Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Integrated Device Technology, Inc. (NASDAQ:IDTI)

Q1 2015 Results Earnings Conference Call

July 28, 2014, 04:30 PM ET

Executives

Brian White - VP and CFO

Gregory Waters - President and CEO

Analysts

JoAnne Feeney - ABR Investment Strategy

Anthony Stoss - Craig-Hallum Capital

Harsh Kumar - Stephens Inc.

Charles Anderson - Dougherty & Company

Blayne Curtis - Barclays Capital

Betsy Van Hees - Wedbush Securities Inc.

Christopher Longiaru - Sidoti & Comp

Operator

Good day, and welcome to the Integrated Device Technology First Quarter Fiscal Year 2015 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Brian White, CFO. Mr. White?

Brian White

Thank you and welcome to our fiscal first quarter 2015 financial results conference call. I am Brian White, IDT's Chief Financial Officer, and presenting with me on the call today is Greg Waters, our CEO.

Our call today will include remarks about future expectations, plans and prospects for IDT, which constitute forward-looking statements for purposes of the Safe Harbor provisions under applicable Federal Securities laws. Forward-looking statements in this call will include statements regarding demand for company products, anticipated trends in company sales, expenses and profits, and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations.

The company urges investors to review in detail the risks and uncertainties in the company's SEC filings, including but not limited to, the annual report on Form 10-K for the fiscal year-ended March 30, 2014, and periodic reports filed from time-to-time with the SEC. All forward-looking statements are made as of the date of this call and IDT disclaims any duty to update such statements.

In addition, pursuant to Regulation G, any non-GAAP financial measures referenced during today's conference call can be found in our press release and posted on our website at idt.com, including a complete reconciliation to the most directly comparable GAAP measures. All financial references will be non-GAAP on a continuing operations basis, unless otherwise indicated.

Also we have made selected financial information available on webcast slides, which can be found in the Investor Relations section of our website.

Now I'll turn the call over to Greg, who will provide some first quarter highlights and then I'll return to give you more specifics on our results for the quarter. After that, I'll elaborate on our outlook for the September quarter. Greg?

Gregory Waters

Thanks Brian and welcome to everybody in today's call. I'll begin with some highlights from the quarter and will hand it back to Brian for a detailed financial commentary.

First, I'm pleased to report that we delivered a very strong quarter and then our outlook continues to improve going forward. We exceeded our guidance in both top and bottom line with revenue totaling $126.3 million.

Our non-GAAP operating margin came in at 21.7% and non-GAAP EPS for the quarter was $0.17. We are proud of these results and expect continued improvement in the quarters ahead.

Our revenue results and outlook are being driven by broad-based strength across all three of our target market segments, which are a reminder communications infrastructure, high performance computing and advanced power management which includes our wireless charging products.

In the communications infrastructure end market, revenue increased by 5% quarter-on-quarter and comprised approximately 64% of total sales just about the same as the 65% of total sales in the prior quarter. This end market includes our RapidIO switches, advanced timing products, and our newer RF products for wireless base stations, all of which contributed to our healthy sequential growth.

Our communications infrastructure customer buying patterns remain robust and we are increasing traction in our focused product areas of RF and advanced timing.

Also as we announced earlier this month, we are extending our leadership position in RapidIO switches through a new collaboration with eSilicon of San Jose, which will accelerate and expand future sRIO generations.

This now allows us to -- enables a new level of unique customer requirements to be incorporated into future sRIO based designs. We expect to increase our [SAM] (ph) opportunity by taking share from traditional ASIC programs and also to bring sRIO technology to non traditional applications areas.

Our timing business which is largely driven by communications infrastructure is growing nicely. We are benefiting now from multiple new product family ramps into production, such as our third generation UFT, our new 1.5 Volt PCI Express and the recently introduced VersaClock 5.

These products are being adapted rapidly in application such as enterprise routers, wireless infrastructure, network access points and more, essentially anywhere where the Internet is now being used to carry real time services.

Turning to the high performance computing end market, we are now clearly capturing share in the DDR3 to DDR4 memory transition. We're pleased to announce recently that we passed the one million unit market for DDR4 shipments including LRDIMM components.

