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Peregrine Semiconductor Corp (NASDAQ:PSMI)

Q1 2014 Earnings Conference Call

May 05, 2014 04:30 pm ET

Executives

Jonathan Goldberg - Jonathan Goldberg, Senior Director of Corporate Development

Jim Cable - Chairman of the Board, President, Chief Executive Officer

Jay Biskupski - Chief Financial Officer

Analysts

Brian Modoff - Deutsche Bank

Harlan Sur - JPMorgan

Mike Walkley - Canaccord Genuity

Doug Freedman - RBC Capital Markets

Alex Gauna - JMP Securities

Quinn Bolton – Needham

Operator

Good day, ladies and gentlemen. Welcome to the Peregrine Semiconductor First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference maybe recorded.

I would now like to turn the conference over to, Jonathan Goldberg. Sir, you may begin.

Jonathan Goldberg

Thank you, [Lucia]. Good afternoon, everyone. Thank you for joining us on today’s conference call to discuss Peregrine Semiconductor’s first quarter 2014 financial results. The webcast of this call maybe accessed through our website at psemi.com and will be archived for one week. Today's call is being hosted by Jim Cable, President and CEO; and Jay Biskupski, CFO.

During this conference call, we will be making forward-looking statements regarding future events or results of the company. Actual events or results could differ materially from those projected in the forward-looking statements. Please refer to our SEC filings, which contain important factors that could cause actual results to differ materially from these forward-looking statements.

In addition, Peregrine reports gross margin, net income, basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis. Management believes that the non-GAAP information is useful, because it can enhance the understanding of the company's ongoing economic performance. Peregrine uses non-GAAP reporting internally to reevaluate and manage the company's operations.

Peregrine has chosen to provide this information to investors to enable the comparisons of operating results in a manner that the company analyzes its own operating results. A full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings press release issued earlier today and we ask that you review it in conjunction with this call.

As we have mentioned on previous calls, you should be aware that we are located in the flight path, the Marine Corps Air Station, Miramar and cannot predict the timing of jet flights. If we do have a flight coming over head, we’ll just pause and then continue once the jets have passed.

With that, let me turn the call over to Jim Cable, President and CEO of Peregrine Semiconductor.

Jim Cable

Thanks, Jonathan. Thank you to everyone for joining us today. Peregrine reported revenue of $41.3 million in the first quarter, well ahead of our guided range. We also reported a non-GAAP loss of $0.24 per share. Our revenue came in much better than expected due to strength across a number of our businesses. I will get into that in more detail in a moment, but I would first like to comment on the state of our end markets.

Smartphone demand remains healthy across the markets. A few quarters ago, I commented that the growth of low cost LTE handsets would benefit us by growing our addressable market and we see clear signs of that happening this year with healthy sales to China-based handset OEMs.

Carriers continue to raise the requirements for their LTE networks with LTE advanced networks now live or being trialed in over 50 markets, increasing radio complexity benefits Peregrine we tend to be the first supplier capable of providing products which meet those higher requirements. The smartphone market remains highly concentrated, but we are seeing signs of many new entrants to the LTE market coming on stream in coming quarters.

Turning now to our mobile business; revenues came in well ahead of plan driven by better than expected demand for legacy design wins as well as orders for new designs. Last quarter, I cautioned that our mobile revenues in the second half would be impacted by share loss at a large OEM. That has not changed, but we may directly engage with all the leading handset OEMs and feel much more confident in our outlook for market share in 2015.

A key development in the quarter was the public debut a Global One at Mobile World Congress in February. We are very happy with the reception for Global One. At the show, we conducted over 40 demonstrations of our working CMOS PA and the industry response was overwhelmingly positive.

This has reinvigorated our sales efforts with many customers and partners reaching out to us since the show to better understand Global One, and in the process refresh their view of Peregrine's other products and we have not been standing still. I can now say that our silicon power amplifier has performance that is better than gas in several metrics.

Industry history has shown that once silicon performance matches that of gas, the superior economics and integration advantages of solution push gas out of the market and our silicon parts can now surpass gas. We think this marks a key strategic turning point for the whole RF industry. Our results have been invalidated by several outside parties now.

