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Montage Technology Group Limited (NASDAQ:MONT)

Q4 2013 Results Earnings Conference Call

February 20, 2014 08:00 AM ET

Executives

Leanne Sievers - Shelton Group Investor Relations

Howard Yang - Chairman and CEO

Stephen Tai - President

Mark Voll - Chief Financial Officer

Analysts

Amit Chanda - Wells Fargo

Ross Seymore - Deutsche Bank

Blayne Curtis - Barclays

Erik Rasmussen - Stifel

Quinn Bolton - Needham

Jay Srivatsa - Chardan Capital Markets

Suji De Silva - Topeka

Krishna Shankar - Roth Capital

Operator

Good morning, and welcome to Montage Technology’s Fourth Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only-mode. At the conclusion of today’s conference call instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded today, Thursday, February 20, 2014.

I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Leanne Sievers

Good morning, and welcome to Montage Technology’s fourth quarter 2013 earnings conference call. I’m Leanne Sievers, Executive Vice President of Shelton Group, Montage’s Investor Relations firm.

With us today are Montage’s Chairman and CEO, Howard Yang; President, Stephen Tai; and Chief Financial Officer, Mark Voll. Before I turn the call over to Mr. Voll, I’d like to remind our listeners that during the course of this conference call the Company may provide financial guidance, projections, comments and other forward-looking statements regarding future market developments, market share gains, the future financial performance of the company, new products or other matters.

We want to caution you that actual events or results may differ materially. We refer you to the documents Montage files from time-to-time with the SEC, including our most recent Prospectus and Registration Statements filed on January 30, 2014. These documents contain and identify important factors that could cause our actual future results to differ materially from those contained in our financial filings, projections, comments or other forward-looking statements.

In addition, any projections as to the company’s future performance represent management’s estimates as of today, February 20th, 2014. Montage assumes no obligation to update these projections in the future as market conditions may or may not change. Also, the Company’s press release and management statements during this conference call will include discussions of certain non-GAAP measures and financial information. These financial measures and a reconciliation of GAAP to non-GAAP results are provided in the company’s press release and related current report on Form 8-K, which can be found at the Investor Relations section of Montage’s website at www.montage-tech.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 30 days in the Investor Relations section of Montage’s website.

And now, I’ll turn the call over to Montage’s CFO, Mark Voll. Mark, please go ahead.

Mark Voll

Thank you, Leanne, and good morning everyone. Let me begin the call today with a review of our financial results for the fourth quarter of 2013. I am very pleased to report revenue for the fourth quarter was $35.4 million, exceeding our original guidance of $32 million to $34 million.

Fourth quarter revenue represented an increase of 17.9% compared to $30.1 million in the third quarter and an increase of 49.5% compared to $23.7 million in the fourth quarter of 2012.

Revenue consisted of $30.2 million or 85.3% of revenue from our set-top box products representing an increase of 11% from the third quarter and 31.5% from the fourth quarter of 2012. Memory interface product revenue was $5.2 million or 14.7% of total revenue and the increase of 85.8% sequentially a more than a six fold increase from the same period a year ago. We are very pleased with the rapid ramping in our memory interface which Howard will address in more detail in his remarks.

Gross profit in the fourth quarter was $22.1 million or 62.4% of revenue, exceeding our original guidance of 59% to 61%, due to higher than expected revenue from our memory interface products. This compares to $19.1 million or 63.7% of revenue in the prior quarter and $13.3 million or 56.3% in the prior year quarter.

In terms of our operating expenses for the fourth quarter total operating expenses were $13.3 million or 37.4% of revenue compared to $10.5 million or 34.9% of revenue in the prior quarter and $9.4 million or 39.8% of revenue in the fourth quarter of 2012.

Total non-GAAP operating expenses were $11.7 million or 33.1% of revenue which was lower than our guidance of $12 million to $13 million. Non-GAAP operating expenses were $11.7 million compared to $9 million or 30.1% of revenue in the prior quarter and $8.9 million or 37.2% of revenue in the fourth quarter of 2012.