Revenue in high performance computing increased by 9% over last quarter and represented 25% of total sales. We believe that we are now clearly the early market leader in DDR4 and have shipped over $6 million of revenue in this important product category already.

In our consumer end market, revenue increased by 11% over the prior quarter and represented again about 11% of our first fiscal quarter revenue. Our wireless power business is strong and growing and we're gaining significant traction with leading products, customers and design wins.

As one important example we announced today that LG Electronics is shipping an advanced IDT wireless receiver in their very successful new G3 smartphone. This is the first time a major company has embedded wireless charging into a Flagship smartphone and represents a significant development for IDT.

As an industry first, we work closely with LG to integrate the wireless charging subsystem on to the phone's motherboard, rather than using a charging case or accessory.

This design win is already increasing consumer awareness of wireless charging technology and should accelerate adoption across the ecosystem.

On the product front we are also accelerating the roll-out of key new products and have just announced our next generation wireless charging receiver for very small form factors, which is especially optimized for wearable applications.

This receiver's innovative architecture cuts size and passive component requirements to less than half of our previous generations and is fully compliant with the wireless power consortium's WPC 1.1 standard.

And lastly while we don't break out wireless charging design positions with specific customers, we are capturing design wins that we believe will clearly demonstrate our market leadership over the next several quarters. We are optimistic about the potential of wireless charging, and are enjoying an accelerating design win trend.

I'd like to now move to our Q2 guidance. For the second quarter of fiscal 2015 we expect revenue to come in between $130 million and $136 million. We expect sales from our consumer-end market to increase by over 40%.We expect our computing end market to be up approximately 10% and our communications end market, which is by far our largest segment to be up slightly.

In summary, we've executed on our growth strategy in the first quarter and most important are gaining share in all three of our target market segments. While much work remains to be done on our part, we believe that we're in an excellent position to continue to increase the value of our business.

As we've now consistently met or exceeded our business model for three quarters, we are now increasing our target operating margin model from 20% to 25%. We believe that we have an excellent chance of achieving this by or before the end of the next fiscal year.

I'll now turn it back over to Brian for further detail on our company financials.

Brian White

Thanks, Greg. As Greg mentioned earlier, revenue for fiscal Q1 was $126.3 million, up 6.5% sequentially and above the mid-point of the guidance range we provided on last quarter's call. Bookings trends remained strong during the first fiscal quarter and the book-to-bill ratio was once again well above one.

Fiscal Q1 non-GAAP gross margin of 61.9% was above the mid-point of our guidance range and higher than our prior quarter did improve product mix and inventory management. Non-GAAP operating expense in Q1 was $50.7 million or about 40% of revenue. R&D expense was $28.7 million and SG&A was $22.1 million.

Q1 operating expense was 800-K favorable to the mid-point of our prior guidance range, driven by continued management of our operating model.

Non-GAAP operating margin for the June quarter was 21.7% up from approximately 19% in the prior quarter and 9% in the year ago period. Q1 net interest and other income was approximately $400,000.

Effective for the first quarter of fiscal 2015, we are using a projected long term non-GAAP tax rate of 4%. When projecting this long term rate, we evaluated our current long-term projections, current tax structure and other factors such as our existing tax positions in various jurisdictions, in key legislations and major jurisdictions where we operate.

We intend to revaluate this long term rate only on an annual basis. For Q1 we reported non-GAAP net income of $26.7 million or $0.17 per diluted share.

Now let me summarize our results on a GAAP basis. We reported GAAP net income from continuing operations of approximately $17.1 million, or $0.11 per diluted share. The difference between our GAAP and non-GAAP results nets out to about $9.5 million, or $0.06 per diluted share.

Fiscal first quarter GAAP results include $5.4 million in acquisition and restructuring-related charges, $5 million in stock-based compensation and a $900,000 benefit from related tax effects.

Net income from discontinued operations was $4.7 million, which includes gain on sale of a portion of our high speed data converter business.

Further information including a detailed reconciliation of GAAP to non-GAAP results is provided in the financial tables of today's press release and can also be found on our website at idt.com.

