And of course what we paid out plus the liabilities. And very specifically, no, there was no stock involved and there's no earn-out per se because the shareholders, this was a venture capital syndicate, which was fatigued. And really no longer wanted to invest in the asset. But I can assure you and I know a lot of the company listens to this call as well, I think what we've accomplished in making the Stretch team both feel at home as part of the Exar family as well as demonstrating through our more normal equity incentives. And in some cases, even better than the normal equity incentives to demonstrate just how important this business and this team is. The business is great. But it's really the team and the technology. I love having the $12 million worth of revenue, but I'm more excited about having Craig and his group join our team. When people come out of companies like Altera and Synopsys, they think best practices and you surround yourself with people that know best practices and you end up with a better company.

John O'Brien

Okay. And then Stretch seems to have more than just video surveillance technology. Do you guys see additional uses for their silicon and software IP in different market applications?

Louis DiNardo

I don't know the answer to that. I know what we have is an immediate rightful shot, line-of-sight, let's get it done. But I know these guys are very thoughtful. If they had the working capital and weren't with a fatigued syndicate, I'm sure they've got all kinds of ideas up their sleeve. So we'll spend the next couple of months integrating, making sure we not only we hold onto the business that they've enjoyed or now we've enjoyed, but that we can add upside to it. I'm sure even if there was working capital limitations, that there were customers that -- we did during the process. This was a deal that -- it went from first touch on January -- December 20 to close on January 14. And we did all of the work, including diligence calls and I made diligence calls myself and heard from top-tier manufacturers. I mean, really top-tier -- not the Chinese surveillance market, which I don't mean to be dismissive of -- that this is a great product. And that if not for being working capital starved, there's upside. So there's no working capital limitation now and we're really looking forward to help that team to be as successful as they absolutely can be.

Operator

[Operator Instructions] And our next question comes from the line of Tore Svanberg with Stifel.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

So Lou, I'm not trying to get too cute here, but I believe last time the data compression business went through an inventory correction, it lasted about 6 months. I think that preceded when you got there or maybe just around when you got there. Does this -- do you know if this is sort of similar to back then? Have you gotten any read on that?

Louis DiNardo

Yes. That's a very -- that's an interesting data point. I did not go back. I would say the difference would be at the time it was probably more pure-play security. The hyphen [ph] kind of original presence in the marketplace was at this big company that dominates around here in the networking space and it was a security play. But you're right. It probably was a 6-month aberration. And you know what, I think when all is said and done and we look back is probably going to be 6 months, yes. We suffered a little bit this quarter. We're going to suffer again here in the March quarter. I don't know how much of you can dribble in to the next. What gives me confidence and I keep harkening back to it because of as you guys run your models, I have mine and Ryan has his, and we try to make sure they're the same. But we're starting out with the quarter where frankly, those customers aren't going to participate in this guidance that we provided, at least with respect to product revenue. We do have some licensing revenue and we should have some new products, we hope, I don't know if that would be material, but I hope that it's there. So we start with a baseline. It doesn't count on them, add growth through all of these other wonderful things that we're doing. And if it's the June quarter or if it's mid-way through the next quarter, it will add, it will come back at the rate of millions of dollars per quarter on top of the growth that we'll provide through our other businesses.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Sounds good. And I know you've introduced a lot of new products here within data compression or networking. So when would you feel like that business is finally hitting a sort of a good diversified model, because obviously, I mean you've had concentration there for a while but I would expect all this new stuff to drive meaningful diversification?

Louis DiNardo

Absolutely. That's why we have and continue to invest in it and there will be a Panther III, for example. Look, I think we will have, I think, first orders this quarter. Whether they're meaningful or not, it's hard for me to judge yet, but that will be an Altra Hadoop solution and it will be a DX2040 card, which is the ASIC on a card with a very nice healthy ASP and gross margin. I do think that -- and I'll do this in terms of calendar year because it's just easier. I think by the third quarter of this calendar year, we will have in addition to those -- and I don't know how quickly they'll blossom into big business or medium-sized business, but I think we can have our first really big diversified win in the third quarter of this year. We're chasing 3 or 4 of them. I think probability of success, let's say one comes through, so as we get towards the back end of calendar year '14 -- yes, calendar year '14, and maybe even a little earlier, mid '14, I think we'll be able to talk about lots more end uses, inevitably whether it's by virtue of a press release, which is usually rare but simply because there are so many people in the know from the supply chain to a wide variety of constituents. People will understand that we're talking about Blue Chip kinds of names in the Security business, in the unstructured data business and in the structured world, which will keep us from I think running into this buzz saw again. When this business snaps back and then we layer a new business on top of it, I want it to be on the back of a multitude of customers, so I don't really kind of face this issue again.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Sounds good. And on the Cadeka and Stretch sort of combined products and higher content within security, when could you potentially have products in the marketplace for that? Is this sort of a more calendar '15 revenue contribution or could you start to see some revenues already this year?

