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Executives

Rick Crowley – VP & CFO

Ted Tewksbury – President & CEO

Analysts

Betsy Van Hees – Wedbush Securities

Sandy Harrison – Signal Hill

John Barton – Cowen

Sukhi Nagesh – Deutsche Bank

Integrated Device Technology Inc. (IDTI) F4Q10 (Qtr End 03/28/10) Earnings Call Transcript May 4, 2010 4:30 PM ET

Operator

Good afternoon and welcome to the Integrated Device Technology Incorporated fiscal fourth quarter and year-end 2010 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions given at that time. (Operator instructions)

With that said, here with opening remarks is Integrated Device Technology’s Chief Financial Officer, Rick Crowley. Please go ahead, sir.

Rick Crowley

Thank you, Amber, and welcome to our fiscal fourth quarter and year-end 2010 earnings conference call. I'm Rick Crowley, IDT's Chief Financial Officer. And presenting with me on the call today is Ted Tewksbury, our President and Chief Executive Officer. Also in attendance on the call are Brian White, our Vice President of finance; Graham Robertson, our Vice President of Marketing; and Mike Knapp, our Manager of Investor Relations. We will all be available during the Q&A portion of this call.

Our call today will include remarks about future expectations, plans, and prospects for IDT, which constitute forward-looking statements for purposes of the Safe Harbor provisions under applicable federal securities laws. Actual results may differ materially from our forward-looking statements as a result of various important factors, including certain risks, which are detailed in IDT's most recent Annual Report on Form 10-K and quarterly report on Form 10-Q as filed with the SEC.

IDT does not intend to update the information provided in today’s call and expressly disclaims any such duty except as required by law. In addition, pursuant to regulation G, any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at www.idt.com, including a complete reconciliation to the most directly comparable GAAP measures. Also, we have made selected financial information available in webcast slides, which can be found in the Investor Relations section of our website.

Now, I’ll turn the call over to Ted who will provide some highlights on our fiscal fourth quarter and then I’ll return to give you more specifics on the March quarter, fiscal year-end results and our outlook for June. Ted?

Ted Tewksbury

Thanks, Rick, and thanks to all of you joining us today. We were pleased to deliver better-than-expected results in the March quarter, driven largely by broad based strength in our communications end market. We also experienced sequential revenue increases from our new product categories, including Serial Rapid IO, PCI Express, PC audio, and the initial ramp of our DisplayPort timing controllers and receivers for the PC market.

To recap, revenue of $138 million came in at the high end of the range that we provided last quarter. Gross margin of over 53% was better than anticipated, driven by improved product mix and we delivered non-GAAP of $0.09, $0.01 better than expected.

Let me now turn to our end markets to discuss some of the trends we saw in March as well some of the major themes that we believe will drive growth in this quarter and beyond. In communications, we experienced stronger demand in March than originally forecasted. Overall revenue from communications increased 8% sequentially on strength in sales of timing solutions and standard products.

Communications represented 48% of total revenue, up from 43% in the prior quarter. We anticipate that this strength in communications will continue into the June quarter. Additionally, we expect IDT to benefit from several major themes playing out over the next several year.

First, we expect to benefit from the roll out of fourth generation wireless infrastructure later this year. A number of companies have already announced deployments of LTE beginning in 2010, including Verizon, MetroPCS and US Cellular in the United States, NTT DoCoMo, and KDDI in Japan and TeliaSonera and Telenor in Europe. As you know, current generation networks are becoming increasingly strained by the explosion of wireless data traffic driven by new devices like tablets, smartphones, Netbooks, and mobile Internet devices.

The transition to 4G is necessary not only to provide the higher speeds and capacities to accommodate this traffic but also to provide new revenue streams for service providers. According to iSuppli 4G LTE base station unit shipments will grow at 120% compound annual growth rate over the next four years as service providers strive to relieve the bottlenecks in existing networks.

As the sole provider of Rapid IO switching solutions and the world leader in silicon timing, IDT has about $50 worth of content in most LTE and HSDPA base stations. In addition to ICs IDT’s has recently announced Rapid IO modeling tool enables our customers to accelerate their product developments and speed time to market for their fourth generation system designs.