Now I'll turn to our balance sheet. Cash and investments totaled approximately $464 million at the end of the June quarter. Cash from operations and free cash flow continue to be strong. We generated approximately $24 million in cash from operations while utilizing approximately $5 million for capital expenditures.

Cash proceeds related to the high speed data converter transaction provided over $15 million. We received about $6 million from employee stock transactions and spent approximately $31 million to repurchase about $2.4 million shares.

Net inventory was approximately $46 million down almost $4 million from the prior quarter. Days of inventory declined by 12 days to approximately 86 days. Our trade accounts receivable increased by $3 million and totaled $72 million at quarter end. DSO declined from 53 days to 52 days.

Now let me expand on our forecast for the September quarter. We entered the second quarter of fiscal 2015 with a strong backlog position. The direct turn still required to achieve our revenue guidance is favorable, relative to historical trends and bookings have been robust in the first month of the quarter.

Greg noted earlier that we currently project revenue for our fiscal second quarter to be between $130 million and $136 million, which would represent our fourth consecutive quarter of year-over-year revenue growth.

We project gross margin to be 61.2% plus or minus 50 basis points on a non-GAAP basis. We project non-GAAP operating expenses will be approximately $52 million plus or minus $1 million. R&D is expected to be approximately $29 million and SG&A spending approximately $23 million. Non-GAAP operating margin is estimated to be approximately 22% at the mid-point of our guidance range.

We currently anticipate interest and other income will be about $500,000 and effective tax rate for the quarter will be 4%. We estimate Q2 share count will be about 157 million shares on a fully diluted basis before the impact of share repurchases.

Based on our revenue guidance range, we project non-GAAP EPS for the September quarter to be between $0.17 and $0.19 per share.

On the balance sheet we expect cash flow from operations to be approximately $30 million. Cash and short term investment balances are expected to be approximately $495 million at the end of September excluding the impact of share repurchases.

Our combination of revenue growth and improving operational execution is producing compelling profitability, cash flows and shareholder returns. We feel good about what we have accomplished so far but believe there is opportunity for additional leverage everyday in our new operating margin target model of 25%.

We're up to a strong start in fiscal 2015 and intend to maintain a disciplined approach to our growth strategy with a focus on continuing to drive value for the company's stakeholders.

With that summary, I'll turn the call over to the operator for the Q&A portion of the call.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question today comes from JoAnne Feeney with ABR Investment Strategy

JoAnne Feeney - ABR Investment Strategy

Hi. Congrats on nice execution. I have a question about the consumer side. I think the guidance for the quarter was for it to be up 24%. It sounds like it came in at somewhat less than half of that. Can you give us some sense of what's going on in the consumer segment?

Brian White

JoAnne, coming into the quarter we had expected growth in the gaming segment. We had talked about that last quarter. That growth ended up getting pushed into the September quarter instead. So, we're seeing that as part of that significant growth in the current quarter.

JoAnne Feeney - ABR Investment Strategy

Okay. That's helpful. And then so if we think about the current quarter, can you give us sort of a breakdown of how much of that is coming from wireless charging versus gaming? And then how much of -- if any, of the wireless charging ramp involves new wireless charging chips, or still the legacy products?

Gregory Waters

Yeah, JoAnne this is Greg, thanks for the questions on that. We won't break it down to that level of detail yet. What we did say already is that the wireless charging revenue, while it's been quite small and is quite small for us today is starting to accelerate.

JoAnne Feeney - ABR Investment Strategy

Okay. Can you give us a sense of whether -- or I guess you talked about the design wins improving though, perhaps you could give us some more detail on those design wins, and how much of that is the new designs versus the legacy?

Gregory Waters

Yeah, I'd see, yeah the bulk of it is new design, the great bulk if it, of anything that we have for growth is coming from new designs on that.

I think the most significant is what we announced just before the call is one of the announcements we're quite proud of, is that it's our technology in the LG G3 series of smartphones which I think most of you on the call will recognize that phone but that is one of the hottest selling's, most interesting new smartphones that's been announced to the industry in recent year. So, that is part of that growth.

