Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Micrel, Incorporated (NASDAQ:MCRL)

Q1 2010 Earnings Call Transcript

April 22, 2010 4:30 pm ET

Executives

Ray Zinn – Chairman, President and CEO

Ray Wallin – CFO and VP of Finance

Analysts

Tore Svanberg – Thomas Weisel Partners

Doug Freedman – Broadpoint

Christopher Longiaru – Sidoti & Company

Adam France – 1492 Capital Management

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Micrel Incorporated 2010 first quarter results conference call. During today's presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions)

This conference is being recorded today, Thursday, April 22nd of 2010 and I would now like to turn the conference over to Ray Zinn, President and CEO. Please go ahead, sir.

Ray Zinn

Thank you, Michaela. Well, welcome to our Q1 2010 conference call. With me today is Ray Wallin, our Chief Financial Officer who will be giving us the prepared information. Before I start, I'd like to say that I'm very happy and proud of what we've done in Q1, but more so I'm more pleased and excited about Micrel's future. Q2 going forward. I think looks very good for the Company and I think you're going to see that as we move forward and listen to the prepared information prepared by Ray Wallin. So with that, let me turn this over to Ray Wallin. Ray?

Ray Wallin

Thank you, Ray. So in conjunction with this conference call, a number of supplemental charts will be made available on Micrel's website during the following prepared remarks. To access these charts, go to www.micrel.com and click on the link to the first quarter 2010 conference call slides.

We will begin today's call with the legal disclaimers and safe harbor statement. All material contained in the webcast is the sole property and copyright of Micrel Incorporated with all rights reserved. Certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties.

Forward-looking statements include statements regarding future business results, future levels of sales and profitability, future customer demand and economic and industry projections. Various factors could cause actual results to differ materially from what is set forth in such forward-looking statements.

Some of the factors that could affect the company's results have been set forth in our press release dated April 22, 2010 and are also described in detail in the company's SEC filings, including but not limited to our Annual Report on Form 10-K for the year ended December 31st, 2009.

Listeners who do not have a copy of the first quarter earnings press release may view the press release on the company's website at www.micrel.com. We will review the financial results for the first quarter ending March 31st, 2010 and then discuss our outlook for the second quarter of 2010. Our prepared remarks will then be followed by a question and answer session with the financial community.

Let's begin with Micrel's first quarter financial and operational highlights. We are off to a good start in 2010 as the company continues to participate in the recovery of the semi conductor industry. Driven by demand from customers who serve in the industrial and communications end market we generated solid revenue growth and very strong bookings.

At the top line first quarter revenue increased 9.7%, compared to the prior quarter which was better than we anticipated. This is the fourth consecutive quarter of revenue growth since the recession bottomed for the company in early 2009. In addition, our first quarter book-to-bill ratio was significantly above one and was at the second highest level we have seen in the 32 year history of Micrel. As a result, total backlog is at record level and is more than two times higher than total backlog at the same time last year.

And importantly, since the current cycle is a result of a recovery from the global recession that began in the latter part of 2008, we do not believe there will be appreciable amount of order cancellations and inventory overbuild. In addition to the improving demand, we continue to be encouraged by the company's solid operating performance. First quarter gross margin was 55.4%, which marks the fourth quarter in a row of sequential growth margin improvement for the company.

Moreover our operating margin of 22.2% in the first quarter increased significantly from recent prior periods. In fact operating margins were at the highest level since the third quarter of 2006. This continued margin expansion demonstrates our execution and focus on cost containment, the leverage inherent in our business model and our ability to generate profitable growth.

Further more, our ongoing focus on working capital management resulted in improvements in most of the key balance sheet metrics during the first quarter and cash flow from operations jumped to nearly $18 million in the period. We continue to put our cash to good use. The reinvestment in our business to research and development has resulted in a significant number of new product introductions that has dramatically expanded our served addressable market.

We also remain focused on enhancing shareholder value and as we announced in the press release this afternoon, we maintained our quarterly $0.035 share dividend and continue to buyback stock through stock repurchases which more than offset the dilution of stock option purchases.