Since Mobile World Congress, we have expanded the number of potential partners who have sampled Global One and some of the industry's leading platform providers have confirmed our results in their test facilities. I'm very encouraged by the progress of Global One. We now think it will begin shipping for revenue in the second half of 2015. We plan to provide you updates on our partners and design wins in future quarters.

Turning now to our non-handset or high-performance analog business, we launched a record number of products in the first quarter maintaining the healthy pace of innovation we began last year. Revenue for these businesses came in better than expected in the quarter driven by healthy demand across a number of end markets.

The outlook for wireless infrastructure is improving this year driven by TDD-LTE rollouts in China and several other markets. Our test and measurement customers also increased orders this quarter as that sector improves. We also saw good content for TV and set-top box products. All too often this side of our business gets overlooked by investors, but we see it is a hidden gem. While the end markets we address are slow growers, we think we can grow our business here 10% to 15% a year, because we are gaining share against gas.

These customers look to us for the improved reliability, resilience and repeatability that CMOS offers. When we have products here, we win. We are investing heavily here to keep up the pace and are on track for another record year of product releases. For investors interested in learning more about this space, we encourage you to attend the upcoming IEEE-MTT Microwave Symposium conference, in Tampa, in June. We will be hosting investor meetings there, so let us know if you would like to attend.

Finally, I want to touch on our IT position. Our ongoing RFMD litigation is still scheduled to go on trial in November of this year, but another aspect of our IT is our expertise in improving our selection process technology. Two quarters ago, we unveiled UltraCMOS 10, the world's highest performance RF SOI process. Today, we are announcing that we have begun shipments of our first UltraCMOS 10 products. We believe UltraCMOS 10 give us a strong lead over competitive RF SOI processes. Finally, I would like to thank all the Peregrine employees for their hard work and dedication this quarter.

With that, I will turn it over to Jay for discussion of our financials.

Jay Biskupski

Thank you, Jim. I will first provide a summary of our first quarter 2014 results, and ending balance sheet adding a little color to the factors underlying those results. I will then provide our business outlook.

To start, I would like to remind you the Peregrine Semiconductor follows a 52-weeks fiscal year ending in December. Our quarter ended on March 29, 2014, and covers the period starting December 29, 2013 to March 29, 2014.

As noted in our press release, revenue for the first quarter was $41.3 million, a decrease of 11% from the first quarter of 2013, but well above our guided range of $33 million to $36 million provided in February. Revenue came in stronger than expected, driven by a number of factors as Jim mentioned in his comments, including additional orders for products used in older designs, products used in new mobile design and broad based growth of our high-performance analog product revenue.

Murata revenues represented 61% of revenue, down from 67% in the fourth quarter driven partially by seasonal trends that are also indicative of going divestiture of our end customers and improvements in our direct sales capability.

Non-GAAP gross profit for the quarter was $15 million or 36.3% of revenue at the lower end of the range we guided to in February. Gross margins were affected by higher than expected demand for legacy products carrying lower gross margins, which more than offset the impact of revenue growth from our high-performance analog product, which carry higher gross margins.

Gross margins were also affected by an inventory write-down of $2.2 million in costs associated with our transition from UltraCMOS 8 SOS products to UltraCMOS 10 SOI products. We expect gross margins to improve throughout the year as UltraCMOS 10 contributes to growing share of our revenue.

GAAP operating expenses increased to $24.7 million from $22.4 million in the fourth quarter. During the first quarter, we incurred restructuring cost of $2 million related to reduction in workforce and facility. We also incurred legal cost of $2.5 million related to the litigation we have against RFMD and cost related to responding to the ongoing export compliance investigation of our products subject to ITAR regulations. I want to point out that are non-GAAP adjustments only include stock-based compensation and not these extra expenses.

As Jim indicated, we released a record number of products during the first quarter while continuing research and development cost to $11.4 million, including $1 million in restructuring costs. Sales, general and admin cost increased to $13.4 million from $11.7 dollars as the remaining restructuring costs and all legal costs related to our litigation and export compliance investigation were incurred within SG&A.

On a GAAP basis, we realized a net loss of $10 million, personnel loss of $1.2 million in the first quarter of 2013, when compared to a net loss of $6.8 million for the fourth quarter of 2013. We recognize the GAAP loss per share of $0.30 on the basic and diluted basis. On a non-GAAP basis, we recognized net loss of $7.9 million or $0.24 per share on a fully diluted basis.