JoAnne Feeney - ABR Investment Strategy

Okay. Great, thanks. I'll jump back in the queue. Thank you.

Gregory Waters

Thanks JoAnne.

Operator

And next we'll hear from Anthony Stoss with Craig-Hallum.

Anthony Stoss - Craig-Hallum Capital

Hey, guys, nice job. Greg, on the last quarterly conference call, you talked about a wearable win. Could you update on that? Do you still expect that to launch this year? And then I guess to Joanne's question, maybe a little bit more color on design activity? And then lastly, love to hear your view on your RF gains on the LTE base station business. Thanks.

Brian White

Yeah, will do Tony, thanks a lot. The first thing with respect to the wearable wins, not really -- no color to add beyond the fact that we have made the statement that we -- earlier in the year that we'd exit the year with firm and strong design wins in smartphones and accessories and in wearables and we believe that's still the case. That's really no more color beyond that.

The second area is -- well actually, the third area is the wins we're making in the RF LTE space, yeah, we had as you know introduced a new series of RF products going back probably about five, six quarters ago. Those have now ramped in production and continue to ramp into production.

And I would say that initial blast of products that we introduced to the market by the end of last calendar year are now designed into the majority of the Tier 1 infrastructure manufactures out there, but they're ramping production at different times on that.

So, you're seeing a continued pick-up in that business and it's a small business for us today, but rapidly growing. So, we introduced roughly about eight products in that area last year and little bit towards the year before. We'll introduce at least 12 more leadership RF products into the market this year.

And your second question, can you repeat that?

Anthony Stoss - Craig-Hallum Capital

Just on the design activity on the wireless charging front. And also, Intra-Quarter Intel announced that they'd like to move towards integrating wireless charging in all mother boards by the second half of 2015. Curious to hear your thoughts on that. Thanks.

Gregory Waters

Well, I think that's a question for Intel so we won't comment on that directly. It is on public record that we are working very closely with Intel. In fact every major ecosystem provider for wireless charging right now in Intel's case A4WP is well which we're members in the Board.

So, you could imagine we're quite, we're working closely with all the major players in the wireless charging area. And I think with respect to additional design win activity, here's what – if you take look at -- it might be useful at this point. So I think we make it a lot of wireless charging questions just to take a brief minute and capture what we said in January about wireless charging and what we said now.

So, if you allow me just a minute, what we said at the beginning of the year is that the wireless charging market will become very large in time, that we had a meaningful competitive advantage and we will capture more than our fair share.

And lastly that the precise timing of when that market hit its growth inflection point, was going to be very hard to call just the usual nuance of new technology and a new industry and what we're saying now is the same thing.

I would say that we are more confident today than we were in January that the market will become large and more confident today than we were in January that we're going to be one of the early strong movers in that market.

Anthony Stoss - Craig-Hallum Capital

Thanks Greg.

Gregory Waters

Yeah, thanks Tony.

Operator

And next from Stephens, we'll hear from Harsh Kumar.

Harsh Kumar - Stephens Inc.

Hey, guys. First of all, congratulations. These are good numbers, and congratulations on being able to guide your op margins up. I had a couple of questions. First one is on China. We heard from a large company, Xilinx, basically talking about somewhat of a pause in TDLT. I'm curious, if you haven't addressed it already on the call, what are you guys seeing? Are you seeing some kind of a slowdown or a pause, or is it business as usual for you right now?

Gregory Waters

Yeah, really no comment on other people's announcements but let me just tell you what we're seeing, is that we see our business for LTE infrastructure on a global basis including China remaining very robust.

So there is obviously, was in the industry some concerns about China mobile spending fall off in the second half of the year, this is a pretty -- well socialized topic in all of our circles and we're not seeing that right now.

And as we've mentioned before, our visibility into these types of markets tend to be current quarter plus one or perhaps a little bit less than that.

We certainly see the rate of growth in that market slowing down. The market was growing so fast, I don't think any of us thought that that, that would continue to grow at the same rate. But it is steady and robust and we have excellent backlog visibility into the next quarter on this.