Second, in the enterprise communications market, customers continue to differentiate their equipment using IDT timing, switching, and standard product solutions. We recently announced the expansion of our PCI Express switch portfolio with the industry’s most advanced switch architecture, optimized for communications, and embedded applications. According to iSuppli, the wireline communications market will increase 12% annually in 2010 and we expect to out grow that market as we expand our share with Tier 1 networking OEMs.

For our first fiscal quarter of 2011 ending in June, we expect revenue from communications to grow approximately 6% quarter-over-quarter, given our exposure to these key drivers.

In computing, we saw a better-than-typical seasonal trends in March, in line with our original expectations. Increases in audio, display port, and PCI Express revenue helped to offset declines in PC clocks and memory interface devices. Overall, computing revenue decreased about 5% sequentially and represented about 37% of total revenue, down from 38% in the prior quarter.

Server shipments are forecasted to grow mid- to high-single digits in 2010 according to industry analysts and this should benefit IDT in several product categories. In memory interfaces, we expect double-digit growth, following a minor DDR3 inventory correction in March. As you know, customers are embracing Intel’s Nehalem architecture and IDT is the leading supplier of DDR3 memory interface solutions for this platform. As the enterprise server refresh cycle continues to gain momentum, our memory interface and PCI Express solutions should both benefit.

Several additional trends are occurring in the enterprise computing segment, which will provide tail winds for IDT second wave of new product announcements. First, increasing data rates as exemplified by the transitions to 6 gig SAS and SATA as well as PCI Express gen 3, our making signal integrity a formidable challenge in servers. IDT provides solutions with a new line of signal integrity products, including retimers and repeaters that are gaining that are gaining solid traction with system designers.

Second, as CPU speeds outstrip storage subsystem performance, memory is increasingly becoming a bottleneck. IDT is developing enterprise class flash memory controllers for solid-state drives, and will provide superior performance and lower costs in existing solutions.

Third, power consumption in data centers is becoming an increasing expense for enterprises. IDT’s recent acquisition of IKOR’s power module and coupled inductor technologies uniquely position IDT to address the demanding power requirements of enterprise computing.

On the PC side, industry analysts expect shipments to grow approximately 20% in 2010. This should drive robust growth for IDT’s products. Notebooks using Intel’s new Calpella chip set are ramping strongly and IDT sells several product categories into this platform, including audio, timing, and display port.

In some configurations, we sell over $2 worth of content into a Calpella notebook versus less than $1 in the previous generation. As I mentioned earlier, the initial ramp of our panel port embedded display port device began in the March quarter and I am happy to report that we shipped over one million units.

Intel estimates that approximately 80% of notebooks will have embedded display port by 2013, and as the leading supplier to this market, IDT is poised to capitalize on the technology transition.

In audio, IDT partnered with HP to c-develop the Beat audio experience on HP platforms. In addition, our recent design wins now make IDT the market share leader in audio for business applications. Our audio, timing and display port leadership position us for robust growth with the ongoing business PC refresh cycle, catalyzed by Windows 7. We expect that computing related revenue will grow approximately 8% in June, stronger than typical seasonality.

In our consumer end market, we experienced a double-digit revenue decline in March. This was due to typical seasonal trends in most of our consumer product categories, including gaming. In addition, an anticipated customer ramp of one of our new DTV timing controllers was delayed until the June quarter. Overall, consumer sales represented 15% of total revenue, down from 19% in the prior quarter.

The consumer end market remains one of the most promising new growth opportunities for IDT. As demand for richer content in the home and on mobile devices grows, we are well-positioned with a broad portfolio of ASSPs integrating timing, post processing, audio, touch, and power management.

Customer interest in our new video and display products has been strong. For example, in Q4, we landed a major design win for our Vida, video post processor and the new consumer platform was a Tier 1 OEM. Our View Expand multi-monitor solution is now available in retail outlets and our video products have been nominated for a number of prestigious innovation awards, providing further evidence that IDT is seen as a leading provider of consumer solutions throughout the industry.