With that let's now move on to a closer look at Micrel's first quarter financial details. Revenues in the quarter totaled $67.2 million, compared to $61.2 million in the fourth quarter of 2009 and $47 million in the year ago period. To reiterate, the 9.7% sequential growth in the quarter was better than expected and was primarily due to improved demand and the industrial and communications end market.

Compared to the same period last year, revenues were higher by $20.2 million or 43% due to higher overall demand from customers in all geographies and end markets as the part of a global recovery from the recent world wide economic crisis that significant impacted most consumer related markets.

Standard product sales accounted for 97% of total first quarter revenue with custom and foundry sales comprising 3%. First quarter sales mix by product area was analog 66%, high bandwidth 16%, Ethernet 17%, and foundry 1%.

OEM turns filled for the quarter was approximately 50%. Micrel sales remain widely diversified with our top ten direct customers accounting for 22% of sales in the most recent quarter compared to 25% of sales in the prior quarter.

Our first quarter revenue by end market was as follows. Wireline communications 30%, compared to 29% in prior quarter; wireless handsets 15%, compared to 14% in the fourth quarter of 2009; computing 14% compared to 15% in the fourth quarter; industrial 40%, compared to 37% in the previous quarter; military and other 3%, compared to 5% in fourth quarter.

Sales by region were as follows. North America 29%, compared to 28% in fourth quarter of 2009; Asia 58%, compared to 59% last quarter, and finally Europe 13%, compared to 13% in the fourth quarter. First quarter gross margin was 55.4% up from 53.3% in the prior quarter.

This equates to approximately 35 basis points of improved growth margin per $1 million of incremental revenue, which is in line with our guidance that we gave a couple of years ago when we guided to 25 basis points per million of incremental revenue.

Please note that product mix does influence incremental margin improvement. The first quarter had a richer margin mix. Gross margin benefited from better factory capacity utilization and cost improvements due to the increased revenue levels to cover fixed manufacturing cost.

Our fabrication facility utilization rate in the first quarter jumped to the mid 50% range from the low 40s range last quarter as a result of the higher revenue level in the current quarter. R&D spending increased slightly on a sequential quarter basis to $11.4 million or 16.9% of first quarter revenue from $11.1 million or 18.2% of fourth quarter 2009 revenues.

We continue to release to the market a significant number of new high performance products which we believe will drive customer demand for the company in the future. During the first quarter, the Ethernet product line introduced the first members of the new extended temperature product portfolio. This is a new genre in networking and will enable the benefits of IP connectivity for a host of new market segments.

Physical Layer Transceiver and integrated controller support minus 40 degree centigrade to plus 125 degree centigrade temperature range and will allow the benefits of Ethernet connectivity to be realized in a variety of harsh industrial, automotive and military application environments, previously the domain of proprietary and niche protocols that came at a much higher cost.

In the high bandwidth product line, we released six new products. Included in this release are three devices from our high performance clockwork family. These new devices are ultra low phase noise clock synthesizers and are well suited for high speed network and application such as 10 Gigabit Ethernet for enterprise switches and servers as well as Fanout for metro and long haul applications.

We also expanded our high speed low volt CML distribution family with the introduction of the 6.4 Gigabit Fanout with 4 to 1 marks in integrated selectable equalization to extend clean data transmission over a long four traces and large networking systems.

As part of our SAM expansion strategy in the Fiber-to-the-Home and 10G optical transmission areas. We released the industry smallest GPON Transceiver combining a 2.5 Gigabits burst mode laser diode driver with a limiting post amplifier as well as 12.5 Gigabits limiting post amplifier suited to the popular SFP+ optical module. We continue to extend new product releases and analog with 21 high performance products a record out for the new products for the analog division.

Highlights include the release of the super switcher two family of high current, high import voltage DC/DC converters. The super switcher two is a simple fully integrated family featuring Micrel's hyper speed controls that minimize components sizes and creates simple easy to use parts.

