International Rectifier Corporation F3Q10 (Qtr End 03/28/10) Earnings Call Transcript

Apr.29.10 | About: International Rectifier (IRF)

International Rectifier Corporation (NYSE:IRF)

F3Q10 (Qtr End 03/28/10) Earnings Call Transcript

April 29, 2010, 4:30 pm ET

Executives

Chris Toth – IR

Ilan Daskal – CFO

Oleg Khaykin – President & CEO

Analysts

Steve Smigie – Raymond James

Craig Berger – FBR Capital Markets

James Schneider – Goldman Sachs

Ramesh Misra – Brigantine Advisors

Bill Ong – Merriman

Brian Piccioni – BMO Capital Markets

Steven Chin – UBS

Operator

Good afternoon, ladies and gentlemen, and welcome. My name is Ashley and I’ll be your conference operator today. At this time, I would like to welcome everyone to the International Rectifier fiscal third quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator instructions) Thank you.

It is now my pleasure to turn the conference over to our first speaker, Mr. Chris Toth, with Investor Relations. Sir, you may begin your conference.

Chris Toth

Thank you, operator, and good afternoon. If you have not already read through our press release issued earlier today, it can be found on our Web site at investor.irf.com in the Investor Relations section. The 2010 third quarter report on Form 10-Q is expected to be filed with the SEC on Friday, April 30, 2010 and can be accessed using the same web address. This call is being broadcast over the internet and can be accessed thorough IRF’s web address. The conference call replay will also be available through May 6th, 2010.

After our prepared remarks, we will open the line for questions. Our discussion today will include some forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution that such statements are subject to a number of uncertainties and actual results may differ materially. Risk factors that could affect the Company's actual results are included in our press release issued today and the Company's filings with the SEC, including the most recent Forms 10-Q and 10-K.

I would also like to mention that International Rectifier will be hosting an Analyst Day here in El Segundo, California, on Thursday, June 10. Presentations featuring the International Rectifier senior management team will begin at 8 A.M. and will go through 11.30 A.M. Pacific Time. A question and answer session, product demos and lunch reception will follow.

Now, Ilan will discuss our most recent financials. Ilan?

Ilan Daskal

Thank you, Chris. Good afternoon and thank you all for joining us. The third quarter IR reported revenue of $241.9 million, which was a 15.1% increase from the prior quarter and above our guidance range of $225 to $235 million. We continued to see a healthy increase in revenue and bookings, driven by strong end market demand from our OEM customers and strong distribution sales force.

Gross margin was 36.1%, up 620 basis points from the prior quarter, driven by higher revenue as well as higher factory utilization. In addition, the gross margin upside above our guidance range of 34% to 35% resulted primarily from our higher HiRel business which had a more favorable mix in the March quarter.

We reported net income of $40.4 million or $0.56 per fully diluted share compared with $28.3 million or $0.39 per fully diluted share in the December quarter. The results for both the March and December quarter included a $23 million and $27.8 million tax benefits respectively.

For the March quarter, R&D expenses were $25.6 million and SG&A expenses were $43.1 million. This included employee bonuses and sales commissions associated with higher revenue. Operating income for the quarter was $17.3 million or 7.2% of sales.

Other expense net was $318,000 in the March quarter and interest income net was $2.6 million, primarily from our existing investments and sales of some of our level three investments. We expect interest income net to be at about $1 million to $2 million in the June quarter.

Income tax for the quarter was a $20.8 million benefit due to $23 million release, primarily of tax reserves that offsets about $2.2 million in tax accruals in our foreign jurisdictions.

The total cash, cash equivalents, and investments at the end of the third quarter were $555.4 million, which included $3.4 million of restricted cash. We have also managed to further reduce our level three investments from $32.8 million to $28.5 million in the March quarter.

Inventory was $166.6 million, which is up $8.7 million from the prior quarter. This inventory increase was in support of expected sales growth. Inventory weeks remain flat at 14 compared with the last quarter.

Cash from operating activities in the quarter was $29.1 million and free cash flow was $10.8 million.

Capital expenditures were $18.3 million, which was above 7.5% of revenue. Depreciation and amortization expenses were $18.1 million and stock-based compensation was $3.1 million.

During the quarter we purchased about 588,000 shares of our stock at an average share price of $19.40 a share at a total cost of $11.4 million. We had 70.7 million shares outstanding at the end of the March quarter.