Looking at our operating expenses in more detail, our research and development expenses for the fourth quarter were $8.5 million or 24.1% of revenue compared to $6.6 million or 22% of revenue in the prior quarter and $5.3 million or 22.2% of revenue in the fourth quarter of 2012.

R&D increased sequentially in year-over-year primarily due to tape-out costs for new product development of $1.9 million which included six new product tape-outs in the quarter. Our selling, general and administrative expenses were $4.7 million, compared to $3.9 million in the prior quarter and $4.2 million in the prior year quarter. As a percent of revenue, SG&A represented 13.3% in the fourth quarter, compared to 12.9% in the prior quarter and 17.6% in the fourth quarter of 2012.

Income from operations was $8.9 million or 25.1% of revenue. This compares to $8.6 million or 28.8% of revenue in the prior quarter and $3.9 million or 16.5% of revenue in the prior year quarter. Our non-GAAP operating income was $10.4 million or 29.4% of revenue. We remained fully committed to our target model of 30% non-GAAP operating margins. Even as we increased expenses to scale our business revenue growth will far surpass expense growth in 2014.

Turning to the income taxes. Our effective tax rate for the fourth quarter was 3.1% compared to 8.4% in the prior quarter. Our fourth quarter effective tax rate was favorably impacted by several year-end discrete tax items totaling $500,000 that produced our fourth quarter tax provision. For the full year of 2013, our effective tax rate was 7.2% and we anticipate an effective tax rate ranging between 6% and 10% in 2014.

Our fourth quarter GAAP net income was $8.9 million or $0.31 per diluted share compared to the prior quarter net income of $8 million or $0.31 per diluted share and $3.7 million or $0.12 per diluted share in the fourth quarter of 2012. Excluding $1.2 million of stock-based compensation and $300,000 of amortization of assembled workforce our GAAP income in the quarter was $10.4 million or $0.37 per diluted share compared to the prior quarter net income of $9.5 million or $0.38 per diluted share and $4.3 million or $0.15 per diluted share in the fourth quarter of 2012.

It is important to note that [although] trading the company’s ordinary share as commenced on September 26th, the initial public offering of our ordinary shares was officially closed on October 1st. So our comparable GAAP and non-GAAP EPS results for the third quarter and prior fourth quarter are compared to our pre-IPO share counts. Details of the relevant comparisons are provided in our results press release.

Turning briefly to the full year results, revenue was $110.9 million, an increase of 41.7% from $78.2 million in 2012. Gross profit was $70.1 million or 63.2%, an increase from $46.5 million or 59.4% in the prior year. Income from operations was $27.1 million or 24.4% of revenue compared (inaudible) or 24.5% of revenue in 2012.

2013 GAAP net income was $25.7 million or $1.06 per diluted share compared to $18.3 million or $0.66 per diluted share in 2012. On a non-GAAP basis, 2013 net income was $30.6 million or $1.26 per diluted share, compared to $19.7 million or $0.72 per diluted share.

On the balance sheet as of December 31, 2013, our cash, cash equivalents and short-term investments were $107.7 million compared to $47.6 million at the close of third quarter. We raised $46.9 million in net proceeds after deducting underwriting discounts in commissions and our public offering on September 26, 2013, receipt of which occurred in the fourth quarter.

Cash flow from operations for our fourth quarter was $12.6 million compared to $11.2 million in the prior quarter. Accounts receivable of $12.1 million represented 31 days sales outstanding which compares to $10.4 million and 31 days sales outstanding at the end of the prior quarter.

Inventory of $13.4 million represented 4.0 turns as compared to $9.8 million or 4.4 turns in the prior quarter. Inventory increased in the fourth quarter, primarily due to increases in LRDIMM inventory to support what we believe will be increasing orders for LRDIMM.

