Advanced Analogic Technologies CEO Discusses Q3 2010 Results - Earnings Call Transcript

Oct.27.10 | About: Advanced Analogic (AATI)

Advanced Analogic Technologies, Inc. (NASDAQ:AATI)

Q3 2010 Earnings Conference Call

October 26, 2010 04:30 pm ET

Executives

Lisa Laukkanen - Blueshirt Group, IR

Richard Williams - President, Chief Executive Officer

Brian McDonald - Vice President of Finance, Chief Financial Officer

Analysts

Tore Svanberg - Stifel Nicolaus

Vernon Essi - Needham & Company – Analyst

Patrick Wang - Wedbush Securities

Gus Richard - Piper Jaffray

Jason Schmidt - Craig-Hallum

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Advanced Analogic Technology Third Quarter 2010 Earnings Conference Call. During today’s presentation, all parties will be in a listen only mode. Following the presentation, the conference will be open for questions. (Operator instructions). I would now like to turn the conference over to Ms. Lisa, please go ahead.

Lisa Laukkanen

Good afternoon and thank you for joining us on today’s the conference call to discuss the Analogic Tech third quarter results. This call is being broadcast live over the web and can be accessed for 90 days in the investor relations section of Analogic Tech’s website at analogictech.com. On today’s call are Richard K. William, President, Chief Executive Officer and Chief Technical Officer and Brian McDonalds, VP of finance and Chief Financial Officer. After the market closed today, Analogic tech issued a press release discussing the results of the third quarter ended September 30th, 2010. The press release is accessible online on the company’s website or you can call the The Blueshirt Group desk at 415 217 4961 and we will fax or email your copy. We would like to remind you that during the course of this conference call, Analogic Tech’s management team may make projections or other forward-looking statements regarding future events, or the future financial performance of the company. We wish to caution you that such statements are simply predictions and actual events or results may differ materially. We refer you to the documents of the company files from time to time with the Securities and Exchange Commission; specifically the company’s most recent forms 10-Q and 10-K. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. With that said, I would like to turn the call over to Analogic Tech’s CEO and CTO, Richard William.

Richard Williams

Thank you for joining us today, as Analogic Tech reports its third quarter 2010 results. During the call, I would provide a brief recap of the business highlights. I would then turn the call over to Brian to review the details of our financial performance followed by guidance for the fourth quarter. Our third quarter results were in line with expectations. Revenue was $25 million, which represents a 7.9% sequential increase. Net loss for the quarter was $1.3 million or $0.03 per share on a GAAP basis. On a non-GAAP basis, net loss was $2.4 million or $0.06 per share. Sales for Samsung represented 32% of total revenues. Our designing momentum continues across the broad range of handsets of Samsung including Wave, Omnia, star duos and the exciting galaxy line of smart phones and tablets. And LG sales represented 15% of total revenues during the third quarter. Ongoing sales cover a wide range of models including models Optimus, Star, Shine and Rumeur. Early in 2010, we announced our plan to increase R & D spending to fund and accelerate our diversification into the TV, low power computing and green power markets. Most of the hiring supports occurred in Asia, primarily in our Shanghai design center. Having reached major milestones in product development, and with favorable market acceptance, of our first product offerings, we believe we can now scale back that effort without adversely impacting our growth potential. As such, we performed a reduction of work force at the end of Q3 in our semi-parallel occasion to right size our staffing consistent with our strategic plan.

Excluding onetime losses, cost savings from this action are expected to achieve a 10% savings in APEX and move the company towards more profitability. We do not believe these actions will have any significant, adverse effect on 2011 revenues or on key development efforts. In order to concentrate our efforts on improving execution and eliminating redundancies, we have restructured the company into a simple, functional organization. From rise in marketing, sales, engineering and manufacturing, technology and finance and have eliminated the product line management reporting structure. Furthermore, to improve costs and productivity improvements, we would like to announce that Tony Alvaraz has joined us in charge of the newly consolidated engineering and manufacturing organization. Tony, a veteran of the semiconductor industry, has experience in every aspect of operations and manufacturing, research and development, circuit design, test and product engineering, invention and innovation. His extensive career spans the areas of power management, mixed signal, memory, audio, display and interface products. He was working for Cypress semiconductor, Motorola semiconductor products and more recently, Lenus Technology, his roles ranged from positions of senior VP of R & D to Chief Executive Officer. We welcome Tony as a valuable addition to the AATi team and look forward to his insight and leadership in the coming months.