Louis DiNardo

So for the -- what we think is an innovative architecture where we take Stretch on, both as transmit doing processing, receive doing processing and having analog solution in the middle, which we -- removes those repeaters. It's going to be a couple of quarters in development. Then you've got to get it out there in beta, cite it. We do have customers that we know will be waiting with open arms. So I think it will be a back end of '14 event for us to start to see what we will call design wins. Maybe we can -- maybe we'll have a beta that flips very quickly and we get some meaningful production quantities out. But more likely, it's kind of second half grinding out the design wins and early in the coming year, I guess, it would then be calendar '15, seeing meaningful revenue lay on top of it. In the meantime, the Stretch product as it exists today has legs and it's a very fine product, so I think that's where we're going in the interim.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very good. Last question and I know this is a [indiscernible], you don't get a lot of questions on. But for your interface products, I'm just trying to get a read for calendar '14, how that segment is going to play out. I mean, I know historically it's been sort of GDP plus, but I also know you've done some new initiatives there and [indiscernible] on your products. So could we actually start to see a little bit more growth coming out of the interface products this year?

Louis DiNardo

Yes. I believe so for some of the reasons you touched on and some others. We're taking some of the older mask sets [ph] that we're running in somewhat dated fabs and now they're running in fine line processes in places like TSMC. It gives us an opportunity to maintain reasonable gross margins and still be price competitive. So rather than losing market share in a competitive space, we can hold or grow, and I believe we can grow. We've got new introductions and when we say connectivity for us, we're including UARTs as well as transceivers and serial transceivers and multiprotocol devices. And I do think we have legs in the UART business, we've got a couple of really nice new devices out, one of the largest design wins of the quarter was for kind of a component level stuff, was north of a $0.5 million, 1 customer, 1 socket for one of our new UARTs and it looks like it's going to go to production pretty quickly. In fact, they've -- same part used in 2 sockets. So I think you're going to -- yes, so to answer your question specifically, I think you'll see improved rates in growth. When we look towards our fiscal '15, which is offset by a quarter so we're talking about the April 1 through March 29 or 28 year, I think it's very doable for us to contemplate a 15% year growth. 15% growth year I should say, a 15% growth year. And that is -- that fully comprehends that the networking business might not bounce back for 1 quarter or even slightly longer. So with that baked in, I think the Stretch upside, the HPA upside to your point what we have organically going on in connectivity and maybe we can eke out late in the year because the modules they tend to be shorter design cycles because they're complete power supplies, maybe you can add some incremental growth as well. So we're feeling pretty good about '15, what is our fiscal '15.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very good. I actually had one more question, Ryan. You are not going to escape without a question. So Ryan, do I understand this correctly? So the entire $5 million increase in inventory came from this foundry situation or was it sort of 70/30 or...

Ryan A. Benton

No, in my prepared remarks. I said really there's 2 factors. It was the first one was the HPA inventory build. There's really 2 things. There's 1 foundry is going off line as well as kind of completing their initial kind of stocking builds. The second issue that I gave really was related to a strategic decision that we made to build additional inventory specifically within the connectivity product lines. We have seen some strength again in the industrial, in the industrial market we were up this quarter obviously. If you look at what the numbers that Lou described, he kind of described a mid -- when you're including the Stretch kind of a mid-single digits growth quarter-over-quarter, we see a strong quarter this next quarter. We want to have stock that's there and available. We split that. We split that between kind of raw materials WIP and finished goods. So it gives us a lot of flexibility in terms of turning products at the end of the quarter.

Operator

And our next question comes from the line of Brian Freckmann with Lyon Street Capital.

Brian Freckmann

Quick, just a quick question. When you think about your guidance for at least or this next quarter and saying that you're down to nearly 0 data compression business. What was it at the peak? I know you guys have broken out sometimes data and security and you never sort of fully broken it out. As I think about the hole that is empty right now to be refilled sort of on a go-forward '15 basis, what was that sort of peaked out at a quarterly basis?

Louis DiNardo

I'd say the last time we published the data, which would have been in the March quarter of last year I think it was $7.2 million. And Ryan's got a piece of paper in front of him, he's going to correct me if I'm wrong.

Ryan A. Benton

Yes, so the last number that we published in the Q4 was $6.2 million, I believe, we certainly done $7 million [indiscernible]

Louis DiNardo

Okay. So $6.2 million. So you could think about it as a $6 million or $7 million business. And when it was visible to you guys really what was the health of the business. And then I fully expect that we can bounce right back there. I mean there's nothing going on with respect to the design win or wins that we have all talked about. We know the boxes are being built. We know they're shipping well. The inventory needs to bleed off and when it does, I think we will go back to enjoying that level of business plus whatever we do with AltraHD, whatever we do with 9200, whatever we do with new security opportunities. Let's not forget, even in the structured world we'll be working on other opportunities. So there's lots of good.