Non-GAAP EPS figures only excludes stock-based compensation in determining income and the share count used in the calculation of 32.9 million shares for the first quarter of this year.

Turning to our balance sheet, our ending cash resources including both, long-term and short-term marketable securities, totaled $58.9 million, which was down $4.2 million from the end of 2013. We anticipate further cash burn in the second quarter, but believe that the restructuring actions we have taken put us on a path to returning to breakeven towards the end of the year.

Our inventory levels decreased to $44.9 million from $53.5 million at year-end as we managed decreases in both, raw materials that we are holding to secure future production and work in process and to but of upcoming production releases.

Now, I would like to discuss our business outlook. We expect revenue in the second quarter to be in the range of $42 million to $46 million. We expect gross margins for the upcoming quarter to improve modestly from the first quarter of 2014 and be in the range of 36% to 39%.

We do not usually provide specific guidance for operating expenses due to the fluctuations we can see on the timing of product development efforts; however we would like to provide more guidance on the impact of our operating expenses from our Q1 restructuring.

In the second quarter, we expect a decline in operating expenses from the first quarter level or the $2 million restructuring costs incurred in the first quarter and a portion of the resulting restructuring savings of $1 million per quarter. Legal costs in SG&A are expected to continue at a similar level in the second quarter as we move towards the trial stage with RFMD later this year.

That concludes our prepared remarks. I would like to now turn it over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Brian Modoff of Deutsche Bank. Your line is open.

Brian Modoff - Deutsche Bank

Good afternoon, guys. A few questions for you. First on the gross margins in the quarter shaping up from the current quarter. You are looking at similar mix of products. Can you break it out; the high-performance percent of revenues give us an idea of where that is now in your revenues and where you expect that to be at the end of the year. Then finally, on Global One, obviously your trials or your products in PAs been evaluating, when do you see this as revenue some more of a '15 from a standpoint of timing, '15 event on that side? Who are you talking to customers? Are you talking to essentially the same players, you are talking to about your existing products?

Jay Biskupski

Why don't I start Brian by answering the gross margin question? Of course, we are looking forward to seeing a greater proportion of our revenues coming out of the UltraCMOS 10 SOI process, because that will certainly provide a nice mix to what the margins are.

In the first quarter, as I said in my script, we were seeing more legacy type of products that were coming through there in the SOS. That's what adversely impacted the margins this quarter. We expect margins to continue to improve as we go through the quarter. As we indicated, as we expect as we continue to see we will quote HPA growth and UltraCMOS 10.

As we have said in the past, our revenues have typically ranged anywhere from one-quarter to one-third of our revenues would be for the HPA type of products. This quarter, it was right around one-third level, just a little bit over that in terms of revenues for this quarter on that basis, so when we take a look as we go out in the year we are expecting more continual growth pattern that HPA business and where we will see more variants occurring in terms of the mobile business revenue that we see, so continued increase in Q2. Then changing as we go to Q3, Q4, so I am expecting to keep HPA within that same sort of one-quarter to one-third range as we go forward as we continue to go ahead.

Jim Cable

Brian, its Jim. Let me talk about Global One, so as I mentioned we do expect first revenue second half of 2015 which is actually pulled in from what we previously said at the last call, which we said late 2015, so we feel good about that. We feel good about our prospects. We are exploring a lot of different options in terms of customers, but they range from the usual suspects chipset manufacturers, module providers were direct-to-OEM. There's lots of interest in the product. I would say that there are a number of opportunities to expand and customize what we have currently done with Global One and there's lots of discussions about how we could expense some of those partnerships. As I mentioned in the prepared remarks, we feel that in the next quarter or so, we will start publicly talking about some of those partnerships and where we are with them, but we have chosen not to do that this time.

Brian Modoff - Deutsche Bank

Okay. Thank you. Then one last question on the lawsuit. There are a couple of ways of looking at it. One, assuming the lawsuit doesn't go your way, how would you look competing in the market with - enough of an uptick for forms matters again versus (Inaudible). Then second is really what's the status of the lawsuit? (Inaudible). That's my last question. Thanks.