Moving on to our outlook, we continue to see growth and currently expect revenue for the June quarter to be between $255 million and $260 million. This is about 5% to 7.5% increase from the March quarter. For this projected revenue range, we currently estimate gross margin in the June quarter to be about 35% to 36%.

Now, Oleg will give you the latest update on our business. Oleg?

Oleg Khaykin

Thank you, Ilan. During the third quarter we continued to experience strong revenue growth in excess of our forecast, driven by increase end market demand and share gains. We achieved very strong sales and earnings growth in the March quarter with positive operating income and we generated $29.1 million of operating cash and $10.8 million of free cash flow.

During the quarter we saw strong demand across all geographies. Asia was particularly strong with China leading the way in appliances and North America and Europe returning to pre-downturn levels with solid growth momentum in automotive industrial.

In terms of our business units, the Enterprise Power business unit revenue was $32.6 million which was slightly down from the prior quarter due to capacity constraints and the timing of shipments. However, bookings and channel demand continue to remain strong.

Overall, we saw record bookings in our server products and strength in notebook computing and in enterprise communication products. We continue to see strong momentum and expect to see continued growth in the Enterprise Power business unit over the next two quarters.

Our Power Management Devices business unit experienced strong growth, up 26% from the prior quarter to $95.9 million, driven by healthy demand across industrial and power supply markets. We continue to see strong design win activity and market share gains during the June quarter.

In our Energy Savings product business unit revenue grew 29% over the last quarter to $52 million driven by strong seasonal demand in appliances and industrial products. Company’s appliance business saw strong traction for the start of the new model year both in China and the U.S.

I am pleased with the success of our ESP business unit. The go-to-market strategy of focusing and winning Tier 1 customer design is showing the results. Our automotive products business unit grew 12% from the prior quarter to $19 million driven by a new demand in both North America and Europe. We continue to see strong growth into the summer as we expect to reach potentially exceed our past peak automotive revenue level in the June quarter.

And lastly, our HiRel business unit revenue was $40.2 million, up slightly compared to the prior quarter.

Now, an update on channel inventories. During the quarter sell-through sales were up 16% sequentially and channel inventory increased slightly. However, the overall channel inventory remains lean at below eight weeks. Lead times remain for the most part are about 12 weeks to 16 weeks and the overall factory utilization increased about 90%.

In conclusion, we continued to make significant progress on a number of fronts to better position IR for the future. We had seen strong demand for our product as reflected in our design wins and orders. With increasing penetration at Tier 1 accounts we are confident in our ability to execute towards our strategy, grow the top line and improve profitability and free cash flow. In addition, we continue to invest aggressively in new technology and product development in order to help sustain our growth momentum.

That concludes our prepared remarks. We will now open the lines to your questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Steve Smigie with Raymond James. Please go ahead with your question.

Steve Smigie – Raymond James

Thanks and congratulations on the nice numbers here. To start out, I was hoping you could comment a little bit more detail on the strength there on the Power Management Devices. It was a pretty big sequential jump. Is that share gains or is it you have products you’d been releasing while ago finally started to get traction, that’s my question?

Oleg Khaykin

All right. Hi, Steve. It’s actually I really do believe it’s a share gain and it’s driven by couple things. I mean clearly, ever since we’ve reengaged in the discrete business we’ve been getting a lot of design win activity so a lot of that build design wins are now go into production and at the same time we’ve launched some new products and we’re releasing new platforms as we speak during this year. And they are also obviously heading to the growth. That’s why we feel pretty good about the progress this business unit is doing and if I kind of look at relative sale growth among our peer group clearly, this particular business unit has been outperforming all the peers and thus I can make a conclusion that’s gaining market share.

Steve Smigie – Raymond James

Okay. And then assuming if you can just give a little color on how you see demand at this point, I mean, for a number of companies they’re starting to see revenues equal to previous revenues, maybe a little bit above and so there’s a concern that maybe things gotten overheated and I am just curious your thoughts generally on that. And just one housekeeping, if you could talk about what tax rate (inaudible) in the quarter? Thank you.

Oleg Khaykin

Well, I can’t comment on all the companies, I mean, clearly, there’s a lot of specifics of spending on which markets you’re competing in. And as you know, IR is a very broad-based company. So for example, last quarter our Enterprise Power business unit was flattish slightly down partially driven by a slower server sales. As you might have heard on the Intel call. But at the same time many of our other business units have seen very strong rebound.