Turning now to our product diversification strategy. Over the course of the year, AATi maintained significant progress in expanding product offering and securing business to diversify our revenues in markets outside of handsets including products of low power computing, HD TVs and large screen LCDs and our emerging line of green power products. Recent accomplishments in the TV and LCD market include a confirmed designing for our high resolution backlight driver in a major TV brand supporting 3 new HD TVs, 42 inch, 47 inch and 55 inch with production projected to commence in the late Q2 of 2011, this success represents our second major opportunity, and customer endorsement of our highly integrated, full featured, high voltage back light driver for our high performance HD TV. Cost effective innovation enabled to buy our proprietary modular BCG technology. A third significant designing of the same high resolution back light driver into a major ODM supplying to three international TV brands. As with any ODM designing, the revenue potential and production schedule of the opportunity depends on the ODM success in securing customers for their design. The first sampling promotion of our new backlight driver for dynamic edge TVs and the successful fabrication of our first back light drivers, dynamic edge and large direct TVs both represent lower cost alternatives to improving energy efficiency in LED TVs. Continued growth in demand for our integrated panel powered IC used in up to 10 inch LCDs including car navigation and inputting systems. Design wins now span Japan, Korea, Taiwan and China. In low power computing, the results of our recent R & D efforts include an expanding line of voltage regulators and ahighly innovated PMUs for 3G & 4G LCE modems used in wireless data cords, some of which required 12 or more regulated voltages per cord. New low noise DC-DC converters for Wi-Fiapplications. Final revisions in our first comlets for our .. and smartphones integrated in battery management, over voltage production and backlighting in a single chip to complement to base band chipset. In green power, the recent accomplishments include the successful design fabrication of our first high voltage DC-DC convertor, for set top box and other AC powered application. Products for which high efficiency is increasingly demanded. Derivatives of this new convertor will also be used in TV applications. The upcoming product launch of our primary micro switcher line of voltage regulators, DC-DC switching regulators, using integrated micro conductors to make voltage regulation easy to use as today’s low efficiency linear regulators. In summary, we believe the initiatives we have taken, better position the company to growth and a return to profitability. We are encouraged by the technical acceptance we have received with our new product offerings and believe we will obtain commercial success with these products in 2011. I will now turn the call over to Brian for a detailed financial review.

Brian McDonald

Thank you Richard and thank you everyone for attending our conference call. I will review our results for the quarter and then briefly discuss our outlook for the fourth quarter of fiscal 2010. Please keep in mind that the financial data mentioned within this call will be on a GAAP basis, unless otherwise noted. Now let me outline the details.

Revenue for Q3 2010 was $25 million compared to $23.1 million in Q2 2010 and $26.1 million in Q3 of 09. Revenue increased by 8% sequentially and decreased 4% from Q3 of 09. For the quarter, sales in Korea were 12 million, Taiwan 7.1 million, China 4.8 million and all others at 1.1 million. Sales in Taiwan increased 18% sequentially primarily due to the growing demand of high end smart phones and computing products. The inventory level remained at a low end of our 2 – 4 month target. Sales in Korea increased to 11% sequentially due to higher shipments to Samsung, partially offset by LG. Sales to Samsung combined with contract manufacturers accounted for 32% of total revenue as compared to 28% last quarter. Sales to LG represented 15% of our total revenues, as compared to 17% last quarter. Sales in China decreased 8% sequentially, primarily in the wireless data cord market. Distributor inventory levels remained at a low end of our 2 – 4 month target; sales to ChiefTech went down sequentially and represented 6% of total revenues. Gross margin for the quarter was 43.5%, this compares to 45.5% in the prior quarter and 51.2% in Q3 of 09. Sequentially gross margin decreased primarily due to unfavorable product mix and some areas (indiscernible).