Jim Cable

Yes. I mean, I think that the fact is as UltraCMOS 10, we think is the best RF SOI technology on the planet, so we feel very comfortable our ability to compete with that moving forward. That's really not the end of the line for us in terms of roadmaps. We have a lot more ahead of us that we are doing there. I think that we have competed through the years now without a lawsuit.

We have competed head-to-head with various companies on the products in their capabilities. I think that's unchanged if hypothetically your question if it were not to prevail, so I see it as business as usual. I think that UltraCMOS 10 is a pretty dramatic step up in terms of performance, our customers that have seen the parts, that have sampled the parts have been very happy with the performance we have delivered.

As Jay mentioned, as we as we move through 2014, more and more of our mobile revenue will switch over to the UltraCMOS 10 technology which will improve our gross margins and really I would say that by the end of 2014, the transition of our mobile business from SOS the SOI will be nearly complete, so nearly all new products that we (Inaudible) are going on the UltraCMOS 10 platform.

Brian Modoff - Deutsche Bank

Okay. Thank you, guys.

Operator

Thank you. The next question is from Harlan Sur of JPMorgan. Your line is open.

Harlan Sur - JPMorgan

Good afternoon. Thanks for taking my question. Regarding your HPS business, your non-mobile business, high margin, you got market exposure. Sounded like that grew in Q1. Can you just verify, so did HPS grow quarter-over-quarter and year-over-year in Q1. Is HPS growing in Q2? What are sort of the expectations here in 2014? Do you think that HPS as a whole is going to grow full year and what end markets or applications are going to be driving this growth?

Jim Cable

Yes. We call it HPA, Harlan, but HPS we can talk more about that later. We do see that business growing 2014 over 2013. It's driven by a number of things. Not the least of which is the TD-LTE rollout in China, which we participate in a fairly meaningful way, but I would say just in general across almost all of our and markets there we are seen growth and I think some of that is just global economy looks a little bit better in '14 than it did in '13 and we are seeing that really through Tier-1 strategic customers as well as even through distribution.

I think we feel really good about some opportunities in broadband and I would say lastly and we have talked about this some in the past. Really, we spent a lot of energy and time in 2013 really building out a much stronger sales channel and distribution channel to support this HPA business. Of course is very different than the mobile business, which as Jay mentioned 61% of that went to a single customer.

I would say the fourth element of why we feel optimistic there is that a lot of new products have come out in the last 18 months, and while the designing window is little bit longer there than it is in mobile, new products really have customers excited and it's normally new products, but there are some new product categories and you have probably seen some announcements from us in the recent months about those categories, so it's giving us a much broader footprint, ability to get into a much broader set of customers and really expand our footprint into our existing strategic account, so I would say were very bullish about the HPA business.

Harlan Sur - JPMorgan

Great. Thanks, Jim. On the gross margins, obviously you expect to see improvements in Q2. Assuming as you mentioned continued growth in HPS and penetration of UltraCMOS 10, do you see the team getting back into the 40% range on a GAAP basis in the second half of the year?

Jim Cable

Absolutely.

Harlan Sur - JPMorgan

Okay. Great. Then my final question…

Jay Biskupski

Certainly, we think both impacts are quite dramatic and what it will do to our gross margin.

Harlan Sur - JPMorgan

Okay. Perfect.

Jim Cable

UltraCMOS 10.

Harlan Sur - JPMorgan

Great. Then my final question, given the dynamics of one of your large customers, I think on the last call you had talked about second half seasonality being more muted, but obviously it sounds like some of your design win focused on the China market providing the team with a bit of a tailwind.

The market is anticipating growth for the team second half revenues over first half. Obviously that will be obviously in your large customers new product introductions. I know you don't have much visibility, but as your current pipeline of new products in HPA, your tuning solutions and other smartphone wins give you confidence about growth in the second half over the first half?