This family targets industrial, Datacom and server markets and continues to expand Micrel's market stand in power conversion. In the mobile market, we also released the world's smallest quad and Triple LDO Family targeted for GPS and camera modules where size is at a premium.

To the mobile DC/DC space, Micrel's plan on supplying of hyper light load DC/DC converters with a smallest dual regulator. These devices extend battery life while helping to minimize the overall size of the mobile device both crucial in current mobile trend.

Moving down the income statement first quarter SG&A spending was $10.9 million or 16.2% of revenues up slightly from $10 million or 16.4% of revenues in the fourth quarter of 2009. The increase is due primarily to increase sales expenses on higher revenues and increase allocation for profit sharing.

First quarter operating income jump to $14.9 million or 22.2% of revenues, this compares to operating income of $5.5 million or 8.9% of sales in the fourth quarter of 2009, and $2.3 million or 4.8% of sales in the year ago period. Recall to the fourth quarter 2009 operating income included the impact of the $6.5 million asset impairment charge; first quarter income net was $0.1 million similar to the prior quarter.

The effective tax rate of 35.5% in the first quarter was a bit higher than normal primarily due to the expiration of the federal research and development tax credit. First quarter GAAP net income was $9.7 or $0.16 per basic and diluted share. This compared with fourth quarter 2009 GAAP net income of $4.1 million or $0.07 per basic and diluted share and GAAP net income of $1.5 million or $0.02 per basic and diluted share in the year ago period.

Turning to the balance sheet, our liquidity position remains very strong. Cash and short-term investments were $83.6 million at the end of March up $12.6 million from the prior quarter. First quarter cash flow from operations were $17.9 million. Last year, we entered into a $20 million unsecured credit facility with the Bank of the West consisting of a $15 million term loan facility and a $5 million line of credit for working capital needs.

As of the end of the first quarter, the balance on the term loan was $9.3 million down from a balance of $11.4 million at the end of the last year, whereas the credit facility remains undrawn. Capital expenditures totaled $1.1 million in the first quarter compared to $7.7 million in the fourth quarter of 2009 and $1.2 million in the year ago period. Included in the fourth quarter 2009 is approximately $6 million related to the proactive purchase of our corporate headquarters facility here in San Jose. We have previously been leasing this facility under a 10 year lease agreement that was set to expire at March of 2011.

During the quarter, the Company also paid dividend to shareholders totaling $2.1 million or $3.5 per share. Accounts receivable balances increased on a sequential basis by $6.6 million in the first quarter to $32.9 million, primarily due to higher revenue levels and timing of customer payments.

Day sales outstanding were 44 days at the end of the first quarter compared to 40 days at the end of the fourth quarter of 2009. Net inventory decreased slightly by $0.3 million during the first quarter to $33.9 million reflecting solid execution in controlling inventory.

First quarter days of inventory of 102 days was the lowest for the company since the fourth quarter of 2005 and was eight days better than the fourth quarter of 2009 due to tight manufacturing, control and higher sales in the quarter. The deferred income at our sell through distributors was up $5.2 million from the prior quarter. Total channel inventories grew on minus 9% during the quarter and total weeks of inventory in all our distribution channels moved from 14 weeks to 13 weeks.

First quarter depreciation and amortization excluding the amortization of stock based compensation was $3.3 million, down from $3.6 million in the prior quarter. As we indicated in the press release, the company's Board of Directors has authorized the quarterly dividend of $0.035 per share to be paid on May 26th 2010 to shareholders of record as of May 12th 2010.

Now let's turn to the outlook. In order to help the investment community better understand the dynamics of the semi conductor industry, Micrel has always provided detailed economic conditions and outlook. We want to remind you that the following information is not specific to the company, is with that backdrop that we will once again provide our industry view and outlook.