Then in the quarter, we took aggressive measures to lower expenses in an effort to bring the company back to profitability. Specifically, we lowered our work force in the US by approximately 15%, and reduced other discretionary expenses, as a result of these actions, we incurred non-recurring restructuring expenses of a $1 million there in the quarter, of which $0.5 million was for .. and $0.5 million for stock compensation. R & D spending was 8.7 million or 35% of revenue for the quarter, up 0.8 million from the prior quarter and 1.7 million from Q3 of 09.

Sequential increase was due to higher engineering wafer expense, stock compensation expense and restructuring related expenses. Included in the R & D spending was 0.8 million of stock based compensation expense. SDNA spending was approximately 6.5 million or 26% of revenue for the quarter, up 0.4 million in the prior quarter and increase of 0.2 million from Q3 of 09. The sequential increase was due to higher stock compensation expense, and restructuring related expenses. Included in the SDNA spending was 0.8 million of stock based compensation expense. Litigation expense was $41,000 for the quarter as compared to 0.2 million in the prior quarter and 1 million in Q3 2009.

Stock based compensation expense was 1.8 million for the quarter compared to 1.3 million in the prior quarter and 1.7 million in Q3 09. The sequential increase is primarily due to a one time stock option expense as a result of the restructure. Inclusive of stock compensation expense, the operating lot was 4.4 million for the quarter compared to 3.7 million in the prior quarter and 0.9 million in Q3 2009. Tax expense was a negative 3.1 million as compared to 0.3 million in the last quarter and in Q3 of 09. During the quarter, we settled an IRS examination which resulted in a onetime tax benefit of approximately $3.4 million. Net loss for the quarter was 1.3 million or $0.03 per share, compared to a net loss of 3.9 million or $0.09 per share in the prior quarter and compared to the net loss of 1 million or $0.2 cents per share in Q3 of 09.

Moving on to the balance sheet, cash and equivalents totaled 90.8 million at the end of the quarter, down 3.2 million from the prior quarter primarily due to negative operating cash flow, net accounts receivables was 15.2 million at the end of the quarter up 2.4 million from the prior quarter primarily due to higher sales towards the end of the quarter. DSO for the quarter was 56 days compared to 50 in the prior quarter. Net inventory was at 11.9 million at the end of the quarter, up 2.3 million from the prior quarter. Inventory terms for the quarter were 4.7 as compared to 5.3 last quarter.

Now for the business outlook let me comment on Q4 2010. We expect Q4 revenues to be in the range of 23 – 25 million, GAAP margin between 42 & 44%, R & D expense in the range of 6.5 to 6.7 million exclusive of stock based compensation expense and a stock count of 0.6 million on the R & D line. SDNA expense in the range of 5.2 million to 5.4 million exclusive of stock based compensation expense and a stock count of 0.6 million. Included in the offset outlook is approximately 1.2 million in savings related to the restructuring events we took towards the end of the quarter. Parallel education is expected to run $.2 – .4 million, stock based compensation in total of $1.3 million, tax expense of about 0.1 million as a result of the IRS, we expect our tax expense to be at a lower run rate than it has been historically.

GAAP EPS loss to be between 9 & 7% and Non GAAP EPS loss to be between 6 & 4%. That concludes my remarks and I would now like to open the line for questions. Operator .

Question-and-Answer session

Operator

Thank you, we will now begin the question and answer session. Operator instructions. Our first question comes from the line of Tore Svanberg with Stifel Nicolaus. Please go ahead.

Tore Svanberg - Stifel Nicolaus :

Yes, thank you, a few questions. First of all, could you talk about Q4? I mean, I know you're guiding it to be down sequentially, but what are some of the moving parts? Should we expect the handset business to be down? And then what about some of the other segments, as well?