Brian Freckmann

Okay. I just want to be clear. Because when you talk about your comments, modeling in 0, it's not 0 from 7.2, is that correct? It's some portion of 7.2 that's lower now, right? or...

Louis DiNardo

That's correct. We're talking specifically. We've been very, I think, as transparent as we can about customers that were kind of dancing around here. And from those customers, we expect not to bill any revenue so that they can burn off their inventory. There will be data compression and security business this quarter.

Ryan A. Benton

Yes, absolutely. So again, not to confuse numbers but Networking & Storage for the market this last quarter we did $7.1 million, again not talking about DCS product line, talking about sales into the market. So if you back into what Lou has described for Networking & Storage within that kind of $30 million to $32 million range, I mean, you might be talking in the $4.5 million to $5 -- $5 million range for this coming quarter.

Operator

And our next question comes from the line of Vernon Essi with Needham & Company.

Vernon P. Essi - Needham & Company, LLC, Research Division

One last question, Ryan. I just wanted to -- maybe you said something in your prepared comments about operating expenses but how should we be thinking about R&D and SG&A sort of on a go-forward basis? You've held R&D pretty tightly with all the masks that you're spinning, or what not and tapeouts, I mean how should we look at that number going into the next couple of quarters?

Ryan A. Benton

Well, this quarter, of course, is going to be impacted by the Stretch acquisition so as Lou described, we closed that on January 14. So we'll pick up that organization's operating expenses for pretty much the bulk of the quarter. We did $13.2 million, as you know, in terms of operating expenses, which is split roughly equally between R&D and SG&A. I think we were obviously going have some growth in the number because of Stretch, but certainly this group is pretty tenacious when it comes to cost control. So I think I'm going to put a pretty wide range on and say somewhere between $13.5 million and $14.5 million is the number that we'll be looking at this quarter. Again, this group is going to have to start tomorrow and sharpen our pencil and make sure we can kind of bring it in as low a number as possible.

Operator

And our next question comes from the line of Craig Ellis with B. Riley.

Craig A. Ellis - B. Riley Caris, Research Division

Apologies guys I hopped on the call a little bit late, so I'm just going to try and pick up some clarifications from some of the Q&A that I heard. On the first one, Lou, when you talked about the networking business, maybe not bouncing back for a quarter or more, were you talking about from the just completed quarter or beginning in fiscal '15 or was there another reference point that you were alluding to there?

Louis DiNardo

I'm not sure which question you heard. We've had so many on there. But what I said about this is, as we exit the March quarter, the expectation is from those couple of customers that created this bubble of inventory, we expect no billings this quarter. We're not going to let that happen. We're going to let that inventory deplete as best as we can. As we exit the quarter, we'll figured out if there's anything less than how much of the June quarter might be impacted. And I also added, which I don't know if you're on or not, when we exit the March quarter, what that will mean is, we've kind of set the low watermark and we do expect growth in the June quarter as we expect growth here in the March quarter from all of our component businesses Stretch, HPA, connectivity and power. So the idea that there is an expectation, I would say, low to -- let's call low-single digit just for kicks right now, growth out in the June quarter for those other businesses. And any uptick with other Networking & Storage end customers, we think the June quarter certainly has the promise to return to meaningful growth. And if we're still suffering with a little bit of inventory, it will either snapback late in the June quarter or really snapback hard for us in a very healthy way in the September quarter.

Craig A. Ellis - B. Riley Caris, Research Division

And as you've worked through this process and I know you guys are pretty tenacious in looking at the data, what have you been able to do since the issue first emerged, I believe, back mid-3Q to really get a better sense of how much inventory there is downstream and get a sense for how quickly that can burn off?

Louis DiNardo

The effort has been pretty -- as you said, it's been pretty tenacious. The challenge is figuring out where finished goods inventories are, which nobody really cares to tell us about. Some finished goods inventories with some of these suppliers sits in consignment with their end customers, some of it sits in their own warehouses and one would think it's contemplated in their build forecast that they give to Flextronics, Jabil and other subcontractors. So I think we've got our minds around it reasonably well. But until we start to see real drawdown in a big meaningful way of that inventory, I'm just going to be a bit of a skeptic as we go through this quarter.

Craig A. Ellis - B. Riley Caris, Research Division

Okay. And then next question, I think you alluded to the potential for mid-teens growth in fiscal '15. As you think about the elements that will get you there, can you just identify what they are, maybe the most important contributor down to the least, so that we have a sense of some of the growth that you might be seeing in the business?