Turning to slide number one, this is Micrel's industry barometer chart, you will note that we have made no changes to our industry outlook for the balance of 2010. Now let's look at chart number two which is our semi-conductor industry cycle chart. The industry unit demand continues to recover from the downturn that began in the third quarter of 2008. We are also pleased that the recovery is turning out to be exactly as we modeled it over a year ago. It now look likes the industry will return back to the trend line from time in the third quarter of 2010. We are still maintaining our view that industry growth will be approximately 25% in 2010 and 11% in 2011.

This is based on the belief that macroeconomic conditions around the world will continue to improve and the industry will move back to its normal cycle with regular seasonality. We expect the robust bookings that we experienced over the past few quarters will slow down as we exit the second quarter of 2010 with channel inventories and lead times being back to more normal levels by the fourth quarter of 2010.

Now let's turn to slide number two which is our semi-conductor industry inventory chart. We anticipate that inventories will remain well controlled. We do not expect levels to increase appreciably as the channel inventories recover. Given the current environment we do not expect we will see the level of cancellations and inventory over build that we saw existing 2000 at the end of the dot-com bubble.

We are not saying that there will be no order cancellations or inventory over build but we do not anticipate anything like what we saw at the end of the dot-com boom. The difference between what we are experiencing now compared to what's happened at the end of the dot-com boom is that the industry was above the trend line as we entered the dot-com boom in mid-1999 compared with what happened as we entered the recession during this cycle.

The current cycle began with a significant drop in unit demand and bottomed out with an approximately 48% drop in unit volume and in demand that we are currently seeing is a recovery from the recession as opposed to a boom that was experienced in 9 to 2000.

If you want to compare the past cycle of the dot-com boom to the current cycle, we need to go back to the bottom of dot-com boom implosion which occurred at the end of 2001. The recovery starting in mid-2002 is similar to the period beginning February 2009 to the present. You will note that as the industry recovered back to the trend line in late 2003 that the inventory days were improving.

Therefore, it is our thesis that we will not see an appreciable amount of over inventory build or cancellations. We expect to see continued strength in the industrial and communication market as we entered the second quarter. We do expect a normal slow down in these markets entering the third quarter but being offset by the normal growth expected to the back to school and holiday builds primarily driven by the consumer markets.

Now turning to the outlook for Micrel for the second quarter of 2010, we expect second quarter revenues to grow on a sequential quarterly basis in the range of 12% to 15%. We currently expect gross margin to be approximately 57%. We expect total operating expenses including stock compensation to be in a range of approximately $23 million to $23.5 million. Other income is projected to be about $21 million.

We estimate that FAS 123R will result in approximately $1.2 million of pretax stock compensation expense in the second quarter. The second quarter effective tax rate will be approximately 35% on a GAAP basis. Based on these afore mentioned projections and an anticipated fully diluted share count of $63.4 million, we believe second quarter 2010 GAAP diluted earnings per share will be approximately $0.19 to $0.21 per share.

Before turning the call over for questions, let's wrap up with a summary of the key financial and operational highlights from the first quarter. First, top line results exceeded our expectations and Micrel generated sequential quarterly revenue growth for the fourth quarter in a row.

Second, we had a net recorder of robust bookings with a book-to-bill ratio significantly above one and is the second highest level in the 32 year history of the company. Third, we continue to carefully manage our expenses and focus on operational execution. Gross margin increased sequentially for the fourth in a row and operating margin was the highest it has been in four and a half years and four, financially Micrel remains very healthy.

Our ongoing focus on working capital management resulted in improvements in most of the key balance sheet metrics and cash flow from operations increased by nearly $18 million in the first quarter. Overall we're off to a good start in 2010 and Micrel is poised to continue to grow as the global economic climate improves.

In conclusion, we are pleased with the continued recovery in the semi conductor industry and we are exited about Micrel's growth opportunities in 2010. Given the significant number of new products that Micrel has introduced over the past several quarters, we are confident that the company will achieve growth rates equal to or higher than the overall industry and as importantly recent actions to improve our cost structure and enhance operating efficiencies positioned the company to achieve significant earnings leverage as top line growth continues.

Thank you. We'll now go to the question and answer portion of our conference call.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from the line of Tore Svanberg from Thomas Weisel Partners. Please go ahead.