Harsh Kumar - Stephens Inc.

Great. Thank you for that color. And then on wireless charging, I have an interesting question. If you win a receiver let's say design win in some kind of a device, is it very typical to expect you to win the consummate chip as well, or is it possible for that OEM to go to somebody else? And I've got one or two more.

Gregory Waters

Yeah, I think if you just -- I'm just going to answer it at a technology level. It's certainly possible and that's why we have industry standards to split the two on that. You'll see different customers adopting different approaches for this sort of thing Harsh.

They're really critical and I would say hard to do technology - if you are to break it into the twos is the receivers, I mean you've got to just, - its just life RF, is that it's harder to build the high quality receiver than it is a high quality transmitter to some degree.

But I think some customers would like to tie the two of them together. Others technically could take a different approach, it just depends.

Harsh Kumar - Stephens Inc.

Got it. And would you care to speculate on what your share -- I know it's a two man race right now in wireless charging, would you care to speculate what your share maybe was last year? And how you see it, let's say, 18 to 24 months out?

Gregory Waters

Yeah, sure. I can't quote you precise numbers Harsh, but I think there's really us and one competitor last year and the other competitor had the overwhelming market share.

We were really a challenger in this market last year, not the incumbent. I feel confident that that may change particularly heading into next year and I think talk is cheap, we'll prove that the good old fashion way.

Harsh Kumar - Stephens Inc.

That's fair. And then last one from me. Similar type question. Competitively, I know you talked a little about DDR4 and you guys are doing really well. Maybe talk about competitively, is it just the quality of the new products that is allowing you to be so successful? Or is there something else with respect to maybe qualifications by some of your competitors that are helping you out as well?

Gregory Waters

No, I think it is definitely not getting a benefit from other competitors on that. I think the IDT team is just executing very well. These type of devices and memory interface, they intellectually seem pretty simple. They're actually quite hard. And every manufacturer has their own nuance of what they want to design into the part, different electrical characteristics.

So while it looks like a homogenous market it's really not. And that's one of the reasons why breaking into this market, if you're not into it already, it's just very, very hard.

So, I would give it to the IDT team of just flat-out execution is one and getting there earlier. But the second thing is as you well know Harsh, we haven't been in the middle of the LRDIMM game for a long time if ever.

So what you're also seeing is that not only are we gaining share on the transition of DDR3 to DDR4, we're not shipping LRDIMMs, which we weren't in the previous generation.

Harsh Kumar - Stephens Inc.

Got it. Thanks, thanks and congratulations guys again. I'll get back in line.

Gregory Waters

Thank you, Harsh.

Operator

Our next question comes from Charlie Anderson with Dougherty & Company.

Charles Anderson - Dougherty & Company

Great. Thanks for taking my questions, and my congrats as well. You're certainly bucking the trend here in semis. I wanted to ask about the long-term margin guidance. Are you assuming that you'll have the same gross margin and OpEx profile when we get there, or should I think about some changes beneath that?

Gregory Waters

Yeah, let me start on this and I'll turn over to Brian if he's got any additional color he wants to add on this Charlie. We did make a meaningful move today and we are operating - our target operating models in 20% OI to 25%.

You'll also know we didn't wrap a specific revenue guide around that. The reason we didn't do that at this call is not because we don't know what it is, it's because we've got more than one way to get there.

So for instance, if you take the comps infrastructure and high performance compute businesses, those two businesses which are almost 90% of our revenue, they don't have identical gross margins. But they are pretty similar by definition to the company average since the majority of our revenue numbers. Those businesses are growing quite well and we expect them to continue to grow well.

So that's one path towards higher OpEx margin. And then you got the whole advanced, the power, wireless charging, [PMIC] (ph) area which is pretty small part of our business and has the – and again by definition since it is small it's going to grow lot faster.

Now the margins that we have – we never exclusively see what the margins are in that business, but we've encouraged people to model that sector of our business to be consistent with best-in-class RF businesses, handset RF businesses. It's in that range. And that always see depending how much growth you want to dial into that sector, you get to 25% OI more than one way which we like.