Brian McDonald

Let me start, what we have seen in the handset business is that the smart phone activity being relatively strong, we did see a little bit of softening recently with some components shortages at Samsung, where they actually are running out of some components for slowing down their bills. We have also seen a little bit of slowing on the tablets side with Samsung, but other than that, we have spent relatively strong. Richard, you want to add?

Richard Williams

Yeah, I think it was the general overall perception of a slowdown in the market but as Brian pointed out, the smart phone portion demand seems to be there and I think all the suppliers are hurrying to release models to try to catch the end of the year wave, you see LG finally has come up with their android based smart phone, so that is starting to get good comments in the market and Samsung is trying to keep up with the demand on their whole galaxy line, clearly the TV portion where we believe that our design will bring in more revenue in Q4, that general structure has slowed down. The opportunity therefore in us that, it gives us a chance to get more designs in and that's what we are going at aggressively, and when that picks up, we will be in a better position than we are now and so that's what we see there. I think in low power computing area, the wireless data cords, fluctuating, the trend is pretty strong right now and clearly the market is not anywhere close to become saturated and because of the 3G & advent of 4G and LCE cords beginning to roll out by the network carrier. So we are looking forward to that. And in the green power sector it is not really showing any real signs of market fluctuations, it is just that we are a very small player and only starting to penetrate the market. So I would say generally we are in a little better position than the market, we have not seen the big slowdown in notebooks that some people did and in computing because our major role there is primarily through Wi-Fi and wireless intercords and those portions relatively stayed strong, so, overall some slowdown but we are encouraged.

Tore Svanberg - Stifel Nicolaus

Very good. And it looks like you got some more design wins in TV, and you talk about three key programs. Is the earliest revenue contribution there Q2 '11, or could you already start to see some contribution during the first half of the year, or I guess in Q1 of next year? ¬2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by

Richard Williams

Q1 is unlikely, given the trend that people are going to turn it around and do ahead of schedule; we might see some proto type bills. We think that the product ramp stating in Q2 and supporting revenue in Q3 and Q4, we have had multiple confirming meetings with the key customer in regards to that program’s timing. That does not seem to be affected by the market conditions, that just simply the schedule for that model and as far as we know, that is still on schedule.

Tore Svanberg - Stifel Nicolaus

Very good. And on that same topic, you talked about Dynamic Edge and large [tile] direct products now sampling. Could you just talk a little bit about how the reception has been there? I mean, are these two architectures and form factors that customers are really eager on designing in? And at what point could we potentially see revenues from those products?

Richard Williams

I would say, the dynamic edge is happening now and we are going through a learning curve, the same way we went last year on the high resolution direct. So, that's definitely a very active area, we are tuning our products and reaching it to get the right performance. With anything that is larger you have a screen eliminated by a small number of LEDs, the matching and the brightness of the area has to be very close the adjacent areas or otherwise the human eye can see it. So we think matching is a key parameter there and that is what we are concentrating on doing as well as the power savings. The --- is just the beginning, we actually see an interest out of even from China on that and that's for people who want to get one step up and performance over the dynamic edge I think the later entrance into the local domain market are positive and very cost sensitive and very interesting jumping into that solution, instead of doing a me too follow-on with dynamic edge. But dynamic edge is clearly the market focus now.

Tore Svanberg - Stifel Nicolaus

Very good, and just two for Brian. Brian, with these restructuring initiatives you've taken, what would be the break-even point for cash flow, going forward?

Brian McDonald

Breakeven is roughly 28.5 million for cash flow purposes.

Tore Svanberg - Stifel Nicolaus

Okay, and do you have an estimate of what the cash burn would be in Q4?

Brian McDonald

At this point, it would be a couple of million dollars is what we are expecting.

Tore Svanberg - Stifel Nicolaus

Very good. Thank you very much, guys.

Brian McDonald

Ok, thank you.