Revenue from our consumer end market should increase approximately 20% sequentially I June, driven gaming, as well as timing controllers for 120 and 240 hertz high definition and 3D TV panels.

In summary, we expect growth in all of our end markets in the June quarter. Overall, for our fiscal first quarter of 2011, we expect revenue to grow 8% to 12% sequentially. This sequential growth is significantly above normal seasonal trends thanks to through ramp of new products on top of improving trends in our core business.

The past two years have marked some of the most significant changes in IDT’s 30-year history. In my first year with the Company we set out to rebuild our new product pipeline and ignite revenue growth based on a two-pronged strategy. First, defend and grow our leadership positions in timing, memory interfaces, and serial switching. Second, build on these strengths to expand our stand by developing analog-intensive, mixed-signal system solutions for our target applications and communications, computing and consumer.

The uniqueness of our value proposition lies in the combination of IDT’s digital heritage with our new high-performance analog capabilities. The strategy is working. Over the past year we capitalized on the economic downturn and attracted some of the industry’s finest analog, mixed-signal and systems talent. We accelerated organic development by acquiring innovative new technologies and partnering with industry leaders. This has enabled us to expand our available market from $2 billion in 2008 to over $5 billion in 2001.

As promised, we introduced twice as many new products in fiscal 2010 as we did in the previous year. We have grown new products to 15% of total revenue and we are on track to reach our 20% by the September quarter.

Looking forward to fiscal 2011, we expect these new product introductions and design wins to drive robust revenue growth. I am more excited than ever about IDT’s prospects for the future. I am confident that our innovative new product roadmaps, combined with strong execution will deliver sustained long term value for our customers, and our shareholders.

With that, I will turn it over to Rick to expand on the financials and our guidance for the June quarter. Rick?

Rick Crowley

Thanks, Ted. Let me start by going over our non-GAAP results for fiscal Q4, which we believe serves as a solid base from which we can grow for the rest of the calendar year. As Ted mentioned, total revenue of $138 million was at the high end of the range we’ve provided in our Q3 2010 earnings call. This better than seasonal sequential decline of 3% was due to strong sales in our core business as well as ramps of new products aimed at the computing and communications end markets.

Inventory levels in the channel remained relatively lean at the end of March. Absolute inventory in our worldwide distribution channel decreased on a sequential basis in the March quarter while days of inventory increased slightly due to seasonally lower DoS.

Fiscal Q4 gross margin was 53%, up 200 basis points from the prior quarter, driven by a more favorable product mix as sales from communications-related solutions made up nearly half of our total revenue. Overall operating expenses in Q4 were $58.9 million, up from $55.6 million in the previous quarter. The increase is primarily due to a reset of payroll taxes at the beginning of the calendar year and increased labor cost associated with the Mobius transaction.

R&D and SG&A expenses during the fiscal fourth quarter were about $37 million and $22 million, respectively. Our operating profit decreased sequentially to $14.3 million from $17.2 million in Q3, while operating margin was 10%, down from 12% in December.

Interest income and other net, was about $300,000, up $200,000 from the prior quarter due to the sale of fixed assets. For Q4, we reported non-GAAP net income of $14.9 million or earnings of $0.09 per share. This was $0.01 better than the mid-point of our expectations provided in January due to higher revenues and gross margin.

For the full fiscal year of 2010, our non-GAAP – our revenue was about $536 million, gross margin was 50.4%, and operating margin was 9%. We earned $47.9 million or $0.29 per share on a non-GAAP basis and generated about $40 million in free cash flow or about 7% of total revenue.

Now, let me summarize our results on a GAAP basis. We reported GAAP net income of approximately 41 million or $0.01 per diluted share in the March quarter. The difference between our GAAP and non-GAAP results nets out to about $14 million or $0.08 per diluted share.

Fiscal fourth quarter 2010 GAAP results include approximately $6 million in acquisition and divestiture related charges, $4 million in restructuring related costs, and $4 million in stock-based compensation. For further information, including a detailed reconciliation of GAAP to non-GAAP results, please consult the financial tables in today’s press release, which can also be found on our website at www.idt.com.