But our gross margin thinking hasn't changed versus what we've said in the past. Nor has our OpEx thinking changed. We've signaled that we're going to bring OpEx up to, say $52 million and some of that might be subject to things like higher bonus accruals if we go faster in the last.

But our overall thinking is still very consistent is that we think we can grow this business for quite a long time without any meaningful necessary increase either OpEx or CapEx.

Charles Anderson - Dougherty & Company

Great. Thank you for the color on that. And then maybe it's getting a little bit ignored here, it's the big piece of your business, the core timing business. I wonder if you could comment on how things are going there. And I know predating the [upgrade] (ph), you guys had given back maybe a little bit of market share. Sort of what your ambitions are in terms of where you are today versus where you could be.

Gregory Waters

I think Charlie, I will. Let me just give you a very honest statement about our timing business. I spent a lot of time with the people in timing business when I was new to the job. I've met all of them many times.

We've looked at that business and I think timing for IDT is not only a great business but I'm convinced we can grow this business. I think we can grow for a very, very long time.

Now in all candor I think we took our eye-off of that business. Right, I think we took at a business level, this is not an R&D issue. But we simply didn't have the intensity, the focus and if you will the killer instinct about what to do with that business. I think we dig it back a little bit of share last year.

It's not a product or an R&D issue. It is purely the way we've been running and focusing the place. So what we've done is we have put a very, very significantly renewed focus on timing. We have taken what was a single business unit responsibility to head other things drawn into it to putting it right, putting business unit executives directly in-charge and only measure against the timing business.

In fact, we think that there is one flavor of timings, we now have two full business unit executives, they get up everyday and only worry about their timing business.

So I think you do see a shift. I think this is the first quarter we've really seen us starting to get back the entitlement we should have. And I think you have seen nothing yet. I think the new products from timing are going to continue to accelerate and I think particularly as you look into next year, this business is going to be a nice growth engine for us.

Charles Anderson - Dougherty & Company

Great. And then just a real quick last one from me. In terms of the design wins you're getting, I wonder just what you're seeing in terms of OEMs willing to include the transmitter side in the box or make it an accessory for people.

Gregory Waters

You're talking about wireless charging again, obviously.

Charles Anderson - Dougherty & Company

Yeah.

Gregory Waters

I think Charlie I will be honest with you. I think the market is on the very early innings of moving from the pure early adapter look experiment into a wireless charging gadget in the market to the beginning of big brand names moving out.

So, [indiscernible] I think it remains to be the same how that's going to go. I think the LG announcement – I don't know if people capture the importance of that. That wireless charging device is glued on to the motherboard meaning it ships on that whether people want wireless charging or not, which is another statement of the fact that this is now starting moving on the mainstream.

So I really think a lot of the industry is going to watch this quarter look at what some of the competitor movements are. And I think are going to get valuate their product plans accordingly late this calendar year and into next.

For instance, if you look fast forward to Mobile World Congress next year, it will be an interesting time to ask that question again.

Charles Anderson - Dougherty & Company

Thank you so much.

Gregory Waters

Thanks Charlie.

Operator

And next from Barclays we'll hear from Blayne Curtis.

Blayne Curtis - Barclays Capital

Good afternoon, guys. Nice results. I was wondering if you could talk about, in advanced power, just how much of that, if you could quantify how much of the push-out in gaming was? Or maybe another way to ask it is just what drove the strength in June? And is there any way -- the gaming business has trended along at a pretty regular clip. Are you seeing any different trends there that would cause a spike up?

Brian White

Hey Blayne, this is Brian. You know the gaming business is relatively small piece of revenue at this point for IDT. So although we had talked about growth in consumer in the June quarter associated with the pick-up in gaming, we are really not talking about large numbers.

And as you mentioned earlier on the call that expected growth pushed into the September quarter and is a piece of that consumer growth in September.

But it's actually relatively a small piece of that large growth to consumer. It's really coming more from other areas such as power and broad based consumer strength beyond gaming.

Gregory Waters

Yeah Blayne, it's Greg. If I can jump in on that, I completely echo Brian's comments. But here is something that we're difficult to capture from your side of the desk [indiscernible].