So for example, last quarter of both industrial and automotive had a very strong bounce back for us. Consumer demand was slightly lower. In the June quarter we are seeing a much stronger momentum in the consumer products and more muted effect in the industrial. Automotive although it’s still growth. So from where I am sitting and kind of monitoring our sell-through activity which we follow religiously to see if there’s any chance of accumulation of inventory in the channel. At this point in time, I am not seeing that there is a significant inventory building up at least in the distribution and ODM and contract manufacturer levels.

Steve Smigie – Raymond James

Okay, the tax question?

Ilan Daskal

So Steve, for the tax for the next six quarters to eight quarters we expect the tax to be at about 3 million per quarter as we still have a lot of NOLs mainly domestically.

Steve Smigie – Raymond James

Great, thanks very much.

Ilan Daskal

Thank you.

Operator

And our next question comes from the line of Craig Berger with FBR Capital Markets. Please go ahead with your question.

Craig Berger – FBR Capital Markets

Hey, guys, nice results and thanks for taking the question. I guess, can you talk a little bit about pricing dynamics in the market, and also lead time dynamics, maybe what lead times did and when you expect them to change?

Oleg Khaykin

Hi, Craig. So, in terms of pricing I think the pricing is being pretty robust, we have not seen any price pressure and if anything, probably on the lower end of the ASP, we have seen some ASP appreciation. But I’ll say overall the prices are holding as they were with probably some of the lower price business actually firming up and we’re seeing some price increases there. That said, we’re, however, maybe a little separate, we’re seeing some price increases on commodities like copper and things like that because of the commodities going up and tighter supply.

In terms of the lead time I think overall the lead times remain fairly extended and I guess it varies by customer in the market, clearly, where you have automotive customers with very strong contract, their lead times remain fairly reasonable because it’s contractually obligated then they get the first priority. In other markets where demand is more spot market and there are no firm commitments on either side, lead times could be significantly longer. So overall, I would say if I kind of take the bulk of the distribution, it’s in the neighborhood of 12 weeks to 16 weeks, about the same as last quarter.

Craig Berger – FBR Capital Markets

Great, thank you. Next question is on the gross margin guidance and the question is a basic one. If revenues are going up, why isn't gross margin guidance also going up?

Oleg Khaykin

Well, I think the question that is fairly straightforward, I mean, last quarter, we had a big uptick from our higher utilization but also we’ve came in a little bit higher than we guided because of a stronger mix that we’ve seen in our HiRel business unit. And as I mentioned earlier, the big chunk of our revenue last quarter was kind of targeting industrial type applications. What we see typically in the June quarter in preparation to kind of I guess Christmas build is a greater share of the consumer product, aside to the mix of the pricing and the margin tends to be a bit on the lower side and also with our HiRel business unit, we expect the mix of product be towards more of a traditional kind in a low 50% gross margin business. So more module type products versus the diode products.

Craig Berger – FBR Capital Markets

All right. Do you still think you’re a 40% growth company at $250 million a quarter and I guess that’s the question?

Oleg Khaykin

Okay. So I think it’s depends on mix, right. I mean our discrete business unit has significantly outgrown all other business units. Obviously, as we kind of grown them all at the same time it is closer to 40% at $250 million. But if you ask me should I close down the growth of my discrete business unit I probably would say I rather take a lower margin overall and wait till the other business units to catch up and may get to 40% of probably higher revenue levels I would take the second scenario. I think really the difference here, but if I take couple quarters ago, revenue mix and kind of dial it forward and grow the business units at the same rate, the mix would put you around 40%.

Ilan Daskal

Craig, just to add to that, it’s the first time that we guided above $250 million and it will be for the June quarter, so probably we’ll need to wait for several quarters sequentially at above $250 million level and to see the blended gross margin and then we do believe there’s a long wait, the overall manufacturing efficiencies and the external capacity that would bring on, we can extend the gross margin as well.

Oleg Khaykin

So I think the answer to your question, as our revenue continues to grow will our margin continue to expand, the answer is yes. But given I guess current mix of discrete devices versus the rest of the business, will they hit 40% at $250 million revenue level, it’s kind of hard to tell until we see couple quarters of stability and able to squeeze out the operational efficiencies.

Craig Berger – FBR Capital Markets

Last question, guys. With Discrete or Power Management Devices and Energy Saving Products revenues coming up so fast, so strongly here, how should we think about traditional seasonality in the second half? Can the business still grow? Any design win commentary around that would also be helpful. Thanks and good job.