Tore Svanberg – Thomas Weisel Partners

Yes. Thank you and congratulations on the strong results. A few questions. First of all, could you just talk a little bit about your backlog by end market? I'm just trying to figure out what's going to drive this strong growth in Q2. Is it still industrial and communications or are there other things contributing as well?

Ray Wallin

Well there are other things to it. It's a broad based story but again we're still seeing the momentum in the industrial and communication segment.

Tore Svanberg –Thomas Weisel Partners

Great and you had 50% turns this quarter. Can you talk a little about how much turns you're expecting to hit the mid-points in Q2?

Ray Wallin

About the same.

Tore Svanberg –Thomas Weisel Partners

About the same? And the 57% gross margin, does that sort of assume the same product mix. Should we just do the math here where each incremental million of revenue you get 35 basis points in gross margin improvement?

Ray Wallin

I don't think 35 basis points. I think we use 25 or 23 or something like that. It's not real precise and again it's a moving target. We just gave that 25 basis points as a benchmark for you guys to use. So don't take it as absolute possible but we're looking at pretty much a nominal mix to do the 57%.

Tore Svanberg –Thomas Weisel Partners

And I mean you're experiencing some end demand coming back but based on the growth rate, it looks like you're going to outperform the market. So, how much of the strength we're seeing right now is coming from your SAM expansion initiatives and new products.

Ray Wallin

Well that's an interesting one. I'd say a good majority of it is coming from that Tore. Other than just a normal participation that we're getting as everyone else, so other than what you would normally expect for the industry, the rest of it I believe just doing the same expansion in our new products.

Tore Svanberg –Thomas Weisel Partners

Great, and my last question is coming back to gross margin, you mentioned your 55% utilized this quarter, how does that progression happen is -- I mean at 85% or 90% utilization, what type of revenue would you be as in, and what gross margin would translate that to?

Ray Wallin

Right never with the used inventory.

Tore Svanberg –Thomas Weisel Partners

If you utilize that 85%, 90% all?

Ray Wallin

Then you are talking fully revenue probably more of $85 million something like that for the quarter.

Tore Svanberg –Thomas Weisel Partners

Great again congratulations, thank you very much.

Ray Wallin

You are welcome. Thank you, George.

Operator

(Operator instructions) And our next question comes from the line of Doug Freedman with Broadpoint. Please go ahead.

Doug Freedman – Broadpoint

Great. Thanks for taking my question guys. Ray or either one of you guys, can you focus on your operating expenses for us and it appears that though as the revenues coming back here you're spending a little bit more. You feel like you're spending on adequate amount range now or where do you see operating expense is showing, have you increased higher end temporary and permanent and whether that spending levels are -- you mentioned a little bit what percentage of the spending is impacted by profit share?

Ray Wallin

Doug, so if I remember from previous calls that we lag our increases in our operating expenses with the revenue by one or two quarters. So, as our revenue continues to increase our operating expenses will be one or two quarters behind, so you probably saw that in the guidance this time around, but as the revenue increases you're all going to see some increase in operating expenses from the sales expenses increasing because of commission, but also we would be also achieving our profit objectives with that plan, and we'd be putting money right away for our profit sharing as well.

So, those two items will add to the operating expenses. We're also, we have a number of racks opening in the company, and we are doing some hiring, but we're watching it very closely so that we do the hiring on the basis that we just talked about with the one to two quarter lag as revenue. We want to make sure we really see it before we weigh in the operating expenses for the company.

That's going to be an increased demand and manufacturing; we did have to increase our direct headcount a little over 15% during their Q1.

Doug Freedman – Broadpoint

All right. Some of my model is starting to spit out what I would call new record pretax income. Is there any sort of lever that kicks in that causes expenses to rise. What are the triggers for your profit sharing accruals?