Now, I will turn to our balance sheet, which remains very solid. Cash and investments totaled approximately $343 million at the end of the March quarter, a sequential decrease of about $36 million. We generated approximately $7 million of cash from operations, paid $21 million for the Mobius acquisition, and spent about $3 million in capital expenditures.

During the fourth quarter, we spent to repurchase 3.6 million shares of common stock at an average price of $5.83. Net inventory increased slightly to $51 million in March, up $1 million sequentially. Days of inventory were also up to 71 days from 64 days in the prior quarter, but remained well below historical levels.

Our trade accounts receivable increased $8 million to $69 million in March due to our typically back-end loaded fourth quarter. DSO increased to 45 days from 39 in the prior quarter, also in line with historical March quarter levels.

I will now turn to our forecast for the June quarter. We saw very strong order flow throughout the March quarter, resulting in a book-to-bill ratio significantly above one. Bookings strength has continued in the first few weeks of the June quarter, driven by momentum in our communications end market, improved demand from computing customers and better-than-seasonal demand from customers in our consumer end market.

We expect channel inventory to be relatively flat in June in terms of absolute dollars while days of channel inventory should decrease due to higher projected resale levels.

As Ted mentioned, we currently project revenue in our fiscal first quarter of 2011 to be up 10% plus or minus 2%. This increase from March is better-than-normal seasonality, which has historically produced low- to mi-single digit sequential growth. On a non-GAAP basis, we currently project gross margin to remain approximately 53% plus or minus 50 basis points depending primarily on the revenue range and product mix. We anticipate Q1 fab utilizations will be above 90%. We currently project operating expenses in the June quarter will be $62.5 million plus or minus $1 million. R&D is expected to be approximately $39.5 million, and SG&A is projected to be about $23 million.

The forecasted increase in June quarter R&D spending is primarily driven by higher payroll cost and new product tape outs as we continue to accelerate our rate of new product development. For SG&A expense, higher payroll cost and variable selling costs are projected to increase during the June quarter.

As we enter a new fiscal year and our financial results continue to improve, we are returning to certain variable components of our operating expense such as merit increases, employee bonuses, and 401(k) matching that were temporarily removed from our employees’ compensation last year during the recession. We are pleased to be able to bring these benefits back in June while still delivering improvements in bottom line results.

We currently anticipate interest and other income will be about $300,000 and expect our taxes during fiscal Q1 to be about $400,000 as we continue to benefit from tax credits accumulated in previous years. We project Q1 share count to be about 164 million on a diluted basis. We currently project EPS on a non-GAAP basis to be about $0.11 per diluted share in the fiscal first quarter.

On the balance sheet, we expect to generate approximately $20 million in cash from operations during the June quarter. Our on-hand inventory is forecast to be roughly flat in dollar terms while days of inventory should decline sequentially. We project the cash balance at the end of June will be approximately $350 million, which does not include any impact from share repurchases.

In closing, I would like to add to Ted’s comments earlier about how confident we feel about our existing product roadmap and the leverage we expect to see in our operating model as top line growth returns in our fiscal 2011. We’ve spent the past two years making difficult decisions to realign our business unit based on rigorous metrics designed to measure the returns on our investment dollars for each project we undertake.

We believe we have reached a point where most of this heavy-lifting is behind us and the pipeline is now full of innovative products that are starting to drive better top line and bottom line results. In Fiscal ’11 we’ll continue to focus on executing our plan and keeping the product pipeline prime.

Overall, I believe the changes we’ve made over the past two years are beginning to pay off in the form of better financial results and greater value to our shareholders.

With that summary, I’ll turn the call over to the moderator for the Q&A portion of the call. Amber?

Question-and-Answer Session

Operator

(Operator instructions) And the first question comes from the line of Betsy Van Hees with Wedbush Securities. Please go ahead.

Betsy Van Hees – Wedbush Securities

Thank you very much for taking my call. Congratulations on a great quarter and guidance. When looking at the gross margin, that’s a phenomenal increase that you guys had. As we are looking forward to the year, how should we be looking at gross margin, is it going to increase quite a bit or moderately?