The gaming business as you know used to be a pretty big deal here and used to be a pretty big deal for timing. Now over time what's happened is that a lot of those game manufacturers integrated those costs. In other words, IDT or anybody else didn't lose share on those. They are whole lot less clocks in those systems than they used to be.

If I look at gaming today, yet it's not strategic. We like that business. It's a decent little business. But it's small and I believe it's going to remain small.

Blayne Curtis - Barclays Capital

Okay. And then I guess the second part of that question would be, how do you think about seasonality in advanced power, I keep calling it consumer, into December? Clearly, handset builds have different cadences than gaming. Gaming is a September strength, handsets sometimes fall into December. Just any thoughts there would be helpful.

Gregory Waters

Yeah, great question. I would say that this will be the first year we actually lived through that in this company Blayne. So it is a very legitimate for a question. And I guess we'll find together but as best I can call it right now, I don't think that, this consumer business as you aptly called out, its still consumer just different than it used to be in the past.

That portion of our business will look more like the traditional handset business I believe.

Blayne Curtis - Barclays Capital

Okay. And just last question on the server business. If you could talk about quite a good result in June, and then a 10% guide. How big is LRDIMM for you now? Is there any way to quantify that? Just thoughts about builds of modules ahead of Grantley. Thanks.

Gregory Waters

Sure. Good question. We don't break out LRDIMM and that frankly will be really useful to our competitors and we just don't release their granularity. We're just very glad that we're in it now because we left a lot of money in the table last two years, by virtue of not being an LRDIMM.

We've got it now. We are shipping it to everybody. There is no reason we can't take more than our per share rate in that particular area. What I'd say to kind of part B of your question is how much of this is like prebuild to module versus regular production. That also remains to be seen. But if you recall on the last round of LRDIMM that we largely set out, I think the demand on the attach rate that caught everybody by surprise then just driven by the demand for high performance memory.

So, good question, I'm not sure we exactly know the answer but I think that the early shipments that we see in DDR4 are likely to continue at least at a steady state and then we'll inflect up once Intel decides to push forward to next generation.

Blayne Curtis - Barclays Capital

Thanks Greg.

Gregory Waters

Thanks Blayne.

Operator

Next from Wedbush Securities, we'll hear from Betsy Van Hees.

Betsy Van Hees - Wedbush Securities Inc.

Good afternoon. And congratulations on the design win at LG. I was wondering if you could give us a little bit of color of how long it actually took you guys to get that into or for them to get that into production. Because it said you guys worked very closely together. That's the first part of my question.

Second, you did mention that the wireless chip will be shipping regardless whether someone wants to use it or not. Because it looks like going on LG's website, that the battery seems to be the main driver. And it's back, it says wireless charging is optional.

Gregory Waters

Well G3 there are different flavors of G3 that's including our previous one. The one that we're talking about it's on the motherboard. I'm quite clear about that. I may not be expert enough to guide you through every skew that LG has. But I just got back from Korea last week and kind of the victory lap on this one if you will. So, that's for sure.

With respect to the, - but I don't believe that G3 is a new brand to LG. So, I don't know the answer to your question but the – I'm quite secure that what we said about this being and the motherboard is correct.

The second part to your question is how long will it take to work with this? I would say it was a normal smartphone design which means it's about a year. And I think the technology interactions about what wireless charging is, what it's not, what standards [indiscernible] no longer than that.

Betsy Van Hees - Wedbush Securities Inc.

All right, so then, you guys have been working with LG since last year, at this time last year.

Gregory Waters

Yeah.

Betsy Van Hees - Wedbush Securities Inc.

Do you think that the design cycle is going to shorten now that you've got this great design win with LG and it's own motherboard?

Gregory Waters

I think if you are referring to smartphones, Betsy, I think it will remain the same simply because as veteran of that market those design cycles are so aggressive, in short I just don't, - I think that is aggressive as you get in these things.

So, I guess the short answer is no, they're already fast. But if you take a core design of a flat chips smartphone from any major manufacturer I think that's a solid year type design process.

However, once you get the technology to work, you can do derivatives and fan up that technology much, much faster than that.