Vernon Essi - Needham &Company

Thank you very much. And I wanted to follow up on Tore's question on the restructuring. And you characterized the OpEx reduction as being 10%, and eyeballing your guide, it looks to be that way on sort of a dollar basis. Should we expect that on a go-forward trend line, Brian, in the next year, or should we see more cost reductions further out in the model?

Brian McDonald

Right now, we are not anticipating any other cost reductions, we will continue to evaluate that on a regular basis, so I think if we take roughly the 10% reductions or about a million to per quarter, you can apply that to our run rate which may be a slight increase in the increasing revenues in the other year. I wouldn’t build in any other cost reductions. The other thing we will focus on is some gross margin improvement numbers to help drive the break even down.

Vernon Essi - Needham & Company : Okay. And in terms of the product diversification strategy, are there any other alternative things you're looking towards in terms of partnerships you may be missing or perhaps trying to develop? I mean, I'm always curious. You've used Chieftec for a while. Are there other distributor partners that might be more effective in certain areas, or do you feel like you've explored sort of all the possibilities with your product lines?

Clearly we are always looking at improving our channels to people who have a larger connections or more synergy product lines to promote our products. And we have seen that in Japan that we have upgraded our DC channels. We have also tried to work more closely with our direct customers in these areas like in the wireless data cord area where we are spending a lot of time architecting how future data cords look like and that is simply a company initiative to develop a product, but actually it is very close to where the trends are going, and finally I would say broader role of distribution in the green power market is really a big thing, we have a small offering there, we are just starting and we believe there are tremendous number of opportunities not only for getting higher margin business but also there is a lot of companies, we are trying to get energy efficiencies in green power portfolio and they don’t have the technology behind them so they make very good partners for us so and we are definitely seeking business partnerships with people in the green power area.

Vernon Essi - Needham & Company

Okay. If I could go back just to the LED lighting market, or television market--.

Richard Williams

General lighting or the TV?

Vernon Essi - Needham & Company

TV. I apologize, LED TV backlighting market. If you look at that, how do you size it? I know there's been a lot of different answers to this question over the last year, but how are you looking at it, and sort of what is your revenue opportunity you think that you're realistically going to penetrate in 2011, and then maybe going forward? Any guidance on that would be appreciated.

Richard Williams

Ok, let me talk about the qualitative aspects, Brian could give a bit more color on the forecast of it. I would say on the qualitative aspect the product offering we have and we continue to expand on in the high resolution direct we are doing very well, we are taking sockets, we are beating the competition, we are beating them on performance. I believe with the procedure set, the efficiency, the electrical performance is very good and the power efficiency is very good. And we have debugged all the major issues there. And that’s right now is where we are at selling. We believe that while that has the highest bond content because it is in a higher price model, it is not highest volume model opportunities for television. At the lower end, in the high voltage edge and more extreme edge, which is having more than one LED screen is a nightmare, we are just a new player and we are starting to come into the market and we believe the architecture that were originally used in the market are not going to survive in their present form, they are going to morph into something else and we are trying to be well positioned when that happens and we can pick up the market share there. While the volume in the area is very good, the ASPs are lower and the bond content total is lower so we are making a moderate investment in there and we are going to pick up the best opportunities but we will bottom fish for the entire market. Where we believed the biggest growth opportunity is, is in the low cost local --- which we call the large tile direct and dynamic edge and that is where we are putting the effort now we think that it is an emerging market and it doesn’t represent huge opportunity for us except for may be in the back half of next year, but we are still working on those, but we believe that we are one of the pioneers in the field and have a chance of contradicting position. So that would mean in the middle of next year, we are going to start to see high resolution direct sales and only at the back half and back end are we going to start to pick up the dynamic edge as an emerging market. So, Brian with that, do you want to comment on the numbers a little bit?

Brian McDonald

Just a little bit on the numbers, originally we talked about sequentially getting some revenue in the fourth quarter of this year, we basically said it would be in the second quarter of next year, we originally targeted a revenue number in the $5 – 10 million range for all of 2011, we probably will be at the lower end of that number based on the latest stat.