Rick Crowley

Betsy, this is Rick. With respect to the gross margin, yes, we were pleased with the 53% in the March quarter and equally pleased I think with holding that for the quarter, which typically has a less favorable mix. With that being said, we are still holding to the 53% to 54% long term gross margin target at least for the near term. Once we get through the transition of going out of our captive fab and going fabless, we’ll re-evaluate that model and determine whether that needs to be adjusted. But at this point, we think that 53% to 54% is still a reasonable model for us in the near term

Betsy Van Hees – Wedbush Securities

Thanks, that was very helpful. On the inventory level, they went up modestly, but it’s still way below your historical trends. As you are looking to move to you fabless model, how should we be looking at inventory growing over the next couple of quarter.

Rick Crowley

The one thing the improved demand has done is actually kept us from building a buffer supply to – that we had intended to do during the transfer. However, we think that the inventories will remain relatively lean given the uptick in demand at least through June and into September. Beyond that we’ll have to see what the demand level is relative to inventory, but we did expect that we’ll have to build a little bit of inventory after we get through the probably the seasonal trends of September to effect the transfer. We’ll update that in the future quarters as things develop.

Betsy Van Hees – Wedbush Securities

And just that one and I'll jump out of the queue and let other people ask questions. So, once again, congratulations on a great quarter and guidance.

Ted Tewksbury

Thanks, Betsy.

Operator

Thank you. And now from the line of Sandy Harrison with Signal Hill. Please go ahead.

Sandy Harrison – Signal Hill

Thanks, good afternoon, everyone.

Ted Tewksbury

Hey, Sandy.

Sandy Harrison – Signal Hill

Hey, could you guys explain a little bit of – so, Rick, just so I am clear, it sounds like you know the margins are holding or a little bit better that expected, which is basically offsetting a little bit higher OpEx that you thought or that you are going to add to going forward from some of the other investments in the new products and so forth.

Rick Crowley

That’s correct.

Sandy Harrison – Signal Hill

Okay. And then you guys have been moving towards the fabless model and have laid out or talked about in the past a roadmap to get there. With the current availability of some products and the availability of a tightening, how are you on your roadmap now, and if may be you could update us on sort of what we could look for from that as you transition to the fabless?

Ted Tewksbury

And so, Sandy, this is Ted. We are actually right on schedule with our fab transfer and we are getting the capacity we need from TSMC to make that possible. We are actually on track right now to begin some production shipments out of TSMC in the September quarter.

Sandy Harrison – Signal Hill

Got you. And then what do you think or when do you think that transition for the most part will be complete and you will start to see the results of that through your P&L?

Rick Crowley

Sandy, this is Rick. Most likely in the second half of calendar 2011 is our current estimate of when we transition out of the fab.

Sandy Harrison – Signal Hill

Got you. And then if I look at sort of the new products and some of the areas that’s had success in. If you could characterize what’s happening in the wireless infrastructure market as to where you thought it might be say six months ago versus today, has it accelerated and what’s it – and if it’s moving ahead of plan, how you feel like you are doing with your market share when you made your investment in the Tundra folks?

Ted Tewksbury

Hi. Sandy, this is Ted. I would characterize right now as being ahead of our expectations for wireless infrastructure. You’ve probably heard that there have been some delays with some of the service providers in LTE, but the good news is that there are roll outs of HSDPA, the high-speed packet access technology, and our – that’s where your switches are in those base stations as well. So, regardless of any (inaudible) in LTE schedules, we continue to enjoy some very nice volume, in excess of what we expected in wireless infrastructure.

Sandy Harrison – Signal Hill

Got you. And one final question, PCI Express, what sort of growth rates do you guys – did you guys see here this last quarter and what do you think it’s going to look like or could look like for fiscal year’11 going forward?

Rick Crowley

In the March quarter we saw single-digit percentage growth. We expect that to be roughly flat in the June quarter. As I mentioned, we’ve been focused originally – our strategy initially focused on enterprise computing applications for PCI Express switches. Subsequent to that we have added bridges from the Tundra acquisition, which have given us some more design win traction. And then most recently, as I indicated in the prepared remarks, we have a new product, which is allowing us to enter the communications space with PCI Express. So, as communications continues to grow, we will benefit from that and also as the enterprise server upgrade cycle continues, we benefit from that with our existing products.