Let me now present our guidance for the first quarter of 2014. Revenue expected to be in the range of $29 million to $32 million, reflecting seasonal declines in set-top box, partially offset by continuing increases in revenue for our memory interface products. Gross margin is expected to be in the range of 60% to 62%. Non-GAAP operating expenses which exclude non-cash charges are expected to be in the range of $10.75 million to $11.75 million.

Operating expenses assume tape-out costs in the first quarter of $1 million. First quarter operating expenses will include more than $300,000 for cost associated with our recently completed follow on offering. Our first quarter guidance for operating expenses includes approximately $250,000 and cost reimbursements under a set of government funded technology development projects which will be an offset to our first quarter operating expenses.

Our current expectations for digital reimbursements under government development projects would be for $1.1 million in the second quarter and $500,000 in the third quarter of this year. Finally in January, we completed our follow on offering in which we sold $5.35 million excluding over allotments at $21 per share.

Of the total shares offered, $4.3 million were from existing shareholders and $1 million shares were offered by the company. We anticipate receipt of $20 million in net proceeds from this offering. As a result, we anticipate our first quarter earnings per share will be calculated based on approximately 29.3 million average diluted shares outstanding in the quarter.

I would like now to turn the call over to Steve who will provide an overview of our set-top box solutions for the home entertainment market followed by Howard who will discuss our memory interface solutions for the cloud computing market. Steve, please go ahead.

Stephen Tai

Thank you, Mark. As Mark highlighted, revenue from our set-top box solutions increased 11% sequentially as we continue to gain market share in the emerging markets that we compete. Our proprietary technology platform, customized products and few application engineers have been key component to our continued success in this market. Our highly integrated solutions provide robust signal processing capabilities that overcome the broadcast infrastructure challenges commonly found in the emerging markets.

Currently the satellite market represents a significant majority of Montage set-top box revenue, primarily in standard definition applications. It is also the largest market in terms of unit shipments by Chinese set-top box manufacturers. We anticipate continued strong volumes and further share gain in the standard definition satellite market, while we also work to expand our market opportunities and share of the high definition market as well as other transmission mediums including cable and [parachute]. Although the transition to high definition is in its early stages of adoption, we believe this will be a growing end market with the increasing amount of HD contents being distributed.

In fact we have gained solid traction with our HD decoder product released early last year and have laid a strong foundation for our future growth with five new product tape-outs in the quarter.

In addition, we are in the early designing phase with high definition solutions supporting DVB-T2 broadcasting standards, which further expands our market opportunities. We believe our high definition products will begin contributing meaningful revenue in the second half of this year.

In addition to our strength in satellite, we are expanding our addressable markets in cable with both standard definition and high definition solutions. Our standard definition cable solutions released last year continue to gain customer traction and are growing with mandated transitions from analog to digital cable to China.

Similar to our products from the satellite market, we also expect to release an integrated SoC for the high definition cable market later this year. Given the rapid increase of digital cable subscribers, [enterprise] estimates that the cable market will grow faster than the satellite terrestrial market throughout 2016. This represents a significant opportunity to drive our future revenue growth.

With the addition of new products across satellite, cable and terrestrial applications, we now serve a much larger addressable market and are the only provider to offer complete end to end solutions in emerging markets.

All of our new products are developed on the 55 nanometer technology, giving Montage significant performance and cost advantages over our competitors.

With that, I would like to turn our call over to Howard, who will further discuss our progress in the memory interface market as well as our ongoing strategic initiatives. Howard, please go ahead.