Oleg Khaykin

I think beyond June quarter probably a little too early to comment but typically, in this industry June and September quarters are fairly strong. However, our mindful that we’re currently in the fifth quarter of expansion, so who knows what the December quarter is going to look like, but I would imagine there’s going to be some seasonality and as I said at this point it’s going to hard to look and obviously, seasonality impacts discrete devices a bit more than the proprietary devices. So to the extent this business goes up very strong, it can also have a bigger swing when the demand tightens up.

Craig Berger – FBR Capital Markets

Thank you so much.

Ilan Daskal

Thank you.

Operator

Our next question comes from the line of James Schneider with Goldman Sachs. Please go ahead with your question.

James Schneider – Goldman Sachs

Good afternoon. Thanks for taking my question. Maybe to follow-up on the lead time question, but I ask it a little bit different way, with respect to your larger OEM customers, are you seeing any of them actually being able to build a little bit of buffer stock or inventory on their end? And if not, when do you expect that you'll be able to bring your lead times back down to more normal level?

Oleg Khaykin

Well, I think when you say build inventory there are you talking about companies, let’s say like Cisco, HPs of this world, building finished goods inventory?

James Schneider – Goldman Sachs

Or component inventory to kind of managing –

Oleg Khaykin

Thanks for clarification. Now, so on the component inventory I do not see effect this was a lot of largely, it’s still very much kind of hand to mouth shipments. That’s why I mentioned earlier that there are distribution, the channel inventory they’re still below eight week levels. What’s happening on the finished goods level I guess for me it’s not more difficult to judge and I’m sure you guys have a better visibility, but from what I’ve seen it’s also not very high at least for our components.

James Schneider – Goldman Sachs

And then so as part of that when do lead times you think start to come back again?

Oleg Khaykin

When you ask me six months ago I’d say probably by March, but now we’re passed March quarter, I think probably by September quarter I would imagine things will be coming much more an equilibrium.

James Schneider – Goldman Sachs

Fair enough. And then on the OpEx side, you’re now guiding to more than $250 million a quarter, which I think is where you said you’re going to reevaluate the OpEx. So can you give us an update on the kind of $25 million, $42 million I believe it was you gave before, and whether we expect any incremental puts or takes on the OpEx side?

Ilan Daskal

So Jim, what we guided last time was about $42 million on the SG&A plus/minus 5% and for the R&D it was $25 million plus/minus 10%. I believe at least for the June quarter we’re going to end up on a higher end of this range, meaning about $44 million to $44.5 million on the SG&A and about $27 million on the R&D, and on the SG&A it is obviously to support the higher revenue level and the reserves for bonuses as well. And on the R&D is well to support additional engineering builds.

Oleg Khaykin

And some of the employee bonuses.

Ilan Daskal

Yes, and the reserves for the bonuses as well, absolutely.

James Schneider – Goldman Sachs

Okay. And then last question I have is it looks to me like the Enterprise Power gross margins came down pretty substantially in the quarter, am I reading that right? And if so, what happened there?

Oleg Khaykin

I think what happened there is the server market was seasonally down, I don’t know if you seen the Intel report, their data center group which sells the server chips was down about 8% and so the more of a mix in that business unit was skewed towards the fee business, lower margin business, so I think that’s really was more of a mix driven as whole of some of the occasion of the manufacturing overhead.

James Schneider – Goldman Sachs

But that’s a swing of about 30 points, is that correct?

Ilan Daskal

No.

Oleg Khaykin

No, see, the Enterprise, they went from 43.2 to 41.8, it’s about 1.4% drop.

James Schneider – Goldman Sachs

Okay, sorry, I missed that. Thanks very much.

Oleg Khaykin

Sure.

Ilan Daskal

Thank you.

Operator

Our next question comes from the line of Ramesh Misra with Brigantine Advisors. Please go ahead with your question.

Ramesh Misra – Brigantine Advisors

Yes, that’s a good habit to keep. My first question is in regards to Enterprise Power as well. Some of your peers over here have talked about seeing some very strong design wins with the new roll out of Westmere and Newark Nehalem processors from Intel. What are you seeing over here? And what do you see as prospects for the rest of 2010 in the EP business?

Oleg Khaykin

Well, we’re also seeing very strong design wins. So unless everybody is winning 110% of the market I think qualitative statement tend to be more optimistic than the fact from the ground but I think that said we’re holding very much our own and increasing our share in the business.