Ray Wallin

It was EPS based, so we have built the curve internally, and it has a minimum. So we have to achieve a minimum level of EPS and then the curve moves up on a steep slope, and then it levels off at a collinear as we increase earnings per share. So, in this quarter we put away approximately $1 million for the profit sharing. So, that could increase as we go on a quarterly basis as we go through the year, but it won't be substantially more than a $1 million.

Doug Freedman – Broadpoint

Great, and if I could ask a question about your semiconductor industry cycle forecast, am I reading this correctly and seeing that come September, October timeframe you guys think that that's when we'll see sort of peak unit shipments and things will start to slowdown for the fourth quarter and so accordingly you think that is it correct in stating that you think Mircel will see similar types of results, or is there something that would cause you to be different than the industry?

Ray Zinn

It could be a little different. It's depending upon the strength of the consumer markets. I know that a lot of us are wondering what's going be the consumer spending during the holiday timeframe. So, it's a little early jump on that, so I would like to wait another month or two and just kind of see how that's going to play out rather than try to call it in April.

I don't know if any of us are really going to understand fully the impact of the consumer on the holiday at this juncture. I can get my crystal ball out though I guess and really works, but what we did again if you look at the chart, we are just saying that we are getting back to the line, and so by getting back to the line we see no total growth drivers they are going to shoot the thing above the line and we are just modeling it, and just mathematically we are not looking at anything the investors are saying, and all those things on the street and listening to our peers. We are just mathematically modeling what we think it's going to happen just based on history, just looking back at the prior cycles and modeling just like if you come out of 2003 look at 2004.

We are just doing it like that. We are not trying to let anything buy us or influence our thinking. So, this is strictly a mathematical economical model.

Doug Freedman – Broadpoint

All right. Terrific and congratulations on this strong results. Thank you.

Ray Zinn

Thank you, Doug.

Operator

And as a reminder ladies and gentlemen if there are any additional questions (Operator instructions) And your next question comes from the line of Christopher Longiaru with Sidoti & Company. Please go ahead.

Christopher Longiaru – Sidoti & Company

Can you hear me?

Ray Zinn

We can.

Christopher Longiaru – Sidoti & Company

That's a great quarter. Great guidance.

Ray Wallin

Well thank you very much Chris.

Christopher Longiaru – Sidoti & Company

What I want to know is it seems like your margins are continuing to escalate based on utilization. Can you give us, I have been popping in enough call I'm not sure if you have answered this question, but just a little glimpse into what utilization is and just what you think your peak margins could be?

Ray Zinn

That question was asked by Tore.

Christopher Longiaru – Sidoti & Company

Okay.

Ray Zinn

So, we think our peak margin, again what timeframe we are talking about. Certainly, we are not forecasting the company operating at full capacity any time soon. So, but as to get to the 85% utilization area, we had to be it by luck $85 million in revenue per the quarter and currently we are about 55%.

Christopher Longiaru – Sidoti & Company

Okay.

Ray Zinn

And that's at $67 million.

Christopher Longiaru – Sidoti & Company

What do you think peak gross margins would be at that…?

Ray Zinn

(inaudible) We are flattening out because pretty soon the contribution it's just an overhead by the depreciation starts becoming less of an impact. You can only get so much out of because your dye cost is no more than half of your total cost, so at some point you are going to run out of steam on what your contribution due to dye cost is.

Christopher Longiaru – Sidoti & Company

Got you. Okay. So at this rate, I mean we are at 55% but with that I mean just (inaudible) we are looking I guess at 60% peak.

Ray Zinn

Well, I'm not saying a 60% peak, I'm just saying that it's hard to, it's going to flattened out, it's not going to continue at the same ramp.

Christopher Longiaru – Sidoti & Company

Right.

Ray Zinn

We won't be adding 25 basis points forever for every million dollars in revenue. So, could you do this you are going be to be way above 60? So, we're in a competitive area and we still have to be out there competing with our peers. So, we're doing the best we can to nationalize that margin and you can see that we do have a model that shows good leverage on that.

Christopher Longiaru – Sidoti & Company

Right

Ray Wallin

But I won't say they are predict, a year from now I'm going to be at 60% gross margin.