Jim Cable

As we mentioned in the last earnings call, Harlan, where we basically talked about the loss at a key OEM, that's a pretty big not to overcome and we have traditionally not guided for the whole year, but as we talked about today certainly Q1 exceeded our expectations on the mobile space quite dramatically. The guidance we have just given on Q2, same thing. We definitely are seeing the benefits of the more broad adoption of LTE worldwide. We certainly are seeing opportunities in China that we did see back in 2013. We have a very strong footprint, if you look at some recent teardowns, I think Chipworks, they looked at the Galaxy S5 and they talked about a number of a smartphone. They have seen our products and so we do feel quite good about the pipeline that we see and we feel good about 2015 in the mobile space. All that being said, it is hard to offset the loss of the new platform at the one particular OEM. On HPA, I think, we do feel quite optimistic about growth in the second half of the year there. Again, the same reasons that I talked about earlier.

Harlan Sur - JPMorgan

Okay. Thanks guys.

Operator

Thank you. (Operator Instructions). The next question is from Mike Walkley of Canaccord Genuity. Your line is open.

Mike Walkley - Canaccord Genuity

Great. Thank you. Jim, I was wondering if you could just provide some more color you talked about Global One conversations with customers and how it may have led to follow-on sales of discussion in your broader portfolio. Can you add some color to that and is that helping at all with the second half post-losing your large customer?

Jim Cable

Yes. I mean, I think Global One demonstrates a very interesting capability. You get a customer in here that wants to hear more about that. They want to see your product roadmaps in terms of what's going on in the switch products, what's going on in the tuner products. Some of the more advanced concepts that we are working on in the R&D space and what's fascinating is that is not only been true on the mobile side, but we have had some people on the HPA side, we have actually taken some Global One-type products and shown how well they could work for small cells and really doing infrastructure kind of the PAs with again the kind of linearity and efficiency at relatively high power levels we are traditionally be associated only as be achievable with gas solutions.

Yes. I mean, it's kind of you create industry excitement, you get customer engagements. It often leads to opportunities and we definitely are seeing that. I think the other thing is people do view Global One as an interesting alternative to RF 360. They really want to how others were doing compare with that, how does it look, where are we at, et cetera, et cetera, so I think all of that has led to some industry excitement that is benefiting really both sides of our business frankly.

Mike Walkley - Canaccord Genuity

Okay. Great. Thanks. Maybe earlier revenues you talk about the second half of 2015 versus end of year, have you decided your go-to-market strategy then? You are already working with customers on how we might be deploying it?

Jim Cable

Yes. We are working with partners for sure in terms - so, yes, a deployment strategy. I would say internally, I think, we are pretty well aligned on that. We will look at out how we could expand that, but in terms of whether I want to publicly talk about that, yes, some of that information is competitive and we will choose to keep it quiet for the time being.

Mike Walkley - Canaccord Genuity

Okay. Understood. Last question for me. Just on the improving trend in HPA. Can you remind us just the gross margin differential for HPA relative to your blended business?

Jay Biskupski

On a growth basis, we target that business to grow in that and the 10% to 20% range or 10% to 15% range depending on the year. Given the recent product introductions, we have learned that there is a bit of a lag before we start seeing that revenue growth, somewhat flattish revenues in 2013 over 2012, we think '13 will turn. It looks like an analog business, so it begins with a fixed handle in terms of gross margins we have said in the past.

Mike Walkley - Canaccord Genuity

Thank you.

Operator

Thank you. The next question is from Doug Freedman of RBC Capital Markets. Your line is open.

Doug Freedman - RBC Capital Markets

Great. Thanks for taking my question, Jim and Jay. Jim, can you maybe help walk us through the benefits of your integration roadmap where you had pretty much every component except the filter as compared to what we are seeing broadly adopted in the market right now in the PA plus duplex or the pad architecture. How is it that your customers view those two alternative integration roadmaps?

Jim Cable

There's a number of ways that customers would view that. Certainly if you just want to talk about sort of law performance levels, you certainly can achieve a smaller footprint with an integrated solution such as ourselves, such as Global One. I think where customers get really excited about Global One now is the level of flexibility through sort of things like built-in tuning, calibration re-configurability. Those are the areas that we believe it will really be highly valued moving forward, so kind of as we have been saying along kind of law RF performance is table stakes you have to be in that parity level. Then you start getting the flexibility that comes from a silicon-based solution with the kind of features that you can build into that.