Richard Williams

If dynamic edge picks up faster, that can move us up.

Brian McDonald

We are not counting on that.

Richard Williams

But we are not counting on that, but there is definitely activity that could support that.

Vernon Essi - Needham & Company

And just if you could give me, or all of us, color on the -- sort of the dollar content you see between high-res low end and the last -- the newer emerging area, sort of the Edge, sorry, and then the emerging area.

Richard Williams

I think the high resolution still is $5-8 of content and the low end portion could be a dollar and half and I would say the dynamic edge is probably would be $2.5- 3.5 kind of. Both are higher volumes.

Vernon Essi - Needham & Company

Okay. All right, thank you.

Brian McDonald

Thank you.

Operator

Operator instructions. Our next question comes from the line for Patrick Wang - Wedbush Securities . Please go ahead.

Patrick Wang - Wedbush Securities

Hey, guys. Hey, so I want to first start off and talk about gross margin. Maybe I missed it, but what should we think about in terms of the moving parts or margins in Q4?

Brian McDonald

What we saw in Q3 is we had a price reduction that went into effect in the last month of the quarter of September, so that's what our largest customer and that affected the overall margin back. Now next quarter we will get a whole effect of that margin in the 4th quarter and that's why I brought in a range on the gross margin from 42 – 44%. We are also expecting another price reduction around with LG during the quarter that also put a margin pressure on things, same time we are pushing for new products and we have some internal cost initiatives such as goal and – programs but they are not going to have a significant effect in the quarter. We are at a little bit of pressure, there will be new product introductions, but right now we are forecasting it to be a little bit flat.

Richard Williams

I think the other way to say that is if we are rolling out those cost reductions, we think we can achieve a good number of those improvements in the 4th quarter in terms of the technical accomplishments, which means for example if we do a test time reduction, then by Q1, we will start to see savings. If something in the nation we got to go back and get customer approval that slows down our ability to benefit from those cost reductions. So technologically we will be positioned to do further cost reductions ad to achieve an improved margin, we need to get those into the design side and catch the next wave of model. It is very unlikely that our customers would approve or we would even seek to go back in and try to change the production flow on a product that we are already shipping in a handset that is already in mass production. S you know in handset business, when you are done with the model, a lot of engineering is gone and they are into the next thing. We would program goal on a new model based initiative rather than a retro fit initiative.

Patrick Wang - Wedbush Securities

Okay. No, that's helpful. I know that you guys had negotiations with Samsung last quarter, and it sounds like that came in at the end of the quarter. And I guess I just heard you say that LG is coming in here in the fourth quarter, and then you've got the cost -- you've got a better cost structure coming in place over the course of the quarter. Is that -- by the time we get to the first or second quarter next year that the price renegotiations are going to be able to be completely offset? Is that fair?

Brian McDonald

That is the plan and disappoint.

Richard Williams

Let me say this way, we have restructured the company organization and brought in new talents including tony alvarez, we talked about it in the call, I believe the team we have in place has an increased focus and should I say enhanced capability to go after isolating the elements of cost and doing everything possible to reduce that and impressed with the team we have built and I really look forward to the progress we are going to make next year. That said, in the end the real big picture is the growth in low power computing and television and green power is more important in moving the margins back up into a sustainable high margin profile rather than having a fight on a semiannual basis because every time we turn around, we have to fight another cost reduction which is the nature of the dynamics of the handset model, so it think short term, we are doing the right thing in place and long term, the revenue outside of handset is the driver and its starring to happen now, it is a slow process but it is definitely happening.

Patrick Wang - Wedbush Securities

I understand. And just on that note, can you give us a percentage of your sales that were [tied to] modular VCD in Q3?

Brian McDonald

Q3 was 34%

Patrick Wang - Wedbush Securities

Okay, got you. So that business is actually ramping up quite well for you guys?

Brian McDonald

That business is ramping up.