Christopher Longiaru – Sidoti & Company

I got you.

Ray Zinn

A kind of way to look at it Chris is you get a bigger bang for the buck from increasing the capacity utilization versus the mix at this phase and as we get closer to Ray said the $85 million revenue level per quarter, then you start flipping that between what the bang you're getting from the capacity utilization increase and the mix.

Christopher Longiaru – Sidoti & Company

I got you.

Ray Zinn

So, in current it floats up and then it levels off when you get into that revenue lane. Its' not flat but because you still have fixed manufacturing costs that you're recovering the bang for the buck is a lot less.

Ray Wallin

I'm striding with all my effort and earnestness to get my margins above 60%. So, I don't want to you think that we're saying we're not going to get there.

Christopher Longiaru – Sidoti & Company

You made some big strides this quarter. So, like you just said nothing at this rate would be astronomical by the end of the year. So, at this point I'm just trying to ascertain when it starts to flatten out and when that product mix takes more of front feet in terms of driving gross margins. Also what…

Ray Wallin

I think we're flat at about $85 million. It's not flat now but I mean it will start tapering off about $85 million

Christopher Longiaru – Sidoti & Company

Since we're talking about that number, $85 million, on an $85 million run-rate, what do you expect your operating expenses, your operating margin to look like?

Ray Wallin

Well, we're getting close to 30%, yep.

Christopher Longiaru – Sidoti & Company

Closer to 30%. All right great. Thank you guys. I appreciate it.

Ray Wallin

You're welcome.

Operator

Thank you and if there are any additional questions at this time. (Operator instructions) And we've a question from the line of Adam France with 1492 Capital Management.

Adam France – 1492 Capital Management

Hi there. Thank you for taking my call guys. What do we need for full year CapEx for your business?

Ray Wallin

When we have time for budget rate? If we see full year CapEx and I would assume that we are going to putting in to get 1.1 million this quarter. But I would assume up to a 2 million a quarter kind of thing, two three would be the math I mean its limit is going to driven by how the demand goes and what kind of capacity we have to let in here and

Ray Zinn

Especially, for the back end.

Ray Wallin

Especially for the back end which today is fairly tied and we are adding capacity there and so we are adding capital. So, I would say you would be safe if you put in $2 million to $3 million a quarter going forward.

Adam France – 1492 Capital Management

Okay and any specific metrics behind setting your dividend?

Ray Zinn

Well you mean are we going to increase it?

Adam France – 1492 Capital Management

What do you look for in terms of a pay out ratio I mean why is $0.035; it's a magic number I guess.

Ray Zinn

Its not magic, we are one of the smallest semiconductor is to offer dividend and so we are just cautious we have been through a downturn as and so we have been watching cash and as we see our cash build up, we absolutely are going to return that back to the investors. So, you will see both in terms of stock buyback as well as dividend increases as we feel comfortable with our cash position.

Ray Zinn

And then our loose goal here is we -- an internal rule of maintaining at least one quarter's revenue in cash in the bank and as you can see from our cash levels we are starting to exceed that now. So it's making us think a little bit more about what Ray is talking about in terms of the share repurchases and the dividend as well.

Adam France – 1492 Capital Management

Super. Thank you very much guys.

Ray Zinn

You're welcome.

Operator

Thank you and at this time, there are no further questions in the queue. I'd like to turn the conference back over to management. Please continue.

Ray Zinn

Well, thank you. We are very happy you joined us today. We're a little sort of giddy on this one because we finally turned the corner and I believe that the company is beginning to get some traction where we believe the company will support some decent growth in the future quarters, and just appreciate your support and understanding of what we're trying to do. So, look forward to talking to you in July. Thank you very much and have a great day.

Operator

Ladies and gentlemen, this concludes the Micrel Incorporated 2010 first quarter results conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325 with an access code of 4284260. Thank you for your participation and at this time, you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Micrel, Incorporated Q1 2010Earnings Call Transcript
This Transcript
All Transcripts