Howard Yang

Thank you, Steve. Revenue from our memory interface products increased 86% sequentially, driven by increased demand for our LRDIMM products following the launch of Intel’s Ivy Bridge platform. During the quarter, our revenue from LRDIMM products represented more than 80% of our memory interface revenue which is the first quarter in which LRDIMM sales exceeded all in. This highlights the point that servers based on Ivy Bridge processors are using more LRDIMM than the previous generation servers. LRDIMM’s high speed and high density capabilities are significantly superior to RDIMM buffer technology. These high performance servers typically use multiple CPUs and more advanced memory which can require as many as 48 LRDIMMs per server. This represents a huge opportunity for Montage as one of the primary LRDIMM supplier to the world’s largest server OEMs.

In fact Montage is one of the only two LRDIMM memory buffer suppliers validated by Intel for DDR3 technology, which is currently the most advanced and a prevalent memory technology used in cloud computing data servers.

Since our IPO, we have become the first qualified vendor that has received Intel qualification for both RDIMM and LRDIMM for DDR4. This accomplishment uniquely positions Montage to gain additional market share with industry’s expected transition to DDR4 and the ramp of Intel’s Haswell platform in late 2014. We have design wins at all three of major DRAM suppliers of the next generation of memory modules and are working to further expand our design activity in the coming years.

In summary, we anticipate increased adoption and continued growth of our memory interface products, as more server OEMs such that HP, Dell and IBM run traditional product on the Ivy Bridge platform. Based on our discussions with our memory customers and other ecosystem suppliers, we’re very optimistic about this market opportunity and look forward for further growth in this market.

Before I open the call to questions, I would like to make one final comment about the allegations made in our recent research report issued by a group of quality research. First, I want to reiterate our commitment for serving confidence in Montage's management financial performance, operations and the corporate structure. We fully stand behind the integrity of our audited financial statements and cash position.

As we have stated in our recent press release, we intend to take all necessary measures to defend ourselves against these allegations and to protect the credibility of our name. In the meantime, we remain focused on operating our business and growing our revenue by providing the same reliable products and service to our more than 160 end customers worldwide.

That concludes my prepared remarks. Operator you may now open the call for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of David Wong from Wells Fargo. Please ask your question.

Amit Chanda - Wells Fargo

Hi, thank you for taking my question. This is Amit Chanda dialing in for David Wong. Can you maybe comment on your R&D priorities in 2014 and how we should expect R&D expenses to trend throughout 2014?

Mark Voll

Yes. For R&D focus for 2014, we will continue to focus on the set-top box side, we will focus on bring-up products in the set-top box area, we are leveraging the 55 nanometer technology process and also operating division to integrate our technologies on the single side, that’s our R&D [format] for that. And then on the memory buffer side, we are working on the second generation DDR4 memory interface products [RCD] and data buffers to meet the demand of the Intel Next platform requirements.

Amit Chanda - Wells Fargo

Okay. Thank you. And then could you maybe comment on, as a follow-up question, can you comment on what your DDR4 LRDIMM ASPs are at the moment?

Howard Yang

Yes okay, in the $5 range.

Amit Chanda - Wells Fargo

Okay, great.

Stephen Tai

For the year approximately.

Amit Chanda - Wells Fargo

Thank you. Thank you very much.

Operator

Thank you. Your next question comes from the line of Ross Seymore from Deutsche Bank. Please ask your question.

Ross Seymore - Deutsche Bank

Hi guys. Congrats on the strong quarter and guide. I guess first on the Gravity acquisition, it’s good to see you hired an independent review process. When do you expect that to be done? And should we expect you to be able to file your 10-K on time for this quarter for 2013?

Mark Voll

We do intent to file our 10-K on time. We would like to make this process as efficient and as quick as possible. However we have to allow the independent firm to do their review. So we’re going to allow them to do that, we’ll just be supporting them in any way we can to get them to get the report done as quickly as possible.

Ross Seymore - Deutsche Bank

I guess a question more on the financial side, for the first quarter [sales] Mark it sounds like the mix is going to go more towards the LRDIMM side of things. Why is the gross margin coming down slightly if mix is seemingly going in your favor in the same way it did in the fourth quarter?