We expect some good growth throughout fiscal ’11 but roughly flat in the June quarter.

Sandy Harrison – Signal Hill

Great. Thanks for taking my call and nice quarter.

Rick Crowley

Thanks.

Operator

Thank you. And now a question from the line of John Barton at Cowen. Please go ahead.

John Barton – Cowen

Thank you. Ted, you talked about the display port market and the panel port product offering et cetera, I head you make a comment about the 80% attach rate that Intel uses for notebooks now at the time. Could you give us your thoughts on what percentage of that market you would be able to control and then adoption of display ports outside of notebook PCs?

Ted Tewksbury

So, right now we are seeing what we estimate to be about a 15% attach rate for embedded display port. As I indicated, Intel projects that to go to 20% by 2013. We expect it to increase from 15% today by roughly 10% a quarter through the reminder of calendar 2010.

John Barton – Cowen

That percentage points per quarter?

Ted Tewksbury

Roughly 10 percentage points per quarter.

John Barton – Cowen

Okay. And adoption outside of PCs?

Rick Crowley

Well the – yes, we have display port products that are going into flat panel, LCD displays as well.

John Barton – Cowen

As you look out over the next couple of years, I mean what type of attach rate would you expect to see in flat panel display consumer market?

Ted Tewksbury

Or TV, I don’t have that number for you, I am afraid. I can certainly look into that.

John Barton – Cowen

Very good, fair enough. In a previous question, you were talking about the transition to the fabless model, revenue starting to be seen at the end of this year. In the light of the tightening capacity in the foundries are you seeing any problem with respect to keeping the original schedules as far getting the wafer starts that you want and how do you expect that to play over the next year or so?

Ted Tewksbury

We are getting all the wafer starts that we need from TSMC. They have been an outstanding partner and very accommodating. For TSMC, the transfer from our Oregon fab to Taiwan is a top priority. I actually just met with their top management a couple of weeks ago and they are giving us the full priority wafer starts.

John Barton – Cowen

And, Rick, maybe if you could –

Ted Tewksbury

We will remain on schedule with this transfer.

John Barton – Cowen

Got it. Rick, if you wouldn’t mind, you talked about R&D spending being driven by some increased tape outs in the coming quarter, as we think about R&D beyond that quarter does it pull back post this tape out or is it, its production launch plan or new product launch plan, meaning kind of builds from there? How should we think about that playing [ph]?

Rick Crowley

Well I think the key thing, John, for us is to – we have to invest for growth, alright. And one things we are doing is we are building this that product pipeline here, and so I think you are going to expect that the R&D will remain, percentage of revenue no higher we believe than 26% of sales and hopefully begin to trend down a little bit. So, we are going to sustain targeted investment to drive that future revenue growth. Going forward, starting – that’s what you can model probably within 25, 26% within the next couple of quarters.

On the SG&A front though, it is our intent to drive back as a percentage of sales lower as we grow revenue, providing the additional operating leverage and because you are seeing effectively a step-up in OpEx as I mentioned in the prepared remarks, it is due to the return of some of the employee compensation issues that we have removed during the recession, so it’s a bit of a step function here and you see much more moderate changes we believe going forward, after the June quarter.

Ted Tewksbury

John, just to amplify Rick’s comments so there is no misunderstanding, 26% R&D is most certainly not our permanent situation. It’s a transient situation. Our long term model remains 30% OpEx. However, as Rick indicated, revenue growth is our top priority. In order to do that we’ve got to make sure that we keep the new product pipeline full with high profitability products. We are never again going to put ourselves in a position where our revenue is vulnerable to the decline of a single product as occurred in the case of AMB. That would be old IDT. This is the new IDT and we are putting in place a robust new product edging [ph] that’s going to continuously generate new product revenue streams. And in order to do that, we have had to temporarily increase our R&D. Of course, that’s what allowed us to double our new product introductions year-over-year. But long term we are committed to the 30% OpEx target.