That's where different partners that we are talking with want different things out of that. You can imagine having a very, very high level of control by talking with the chipset or you can envision using that in sort of the standard frontend module approach. You can imagine how there is different configurations of this depending on high band, low band, mid band, a number of bands which is supporting whether we would sell it to a module (Inaudible) or would sell it directly to an OEM, but we think ultimately the real value proposition is the flexibility and the capability and the tunability that comes from the integration.

Doug Freedman - RBC Capital Markets

That's a perfect segue really into my next question. What is the range in content that you think you can capture with Global One? Is it any clear now that it's being introduced your customer base?

Jim Cable

I would say that everything other than the filters, so you see the kind of numbers that people throw around for how much content there is a 2G here, or 3G here, 4G phone. Certainly, we have no near-term aspiration that we are going to have that filter content, so it's hard as take other people's estimates strip out the filter piece and that's the total content. Generally I would say when you do offer some level of integration, your customers especially something your customers are going to try to squeeze a little bit of cost concessions out of you in order to say why they want to make the change, but generally I would say remove the filters and that's kind of the…

Doug Freedman - RBC Capital Markets

All right. Great. Jay, one for you if you could help us get a little bit clear understanding on the legal costs. You had ITAR-related issues and the RFMD costs. Can you break those down for us and how should we be thinking about legal going forward? I was a little surprised by the timing uptick in legal this quarter.

Jay Biskupski

Yes. There simply was much more activity than anticipated on both activities. I would say that we are expecting, as we said in Q2 for those cost to continue to roll at that as a similar sort of level and we will see probably the export investigation will come down as we ramp up towards the trial towards the end of the year which is why we guide them to be in that same sort of range.

Jim Cable

It should be over with - once we get through the trial at the end of the year through.

Jay Biskupski

…nice thing, but getting those costs out.

Doug Freedman - RBC Capital Markets

Great. Thanks guys.

Operator

Thank you. The next question is from Alex Gauna of JMP Securities. Your line is open.

Alex Gauna - JMP Securities

Thanks so much. Jim, I wanted to ask you a questions you said your customers or potential partners are asking how does the solution Global One compare to RF 360 and my understanding is RF 360 is not been wildly successful in the market, but maybe you could share some metrics, so you think you might be more successful with Global One.

Jim Cable

Yes. I mean, I can only say we have not seem them in the marketplace either, so I can't tell you that I have torn it apart and we have made the measurements we can do an apples-to-apples comparison. I think that what we have showed with respect to Global One today has been really law performance. We have not used anything like envelope tracking; we have not used anything like a digital pre-distortion, which of course really are ways to get much higher performance in particular CMOS PA.

Again, we think all those things would be additive to what we've done. Customers that we have talked with kind of say shortcomings of RF 360. I think this is all hearsay. Clearly, it's got the same kind of level of integration that we are talking about with Global One, what we just hear is that from a performance perspective, it doesn't really line up with what people would like to see, but I think that in one of the reasons people are very interested and what we are doing Global One is frankly just because it is an alternative. We certainly don't see anybody else in the silicon space that has achieved anything like we have done with Global One, so as an alternative to RF 360 is something people want to understand.

Alex Gauna - JMP Securities

If I could, as a follow-up to that, and my understanding with RF 360 is portions of the solution like the envelope tracking we would be able to adopt it and I know that you said that you great value proposition is the tunability and the flexibility to a complete solution, but with Global One as a roadmap either we find some of your potential partners saying that that's too much of a technology lead that we take portions of what you're doing and fine-tune it from there. Is that happening?

Jim Cable

Yes. Absolutely. As I mentioned, and I think I said this sort of repeatedly. Global One is not going to end up being a single product for a single customer, but it's a platform capability that allows for customization across the what particular customers are interested in doing, so there's people that we are talking with, wonderful bells and whistles there's other people that we are talking with that really kind of want just the law capability and don't really want any of those advanced features, so yes, it definitely will morph into a variety of different sort and end products, if you will.