Ramesh Misra – Brigantine Advisors

Okay. Any new customers to note?

Oleg Khaykin

Both new customers as well as the broader range of customers.

Ramesh Misra – Brigantine Advisors

Okay, got it. In regards to the automotive side, what is your view from IR business perspective as hybrid vehicles and plug in hybrids eventually take off? And when do you start seeing benefits from that?

Oleg Khaykin

I think on the automotive today, if you look at hybrid is predominantly a relatively few models. As broader range of cars adopts hybrid or micro hybrid we have designs with multiple component manufacturers that would go into these products. So I think clearly, that’s what we expect to see stronger than the industry growth for our automotive business unit. Now, in terms of what is going to happen typically, you get a design win today, it may take a two years to three years until it goes into production and we now have several designs that are approaching the revenue ramp and we’re seeing some of the increase in our growth is now we’re starting to see some of the new products going into production contributing to the accelerated growth in that business unit.

Ramesh Misra – Brigantine Advisors

Okay, great. And just finally, any further update on your gallium nitride efforts? Thanks.

Oleg Khaykin

It’s continuing on schedule. As you know we’ve launched our logo that’s commercial product portfolio in February, now we’re working with many customers have expressed interest in it, but as I always caution I don’t want to over hype it because it is a new technology and it will take longer time to be adopted as engineers need to understand its properties characteristics and how to design it into their products.

Ramesh Misra – Brigantine Advisors

Okay, thanks, Oleg.

Operator

And our next question comes from the line of Bill Ong with Merriman. Please go ahead with your question.

Bill Ong – Merriman

Yes, hi, congratulations, another solid quarter. Can you rank all of your business segments that have the best visibility and longer-term growth prospects and maybe some specific design upgrades, design wins in those high growth segments?

Oleg Khaykin

In terms of which one has the great prospect?

Bill Ong – Merriman

I was trying to (inaudible) the high growth out of the various segments you broken out?

Oleg Khaykin

Over what period of time?

Bill Ong – Merriman

You can choose. Over the next (inaudible)

Oleg Khaykin

All right. I think as I said in a short-term kind of say looking within the June quarter we expect the automotive and enterprise and our PMG business units to show very nice growth. The Energy Saving product and HiRel remaining relatively flat to the prior quarter. Over the longer-tem I think we will continue to gain share in the Power Management devices with our discrete product. The Enterprise Power will continue to see a robust growth. And I’m optimistic also about our Energy Saving products.

And with the kind of longer-term horizon I think automotive in the percentage basis will be one of the stronger growth business as far as kind of within the, I’d say one, one year to two years horizon. The HiRel is a low growth business, but it’s really indicative more of its end markets where decisions are made today and the product is consumed years from now.

Bill Ong – Merriman

Thanks. And then my last question just an update on your fab consolidation plans, are they still on track?

Oleg Khaykin

They are all on track, unfortunately, the fabs right now are very full until we have sufficient external capacity come on line, we’ll continue running them to meet the customer demand. But effectively the moment we have sufficient capacity externally on line we’ll proceed as planned.

Bill Ong – Merriman

Thanks, nice job, gentlemen.

Oleg Khaykin

Thank you.

Ilan Daskal

Thank you.

Operator

And our next question comes from the line of Brian Piccioni with BMO Capital Markets. Please go ahead with your question.

Brian Piccioni – BMO Capital Markets

And also let me add my congratulations for a really great quarter. Of course, most of the questions I would have asked already been answered. I was wondering if you first would be able to speak to what sort of gross margins you could expect out of the automotive business over time. Because it seems to be an emerging market with more electronics and that in vehicles, so there might be legs there.

Oleg Khaykin

Sure. I think our long-term goal for automotive is to be in the mid-to-high 30. And obviously, as a more for us is mix of discrete as well as the power IT. So depending on I guess on the mix it will be either towards higher end of the service or sort of the middle range. So that’s our business unit target is to reach the mid-30s. And the way this market works usually a product life cycles are up to tenth, about 15 years long, so you start obviously the much higher margins at a lower volume as the volume is grown you have some price concessions. So overall, expecting to be operating somewhere in a mid-to-high 30s is a reasonable objective.

Brian Piccioni – BMO Capital Markets

Great. And you earlier asked about operating expense and it looks like there is a sort of we can look forward to a bit of a year end lift. Do you expect 2011 OpEx to be more in line with the prior comments that you had made?