John Barton – Cowen

So, do you think R&D in the next four quarters or so at these levels and then start trailing down, is it a fair way to think abut it?

Ted Tewksbury

As Rick indicated, 26% – as a percentage of revenue, I think that’s a good model for the next four quarters.

John Barton – Cowen

Thank you.

Rick Crowley

Amber, we can take the next question.

Operator

Okay, thank you. (Operator instructions) And here is question from the line of Sukhi Nagesh with Deutsche Bank. Please go ahead.

Sukhi Nagesh – Deutsche Bank

Hi, thanks, guys. Congrats on the strong guide. I had a question on the gross margin front, if you could help me out. How does gross margin trend in the back half of the year for you guys given mix and that computing is going to be a stronger part of your overall sales in the back half? Thanks.

Rick Crowley

Yes, normally, Sukhi, the mix works against us in the September quarter and may be to a lesser extent, December because of the higher proportion of PC and consumer mix. That’s what the trends normally call for. This year we’ll have to see how the mix is playing out. Since we are already seeing in the June quarter stronger mix in gross margin than we normally might see for the (inaudible) of a June quarter.

Sukhi Nagesh – Deutsche Bank

Is your dollar content – you said your dollar content is increasing in some of your – the new products that you are selling, especially in the display port side. Does that not help your gross margins?

Rick Crowley

Yes, it does. It does help it a bit in the – within the PC mix I think is what you are referencing.

Sukhi Nagesh – Deutsche Bank

Okay. So, okay, and then on the OpEx front, if you would assume maybe the $62 million on overall OpEx for the rest of the year, and a quarterly run rate, that will say – your OpEx is growing about 15% year-over-year this fiscal year. Most other semi companies seem to be growing 25%, 30% on the top line. Is that the kind of revenue growth rate you are expecting for yourself given your OpEx run rate?

Rick Crowley

Well, I think Ted mentioned, Sukhi the – there is a bit of a divorce between the R&D spending right and whatever the near term expectation is. We are not going to give you a long term revenue outlook for fiscal ’11. that being said, I think we are very encouraged by the start we are getting here in June and that puts us on a very good trajectory to at least keep pace with the industry growth projections, which are not that far off from the type of numbers you are quoting there. But we’ll have to see how it plays out. There is a lot of concern about this cycle. But we are very encouraged right now with the growth both in the core business as well as our new products and the way it’s kicking off here at the first quarter of the fiscal year.

Sukhi Nagesh – Deutsche Bank

Got it, thank you. One last question I had, in terms of – I think you mentioned your channel inventory was going to be flat this quarter. Do you have any idea of how they would trend in the June and probably potentially in the September quarters and also what’s your visibility like, you know, lot of other companies are seeing extended visibility from their customers. Can you comment on how your visibility is trending these days? Thanks.

Rick Crowley

Yes, our visibility has improved quite a bit over the last couple of months really into the – I think the customers are more concerned right now about availability of supply than getting the last half (inaudible) ASP and that’s also translating into a reasonable booking visibility. And then with respect to your initial question there on channel inventories, September oftentimes has an increase in channel inventory in anticipation of heavy resales [ph] at the front end of the December quarter in October and early November for the Christmas build. But the days are usually – stay flat to down as you move from June to September I think now as the seasonal bubble tends to work its way through the system.

Sukhi Nagesh – Deutsche Bank

Thank you.

Operator

Thank you. And there are no further questions. Please continue.

Rick Crowley

Okay. Well, we appreciate your interest in IDT and look forward to meeting with you on our marketing trips this quarter and on our next conference call. And for your information, we will also be attending the JPMorgan and Cowen conferences this quarter, and look forward to seeing you there. Thank you very much.

Operator

And ladies and gentlemen this conference will be available for replay after 3:30 PM today till midnight on the 11th of May. You may access the AT&T Teleconference Replay system at any time by dialing 1-800-475-6701. International participants dial 320-365-3844, and please enter the access code 153291. Again, those numbers, 1-800-475-6701, and 320-365-3844, with access code 153291. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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Source: Integrated Device Technology Inc. F4Q10 (Qtr End 03/28/10) Earnings Call Transcript
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