Louis DiNardo

Yes. This is -- we don't give as you know, we don't give annual guidance so when you start to think about the year, though, look, if we have a quarter, which we guided here for $30 million to $32 million you guys will split the goal posts and call it $31 million. So let's just call it $31 million and as with the consensus is likely to come out. You go into the June quarter and even if you've got -- again, you've got a goose egg out of couple of big customers because they've got inventory. I think you can take the underlying business, which would be, therefore, represented by that $31 million and you can add, you want to call it somewhere between 3% and 6%. This sales team is capable and has demonstrated for 6 consecutive quarters that they've been capable of delivering that kind of number. And we have now Stretch and we have HPA on for multiple quarters, so and so forth. So you can see growth in the June quarter even if there is a very weak outcome for those 2 or 3 customers that we're all talking about. And then the September quarter, inevitably, that inventory will be gone. Give us another share up [ph] 3%, 4%, 5% on our baseline business and now start to slap back in whatever you choose to do. You know this thing is a $1,300, $1,400, $1,500 card, start to slap back in a couple million bucks a quarter of upside to it and you start to see very significant growth in the September and December quarters. So if you kind of do just a very rudimentary model along that line, you can see that it's possible, I mean possible with a, for me, reasonable level of confidence that, that would play out to something on the order of a 15%, clawing [ph] as you said, mid-teens growth here. And that's what the heck we're going to drive this company to do.

Craig A. Ellis - B. Riley Caris, Research Division

Okay. And then the last question is a bigger picture question for you, Lou. You've done a nice job adding TAM expensive products to the portfolio. You've done it on the compression side, within an acquisition about a year ago. You did Cadeka, recently Stretch. There seemed like there could be some very interesting synergies between Cadeka and Stretch. But how do we think about TAM expansion from here and what you're interested in doing either through acquisition as you've been doing or organically with any of the product group?

Louis DiNardo

I think that's a very nice top line question. It's probably the one I think we're ending on. I think this is the last question. I appreciate your comments. I do think we've done -- the team has done a great job of honing our organic product strategy. Frankly, eking the absolute best, we had in the way of growth out of a product line -- set of product lines that hadn't been invested into. To post those 6 quarter in a row before we got any new products out, I think is a testament to sales force and the marketing teams' efforts. But now you're right, you start to tuck in Altior, which gave us software and competency; Cadeka -- Cadeka plays through such a broad market. We are going to continue to invest in High Performance Analog and that could be that we double the size of the design team in Loveland. It could be that we take this really the center of excellence we had in Wuxi, China, which is close to a great population of both the surveillance customers as well as the industrial control environment in China, and we put a design team there. So we will bulk up our design effort and we will bulk up our field applications effort. I think I may have said this on our last call, the idea of going out in the last 2 years, while we were trying to be -- really pinch pennies and hiring a bunch of world-class FAEs to sell a product line that was relatively tired as compared to taking those dollars pumping them on in the R&D, using them frankly to subsidize take [ph] in market share so we could grow the top and return to profitability. That is now changed. Now we have products that demand that we have world-class FAEs and we do, but we don't have enough. So we're going to add FAEs, we're going to add designers. I think you guys have all come to know us well enough that, that's usually not completely incremental when it comes to operating expenses or headcount. We tend to be pretty diligent on performance and making sure were sized appropriately, but I would not take off the table for a minute that we continue to look for these high-value deals that we've got. Some might call them inexpensive. I think they're high-value. We've got great people, great products in both of those acquisitions. And Ryan's used the phrase a couple of times today while we were talking, we need to cast the net a little bit wider. It could be a little bit bigger, it could be a little bit more off the beaten path or it could be straight down the middle and add precision products to the high-performance team by virtue of bolting something on. So it's a long-winded answer, but I think the prospects for organic growth with the foundation that we put in place full-well knowing that our biggest network traditional or historical networking customers are coming back and keeping our strategic options open are really 2 important things for us as we look forward for next couple of quarters.

Operator

And I'm showing no further questions at this time, I'd like to turn the call back over to Mr. DiNardo for closing remarks.

Louis DiNardo

Look, everyone. Thank you, all, for joining the call. As expected, good questions, because I think you drive through to the right questions on the right topics. The first slide that I put in that deck really is where I feel the company is, we have spent 2 years building products, adding the proper talent in the proper places, finding high-value acquisitions, that give us technology as well as revenue. Again, HPA did nominally $2 million last quarter, that's a nice incremental and it was a very nice gross margin revenue and the Stretch team comes also with the bag of orders. So all in all, we're looking forward to the quarter. We're looking forward to the design traction we have in lots of end areas and we will speak to you again in about 90 days or so. Thank you.

Operator

Ladies and gentlemen, this concludes the Exar Corporation's Fiscal Year 2014 Third Quarter Financial Results Conference call. Thank you for your participation. You may now disconnect.

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