Oleg Khaykin

We’re trying to keep our OpEx about the same level. One of the things we’re doing is obviously as companies return to profitability and we’ve met our minimum thresholds where paying some bonuses to the employees, so I think we expect the headcount to remain relatively flat and to the extent we’re running on R&D about our goal, that’s mainly going to be the function of incremental bonuses that we paid to the employees. On the SG&A, Ilan, you can comment?

Ilan Daskal

On the SG&A, we will face some impact in the next couple of quarters due to the E&P implementation as well as for the bonuses, but the ERPs and other kind of hither to be at a higher end of the range that we guided.

Oleg Khaykin

But as the ERP implementation gets far long underway these expenses will come down.

Ilan Daskal

Yes, that’s for the next few quarters and then we believe we will go back to the semi level range that we guided.

Brian Piccioni – BMO Capital Markets

Okay, thank you.

Ilan Daskal

Thank you.

Oleg Khaykin

Sure.

Operator

(Operator instructions) Our next question comes from the line of Steven Chin with UBS. Please go ahead with your question.

Steven Chin – UBS

Great, thanks for taking my question. I had a question on the Enterprise Power business. How much exposure do you have to AMD-based service systems? And also in terms of the notebook client PC portion of the sales in the Enterprise Power, how significant is that relative to servers and com equipment that you traditionally talk about?

Oleg Khaykin

Regarding AMD I mean clearly, AMD is a fairly smart part of their business. Most of our exposure is disproportionately towards the Intel-based servers. But I do believe our team is also exploring opportunities with AMD, but given the focus of our current resources we’ve been spending in the past more time on the Intel-based servers. What’s your second part of your question?

Steven Chin – UBS

The mix between, I guess, additional server and com equipment versus PC client notebooks that you talked about?

Oleg Khaykin

Most of our revenue in Enterprise Power comes from servers and then the notebooks and comes are off about the same share, but notebooks are growing faster.

Steven Chin – UBS

Okay. And then my other question is regarding just capacity, I understand that you are still trying to procure non-captive or external supply for a long-term basis. But just given that you did mentioned some shortages or I guess lack of capacity to produce some products and your utilization rates are back above 90%. I guess is there potential for some additional spending in capacity just to expand some of the fab that you don't plan to shut down just given the current outlook? And also how should we view the recent announcement in your purchase of a new fab in San Jose for HiRel products? Actually, that’s very long-term, but I guess what does that imply for the longer-term HiRel revenue opportunity? Thank you.

Oleg Khaykin

Okay, thanks. We’re bringing up external capacity and it’s mainly being brought up initially for fairly simple processes like our discrete product devices. However, even that is not a simple exercise as you need to transfer the profits you need to qualify and then you have to ramp up the production. So as a result that’s where really we’re facing constraint because we have the same different product lines are competing for the same internal capacity. As we bring more external capacity on line we’re going to be able to push out more of our discrete product to the foundries and thereby opening more production capacity for our IT and high voltage IC and other proprietary products.

In terms of internal expansion we’re not planning any major internal expansion but we’re buying a tool here, a tool there to debottleneck the production and enable better to balance the loading across the fab. With respect to the HiRel what we’ve done is actually just shut down the all side and move to the new sides. So it’s not an addition of manufacturing capacity, it’s really just a replacement.

Ilan Daskal

Relocation.

Oleg Khaykin

Pardon me.

Ilan Daskal

Relocation.

Oleg Khaykin

Relocation, yes. And the new facilities obviously much better suited for broader range of products and lived on it in many ways to continue to be able to support growth in that business unit.

Ilan Daskal

HiRel basically for the relocation from Santa Clary to San St. Jose, basically due to the simple fact that the prior location the lease expired. And we have to relocate to a new one and actually we ended up with much new location and –

Oleg Khaykin

And a better deal.

Ilan Daskal

And a better deal, yes.

Steven Chin – UBS

Okay. Thanks for the clarification and congrats on the solid results.

Ilan Daskal

Thank you.

Oleg Khaykin

Sure.

Operator

And there are no further questions in the queue at this time.

Oleg Khaykin

Okay. If there are no more questions, I’d like to thank everyone for joining us today and we look forward to seeing you all at our Analyst Day on June 10th here in El Segundo. Thanks.

Operator

And this does conclude today's conference call. 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!