Mark Voll

We’re being a little bit conservative about guidance in gross margins, but we expect it to be roughly about the same as Q4. So we may see another maybe see a 100 basis points decline, but we are pretty comfortable with the guidance on overall gross margin.

Ross Seymore - Deutsche Bank

Okay. And then my last question, as you look through 2014 as a whole just given the stronger start than expected for LRDIMM, how do you expect the mix between your set-top box and your LRDIMM or memory interface as a whole businesses to trend as the year progresses? Thanks.

Mark Voll

Well, we believe that the set-top box business will grow quite nicely this year. However, we think that the memory interface will exceed that growth quite significantly and as a result we would see memory interface become an increasing part of our overall revenue mix.

Ross Seymore - Deutsche Bank

Great. Thank you.

Operator

Thank you. Your next question comes from the line of Blayne Curtis from Barclays. Please ask your question.

Blayne Curtis - Barclays

Thanks for taking my question. Maybe Mark on the gross margin side, you've been able to sustain gross margin above 60%, I think last quarter you mentioned that there was some tightness on supply, you're seeing a seasonal decline. Can you just comment on the kind of your supply equation and then how you kind of view the inventories in the market? And you mentioned that memory interface was a positive mix, how about on the set-top box side; will you be able to continue the better price that you've been enjoying?

Mark Voll

We think that longer term set-top box gross margins will get better as most of that we transition our products from 90 nanometer to 55 nanometer. So we expect to see a positive gross margin shift on a set-top box business. We continue to see strong gross margins in LRDIMM, but I would imagine that as volumes increase, we’ll likely see some pricing pressure there. So again, I think we’re being a little bit cautious on overall guidance and gross margin.

Blayne Curtis - Barclays

I got you. And then maybe following back up on one of the first questions just on the OpEx trajectory to the year, you obviously had some credits that throughout the first three quarters that are offsetting and then some tape-outs going the other way. I guess just following upon that question, when you net those together, are you still going to be investing in the business and the OpEx should be trending up throughout the year or will it be kind of lumpy depending on of which one net out most?

Mark Voll

I would say generally we would see incremental R&D cut cost throughout the year. We don’t see any particular quarter that would be significantly different or and it be unusual in nature, so we just see sequential increases as we go throughout the year.

Blayne Curtis - Barclays

Okay. And then maybe just two housekeeping questions, 10% customers, I was wondering if you could you obviously have some which is going to give us demand right now?

Mark Voll

We had one 10% end customer.

Blayne Curtis - Barclays

Yes, but actual number or do that place the filing?

Mark Voll

Yes. So we have one -- I believe we have one customer at roughly about 12%.

Blayne Curtis - Barclays

End customer, okay.

Mark Voll

Yes, right.

Blayne Curtis - Barclays

And then, okay -- and then stock comps, maybe I missed that in Q1?

Mark Voll

We didn’t give overall guidance on stock comp, but I would imagine it’s going to be slightly higher than Q4 so about $1.3 million.

Blayne Curtis - Barclays

Okay. Thanks Mark.

Mark Voll

Welcome.

Operator

Thank you. Your next question comes from the line of Tore Svanberg from Stifel. Please ask your question.

Erik Rasmussen - Stifel

Yes, thanks. This is Eric Rasmussen calling in for Tore. I’d also want to congratulate you guys on a nice quarter and guide. Just circling back to your guidance, can you just comment on some of the strengths and weaknesses some of the puts and takes there? I know you just talked about set-top box seasonality offset by LRDIMM strength, but can you just give a little bit more color there?

Howard Yang

Yes. If you look at our company’s revenue historical numbers Q1 is a, usually it’s a weak quarter, because that's a Chinese New Year has a shutdown and in the manufacturing lines all across the China. So basically you loss productivity there for actually one in the weeks, even though holidays which is only one week.