Patrick Wang - Wedbush Securities

Okay. And then, I also want to just get a sense of the TV design-in that you talked about on the 42, 47 and 55-inch TVs. Is that different than some of that traction and momentum that you had expected here at the end of Q4?

Richard Williams

It’s completely different. It’s a different country and a different customer and a different brand. The one that we have actually designed in, the first design in is still pending, we still have it, we still have our first purchase order, we are still waiting for the product ramp, the one that we expected in Q4 is simply offset by the slowdown in the market, they have a lot of inventory they have to work off before they can start that ramp, but the new one is a completely different in the market, completely different supply chain, completely different glass maker, so it is entirely new business.

Patrick Wang - Wedbush Securities

I see. Got you. Okay.

Richard Williams

And then the ODM i talked about, which is the 3rd design win, has potentially 3 end customers so we a have design in confirmed and debugged and ready for production in the ODM but now they have to go sell their TV to one of their 3 major customers, and that's what they are doing. So that's kind of a, I would call a reference design, but it’s an ODM based business they have to sell the complete TV for us to be making business. But we believe that they have a very successful track record in the industry, one of the largest as ODMs and so if we are going to arrive at any ODM, there is a light one to be and we think they will prevail but we can’t digress to what models or what volume into, they secure their customers. So 3 completely different types of business, 2 companies direct with 2 different brands and a 3rd one which was an ODM which would be a third brand which would be neither of the first two.

Patrick Wang - Wedbush Securities

Okay, I understand. And when you talk about the likelihood of something closer to $5 million in revenues in 2011, what kind of assumptions are you making to get there?

Richard Williams

I think we are taking the position of the high resolution direct business, we are not factoring in significant revenue from the dynamic edge even though that is possible, and I think there is also some portion of the revenue in the panel power portion and the panel power is completely different because that relates to infotainment and car screens, and there again, the customer base is entirely different, the business cycle, the ordering cycle is not high due to the consumer cycle so much. It’s more tied to new model cars, new releases in the automated. That should help remove some of the fluctuations in the year on the consumer aspect of the large screen LCD display business.

Patrick Wang - Wedbush Securities

Got you. Okay. And then the last one here I guess is two parts. I mean, in terms of coverage for your guidance here, I'm just wondering what you had at the beginning of the quarter, where you're at today, and then also I guess your sense of how the handset market is, I guess, (inaudible).

Brian McDonald

So on the coverage side of it, we started, we began the quarter at 45% coverage, of the midpoint of the range, and that is as of today we are roughly 62% coverage. That's a b-bond number that does not include shipments for LG that would add a few percent to the coverage.

Patrick Wang - Wedbush Securities

I see. Okay.

Brian McDonald

We present with the LG number in there.

Patrick Wang - Wedbush Securities

Got it.

Brian McDonald

And what was at the back of the question

Patrick Wang - Wedbush Securities

Oh, maybe just a quick response to how you guys feel about the handset market today.

Brian McDonald

Handset market we felt very good business for us, it is doing particularly well in Taiwan, the smart phone market has been relatively strong. We have a few component shortage issues at Samsung, a few constraints with the demand in the fourth quarter but we are keeping a close eye on that.

Richard Williams

But we are confident that Samsung is working on their supply chain issues and will engage in a catch up in Q1. So Samsung we believe their galaxy line is well received so there is probably more demand and they can ship right there.

Patrick Wang - Wedbush Securities

Got it. Perfect. Thanks so much, guys.

Operator

Next question is form the line of Gus Richard - Piper Jaffray. Please go ahead.

Gus Richard - Piper Jaffray : Yes, thanks for taking my question. Basically you guys have a down sequential Q4, and if not, a down sequential Q1. Guidance is a little bit stronger in the fourth quarter than what is normal. Can you talk about what the difference is this year? Just is it strength in cell phones?