Alex Gauna - JMP Securities

Okay. One last one if I could. I know you discussed what your thoughts were around the filter technology not integrating that. With all the M&A activity and consolidation happening, how do you feel about your access to filter partners and what does the M&A activity broadly speaking…

Jim Cable

I think that if you look at how we think about filters, we have great relationship with filter makers today because we sell our die into them, a lot in particular. It does not surprise me that the degree of consolidation that's happening in the ecosystem. I think that we benefit from that as well. Again I think there's a lot of interest in our Global One, because it makes sense for these. People want more integration in these frontends. Whether you do it as a package-level solution with a bunch of different technologies or you do it as an IC solution all over RF 360 is all about Global One. We think that's really hitting an industry sweet spot.

Then when you look at what you can do in silicon from a standpoint of having a very flexible front-end with capabilities to support lots and lots of different SKUs with the minimum amount of reference design work on your phone board, we really see that as a compelling solution moving forward, so filters is not something that we are overly sweating today, but it's a very critical piece of the ecosystem, so again consolidation that we are seeing is not really surprising.

Alex Gauna - JMP Securities

Got you. All right. Thanks so much.

Operator

Thank you. (Operator Instructions) The next question is from Quinn Bolton of Needham. Your line is open.

Quinn Bolton – Needham

Hi, Jim and Jay. I apologize, I missed some of the prepared comments, but just wanted to ask if we can work backwards from wafers start shipping Global One, can you walk us through what point do you need to have your partnerships in place to go OEMs, so you could get their design cycles. As I guess I think about it, it probably takes what, six to nine months to design a phone, so if you don't have your OEM or your module and baseband partnerships placed in the next quarter or two, you miss a good part of the 2015 design cycle. Am I thinking about this the right way or the design cycle is shorter?

Jim Cable

I am not going to get into all the details of that, but we feel very comfortable with the timelines that exist out there, our partnerships. I would say this, Quinn that, while we publicly announced Global One in February that's not to say that that was the first time some of our potential partners have heard about that we have been working with some of that for quite some period of time ahead of that.

Quinn Bolton – Needham

I guess, maybe another way. If you guys were talking about sort of second half of '15 for shipments for Global One, I assume that that's sort of initial production rather than meaningful production at that point?

Jim Cable

Yes. I mean, we are not talking about high volume in the second half of '15. We are talking about initial production ramp up.

Quinn Bolton – Needham

Got it. Okay. Great.

Jim Cable

Let me phrase that carefully. What some people would call high volume, when I talk about high volume, I talk about kind of 35% to 40% market share that we have is in handsets, which is we are not going to be at those kind of volumes in 2015, obviously.

Quinn Bolton – Needham

Even if a few million units Global One, I think that ASPs you might be looking at could be material to your revenue.

Jim Cable

Yes. Absolutely.

Jay Biskupski

That will be material.

Quinn Bolton – Needham

Okay. Maybe material is a better word to focusing on. The second question is just you talked about the China TD-LTE and again, I apologize since I missed the prepared comments, is that mostly on the switch module front or you are also seeing RF tuning…

Jim Cable

Yes. That's very heavily weighted to the switch side.

Quinn Bolton – Needham

Okay. Is that true module partners or you are seeing some success selling directly into the OEMs.

Jim Cable

That's through module partners.

Quinn Bolton – Needham

Through module. Okay. Great. Then just one last one for Jay. On the high-performance analog, I assume most of that stuff probably stays on the SOS process going forward.

Jay Biskupski

Yes. Certainly the UltraCMOS 10 product will be in the handset area.

Quinn Bolton – Needham

Okay. I guess, my question is most of the mobile products shift over to UltraCMOS 10 first, and volume goes away from the SOS process, is there any negative or absorption impact on the HPA business or do you think you can still run around those margins with a fixed handle as a mobile volume switches over to UltraCMOS 10.

Jim Cable

I mean, the short answer to that is yes. We are an outsourced model from a foundry perspective, so whether it's running SOS or SOI, our operations have been focused around the backend test advantages to that and certainly the HPA side of that even there has been much more outsourced. We don't do packaging or anything like that here, so we don't see any issues from that and overall impact associated with that it ships there…

Quinn Bolton – Needham

Okay. Thank you.

Jim Cable

They should be fine.

Quinn Bolton – Needham

Okay.

Operator

Thank you. There are no further questions in queue at this time. I will turn the call back over for the closing remarks.

Jim Cable

That concludes our call. Thank you for joining us and we look forward to speaking to you again in August.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.

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