So basically due to that and then so the revenue is seasonality wise it’s a lower than Q4 and Q4 traditionally because before the Chinese New Year that a lot of things get done and shipped. So that's a high quarter for us, but then for memory buffer right now we are in the ramping stage very strong in DDR3, LRDIMM, memory buffer demand, so continue to see good strong demand in Q4 and then also going to Q1.

So that's not impact by seasonality at all.

Erik Rasmussen - Stifel

Thank you. And may be on taped-out costs you said $1.9 million this quarter and there were six new products, can you tell me what those, where those targeted those new products?

Stephen Tai

Yes, I just give you a couple of examples that one is integrated SoC for high definition satellite market and another one is for supporting full solution for DVB-T2 standard, which in the DVB-T2 space on Montage was not played before so this will allow us to expand our addressable market [time] and continue to grow our set-up box business.

Erik Rasmussen - Stifel

Thanks. And may be just one more, gross margin seem to be trending a little bit higher than expected. Are you going to update your gross margin target at this time or can we expect it to be in this range or will it settle down into that your prior range? Thank you.

Mark Voll

I would expect the range that the we gave for Q1, we likely see that the first half of the year and then we just think to take a look at that trends into the second half of the year. A lot of it’s going to be and mix of products and we are so near to early stages of the ramp in LRDIMM. So that will have an affect on overall gross margins. So as we see our orders start to solidify we get over firmer on forecast and give you a better indication on where we expect gross margins to be.

Erik Rasmussen - Stifel

Thanks Mark.

Operator

Thank you. Your next question comes from the line of Quinn Bolton from Needham. Please ask your question.

Quinn Bolton - Needham

Good morning, gentlemen. Congratulations on the nice results. I wanted to start up with a question on the memory interface side of the business. First off obviously we see the big ramp in the LRDIMM with the launches major OEM systems based on Ivy Bridge in Q4 here again in Q1. Based on your order book does it look like that strength continues into the second quarter or was some other strength that you see in Q4 and Q1, perhaps inventory starting with the new system launches? And you could potentially see a pause waiting to sell through on those initial systems?

Stephen Tai

No, we continue see strong demand going to Q2 right now as based on our customers’ feedback.

Quinn Bolton - Needham

Great, okay, good. And then you mentioned that were the first qualified vendor for both the RCD and the memory buffer for DDR4 by Intel, was wondering I think you had some smaller revenue on DDR4 in the third quarter. Was any of the $5.2 million in memory interface revenue in the fourth quarter from DDR4? And if so was it meaningful or was it fairly small?

Howard Yang

I would say it’s meaningful but just behind of a $0.5 million in Q4.

Quinn Bolton - Needham

Okay. And do you expect sort of DDR4 revenue to trend in that range over the next couple of quarters, just as you continue to go through the validation and the initial pre-qualification process or do you think it trends down ahead as it has world launch.

Howard Yang

I think it will probably stay within that range or go up a bit when until it has all launched.

Quinn Bolton - Needham

Okay, great. And then quick question on the set-top box side. I know satellite is still the vast majority of revenue but is cable, 10%, is cable better than that can you give us some sense of how the cable ramp has progressed?

Stephen Tai

Yes cable is still in the single-digit right now, talking about total solution, but it’s by itself it’s growing very fast, because we start from a small base.

Quinn Bolton - Needham

Got it, okay. And then just two quick questions for Mark, Mark you gave us a tax rate expectation of somewhere between 6% and 10% I just wanted to check is that a GAAP tax rate or a non-GAAP tax rate?

Mark Voll

That’s a GAAP tax rate.

Quinn Bolton - Needham

Got it, okay great. And then actually…

Mark Voll

Actually for us a GAAP and non-GAAP tax rates are the same.

Quinn Bolton - Needham

Okay. Great. And then there is just a last question. With the independent review that you announced on the call. Are there any, is the OpEx that you range that you guided for in Q1, does that anticipate any significant costs associated with that review of would you take any expenses associated with that independent review and sort of back those other than non-GAAP OpEx.