Brian McDonald

A lot of it again is a strength in the handset side of things, we are actually seeing a growth of Samsung shipments quarter on quarter and not a typical drop as you would normally see with LG. and LG is actually now as Richard mentioned earlier have got a smartphone market that is beginning to look to get into some acceptance in the market place, and we have got new customer in Taiwan which is also helping that and it is also the Chinese new year effect this year where the timing of the Chinese new year could actually drive some shipments in the fourth quarter

Richard Williams

And the other way to say is the wind age effect of the iPhones, the demand for smart phones has increased because of the success of the perception of the iPhone represents what the market really wants and the advent of androids enabled a lot of companies to be able to do that and because of that they are fully featured because of camera flash, faster battery charger, more power saving mechanism, in fact in japan, we are even selling products that modulates the power on the RF power amplifier and improve efficiency, and all those mean a higher bond content. So when we shipped an ultra-low cost, a ULC phone into an smart phone, we don’t need to have the same units shipped to get a significantly higher revenue dollars.so I think it is that mixed chain on the market itself that is not letting us optimistic about Q4 as a normal cycle, especially since lot of people now want smart phones and don’t want to buy the ULCs.

Gus Richard - Piper Jaffray

And just sort of as a follow-on, roughly of your cell phone revenue, just a rough guess, what percentage is Android phones at this point?

Richard Williams

Scrap the numbers and separate the numbers. They don’t necessarily report which product goes into which model. We try to track that but we do have to do some analysis to figure that out.

Gus Richard - Piper Jaffray

Okay. And then, just a--.

Richard Williams

Gus Richard - Piper Jaffray

And just the last one from me, on the gross margins, Brian, how much of the impact in the quarter was mix, and how much of it was pricing?

Brian McDonald

The majority of it I would say was with the pricing side. In September month with a big customer in Korea and that had a very significant impact.

Gus Richard - Piper Jaffray

Okay, and then last one from me, I swear, Taiwan, what was the percentage of revenues this quarter?

Brian McDonald

Taiwan’s % revenue was 28% and that was up from 26% in the prior quarter and that was really helped by a strong contribution from the smart phone manufacturer in Taiwan

Richard Williams

Tjis is continuing to help drive our customer concentration diversifying into more customers and being that's depended on Korea in total.

Brian McDonald

Total sales in Korea is 12 million as stated area, that number was running at 60 plus last year, almost to 70%.

Richard Williams

Our goal is to grow the sales in Korea but drop the percentage. Concentration so we seem to working our way toward that goal.

Gus Richard - Piper Jaffray

Okay, perfect. Thanks so much.

Brian McDonald

Thank you.

Jason Schmidt - Craig-Hallum

Hey, guys. Most of my questions have been answered, but just really quick, Brian, can you give us the revenue breakdown by product segment?

Brian McDonald

Revenue breakdown by product segment. Yes, hold on. So it is battery management, was $2 million, display and lighting was $14.6 million, interface and power management was $3.5, voltage reg and DC conversion was $4.9, so a total of 25.

Jason Schmidt - Craig-Hallum

All right, that's it for me. Thank you, guys. ¬2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by

Brian McDonald

Thank you.

Richard Williams

Thank you.

Patrick Wang - Wedbush Securities

Yes. Hey, just two quick things here, Broadcom as a percentage of sales, and then the depreciation in Q3.

Brian McDonald

Depreciation in Q3 was about 500K and the Broadcom reference design business was approximately 5% of sales and that was due to some notebook drop off in the third quarter.

Patrick Wang - Wedbush Securities

Got it. Okay, thanks so much.

Operator

That concludes the Q & A portion of the call and now I would like to turn the call back to management for any closing remarks.

Brian McDonald

Thank you for attending the call

Richard Williams

Thank you

Operator

And ladies and gentleman that concludes the Advanced analogic technology 3rd quarter 2010 earnings conference call, this conference will be available for replay from 3.30 pm to day till November 1st 2010 midnight, Pacific standard time, you may press the replay system any time by dialing 1 800 406 7325 and entering the access code of 4374771. Thank you for your participation, you may now disconnect.

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