Mark Voll

They are not currently in our OpEx number. So any cost associated that would be incremental increase.

Quinn Bolton - Needham

Okay, alright. Thank you.

Mark Voll

Sure.

Operator

Thank you. The next question comes from the line of Jay Srivatsa from Chardan Capital Markets. Please ask your question.

Jay Srivatsa - Chardan Capital Markets

Yes, thanks for taking my question. Howard, Mark just may let me about your distributor LQW. Can you give us some details on who they are and why they make such a major part of your revenues and what are your plans with them going forward?

Howard Yang

Yes. We started this LQW in 2012 and they came into us on firstly most major financing role to finance our product inventory and also had us first layer of distributor which deals with our other existing distributors. So, in that sense it helps us on our cash on preservation as from the starting point and we think it's a very attractive business that arrangement that it works out so far for us.

Jay Srivatsa - Chardan Capital Markets

And in terms of your other distributors, do you have similar relationships with them and you hope to expand your distributor base going forward, any insight will be appreciated?

Howard Yang

Yes. Right now we’re happy with all our distributors, LQW and also our other distributors. If there is a need for us growing our business or if demand by our customers they require certain distributor otherwise we’re happy with our current arrangement.

Jay Srivatsa - Chardan Capital Markets

All right. And then in terms of your relationship with the distributors maybe little bit of insight on and when you actually recognize revenues with your distributor, does the end customer actually have to refuse product before you recognize it or does it get recognized when the distributor receives product help us understand the logistics and how you recognize revenues?

Howard Yang

Right. So for all of our revenue all our products going through distribution, the revenue is not recognized until it’s sold through to the end customer. And then so even in the case of some of our distributors where we get upfront cash that’s not refundable we really have the right to recognize revenue but we differ that as a conservative measure until wait until it’s sold through to the end customer.

Jay Srivatsa - Chardan Capital Markets

All right. Switching to the business itself, on the set-top box side, can you give us some sense on the competitive landscape while you’re sensing more competition as you get a little bit more dominance in the satellite side? And if so what does that mean for your ASPs going forward?

Howard Yang

Yes. On a satellite side I think we’re getting attraction and continued growth we feel comfortable there. And then with our newly HD (inaudible) solutions, we also gained good traction and expect to grow the business rapidly this year. But we also gained to the DVB-T2 areas that we’re facing the new competitors, some of them may be similar, but some of them are different competitors that we still have to follow strategy on to duplicate our satellite market to be successful in that market. So that’s yet to be seen. And on the cable market, that with our standard definition solution is gaining traction and it’s going fast and with later this year we released HD solution for cable fleet that will also repeat our success in existing fields that we’re playing right now.

Jay Srivatsa - Chardan Capital Markets

All right. Your stock has been hit pretty negatively lately; have you considered any stock buyback or anything to reassure investors on management’s commitment going forward?

Mark Voll

We haven’t gotten any direction from the Board as far as -- about a plan put in place.

Jay Srivatsa - Chardan Capital Markets

Okay. Thank you.

Operator

Thank you. And the next question comes from the line of Suji De Silva from Topeka. Please ask the question.

Suji De Silva - Topeka

Hi guys, nice job on the quarter. Can you talk about the set-up market, what’s typically seasonal rebound you see in second quarter as historically?

Stephen Tai

Yes, second quarter recovered a bit, mostly as ramp suffered in Q3 and Q4 is usually the highest.

Suji De Silva - Topeka

Do you have a mathematical average historically for 2Q, just as a number?

Stephen Tai

I think from Q4 down to Q1, usually it’s like about 15% to 20% drop and then it rebounds from there and then throughout the next two quarters and get back to Q4 levels.

Suji De Silva - Topeka

Okay, right. And then on the memory interface side, can you talk about how many people you expect to be qualified on the Intel platform at the end of ‘14 and would that at higher increase, the pricing pressure versus where it is now?

Stephen Tai

You are talking about DDR4?

Suji De Silva - Topeka

Correct, yes.

Stephen Tai

DDR3 or DDR4?

Suji De Silva - Topeka

DDR4.

Stephen Tai

DDR4, okay. DDR4, we expect Intel will definitely, to qualify second player and to balance out the ecosystem, so I think being first on the Haswell platform, we will have clear vantage to get design wins at multiple end customers.

Suji De Silva - Topeka

Okay. And then my last question is on the set-top box side. I see as some of the larger competitors, there are Broadcom; STMicro talked a lot about targeting the emerging markets. Can you talk about being kind of a first mover there with some of the hardest things there are going to have to go through to compete within those markets would be from your perspective? Thanks.

Stephen Tai

I think from our end, it’s still by defining the right product for the right market with the right set of features instead of over define the product and end up with expensive product and a lot of features not being used. And also we take care of customers who has good sales channels but then lack of technology R&D capabilities, so we provide full service to them to support them for design wins and win business at their customers and also provide full sell services. So that’s our model.

Suji De Silva - Topeka

Okay, thanks.

Howard Yang

Thank you.

Operator

Thank you. Your next question comes from the line of Krishna Shankar from Roth Capital. Please ask your question.

Krishna Shankar - Roth Capital

Yes. What of the set-top box business that you have what portion of that or what portion of the company’s revenues comes from cable versus satellite set-top box applications? And I guess you said the satellite business will grow faster in 2014, so maybe you could give us a sense for how they would -- what the distribution would be at the end of this your cable versus satellite and any implications for gross margins there?

Stephen Tai

Right. We usually divide our products between the front-end solutions and also our total solutions which is the total SoC. For front-end solutions which could be a tuner for cable or satellite or demodulators for cable or satellite or terrestrial, so that part of business is about 16%, 17% of our total set-top box revenue. And then for the total SoC solution product, right now cable is less than 10% of the total SoC total solution.

Krishna Shankar - Roth Capital

Okay. Thank you. And then with respect to LQW distributor, are they just stocking distributor or do they actually help the customer in terms of field engineering support and service or do you directly work with the end customers in terms of providing engineering support and service. Can you talk about their role after the sale process?

Stephen Tai

Sure. They don’t do anything after the sales process; basically we have direct access to all our customers, not just LQW, to all others, we provide full support to our customers directly. So all these -- just picked the fulfillment agents for us to support our customers just on their products.

Krishna Shankar - Roth Capital

Okay. And then final question with respect to the memory module business, when do you think the DDR4 interface solutions will ramp? And what is the competitive landscape in that market?

Stephen Tai

DDR4 memory module DIMMs will ramp probably second half of this year after Intel launches Haswell platform, but we believe the crossover from DDR3 to DDR4 will not take place until late 2015 or 2016.

Krishna Shankar - Roth Capital

Okay. Thank you very much and congratulations on good results.

Stephen Tai

Thank you.

Operator

Thank you. Your next question comes from the line of Quinn Bolton from Needham. Please ask the question.

Quinn Bolton - Needham

Hi. Sorry my question was the mix between front-end and integrated associates and you just answered that. So I have my answer. Thank you.

Operator

Thank you. We have come to the end of the Q&A session. And I would now like to hand the conference back to Mr. Mark Voll for closing comments. Thank you.

Mark Voll

One final comment, I will be attending two upcoming conferences in California during the month of March, first the JMP Securities conference on March 3th and then the Roth conference on March 9th and 12th. If you plan to attend these conferences, we welcome the opportunity to meet with you. I want to thank everyone again for joining us for today's call. We look forward to reporting our continued progress next quarter. Operator, you may now disconnect the call.

Operator

Thank you. Ladies and gentlemen that does conclude our conference for today. Thank you for participating. You may all disconnect.

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