So, I think part B, I don’t think that IDT influences the industry's smartphone design cycle. I do think and that maybe part of what you're asking is now that the technology is becoming better understood and more robust and we've had more chance to really get through the many, many different task cases with interoperability and different standards things that show up. I do expect adoption will be much more straightforward going forward.

So, as an example, part of our release today was we have announced, actually our second generation, our ex technology. So while the industry is really just starting right now, we've already are rolling over the second generation product and the ease of implementation of that second generation product is far easier for anyone than even our own first generation was the passive component count is cut in less than half, it is much smaller dye area, it's lower power and it’s frankly just super design win.

Betsy Van Hees - Wedbush Securities Inc.

Thanks. That was very helpful. And going back to the first part of my question. So if you go on LG's website, and you go underneath specifications, it's got the battery and then it has optional is the wireless charging.

Gregory Waters

Betsy those questions are at a level of detail that only LG can answer you. I will tell you that the announcement that we put out today all right with respect and the wording that we're on the motherboard was approved by LG.

Betsy Van Hees - Wedbush Securities Inc.

What I meant was is that, now it's up to the consumer if he has to adopt wireless charging because it's there for them to use it but it's up to the consumer to go ahead and adopt it, is that a fair statement?

Gregory Waters

Our wireless charging receivers stuck in the motherboard of the LG-G3. So, what I - really don't have anything more to add to it than that.

Betsy Van Hees - Wedbush Securities Inc.

Okay. Thank you.

Gregory Waters

I may not be following…

Betsy Van Hees - Wedbush Securities Inc.

Congratulations.

Gregory Waters

Thanks.

Betsy Van Hees - Wedbush Securities Inc.

Congratulations again.

Operator

(Operator Instructions) And our next question comes from Christopher Longiaru with Sidoti & Company.

Christopher Longiaru - Sidoti & Company

Hey guys I’ll have my congratulations, thanks for taking my question.

Gregory Waters

Thanks Chris.

Christopher Longiaru - Sidoti & Company

So, first has to do with your buck in the trend and lot of your competitors on the comm side with the guidance right up, I think it's 20 different new product introductions.

Can you comment as to, are those what is enabling you to outpace growth where your competitors are kind of guiding like for 2Q. Or have those kicked in a meaningful way, can you give us a little bit of insight into how that's playing out?

Gregory Waters

Yeah, I think the new products are definitely contributing to part of the growth story. In other words if you asked us, do we think we're getting share, it's frankly pretty difficult to call taking share in a market is large in complex, as comps infrastructure because the tame is just so large.

But definitely our new products are contributing to growth rates in excess of the industry, no question.

The second thing I'd say though is, if you take a look at the overall demand, that we see going in a comps infrastructure, yes the rate of growth has slowed down, yes that was probably unsustainably high going back two or three quarters ago. But we also think that the overall market for comps infrastructure and 4G in particular is hanging in there just fine.

Christopher Longiaru - Sidoti & Company

All right.

Gregory Waters

Thanks.

Christopher Longiaru - Sidoti & Company

And then the other thing here is you're driving up pretty substantially for consumer and your gross margin seems to be holding up pretty well considering, can you give us any color there as to why that is, not that if it's a bad thing.

Gregory Waters

I would say this is that, we of course have been anticipating ramps in all three areas before. So, one thing is that as the other businesses which are higher gross margin ramp that certainly helps you over gross margin picture. We're not a manufacturing company other than we do to the great majority of our own tests in Penang, Malaysia.

But it helps a little bit with things like absorption and there are many, many ongoing products as a blocking and tackling of an operation that are about reducing costs, better use of working capital, yield improvement etcetera, that also help that story.

One thing I'd mention it's not specific to the gross margin story, but if you take a look at the working capital statistics that Brian covered, that's the first of many steps to come, but I think you’ll also see as evidenced by our numbers.

There is a very intense and renewed focus on the running game in operations that's already starting to pay off in terms including significantly reduced days of inventory.

Christopher J. Longiaru - Sidoti & Company

Great. That's helpful. Thanks guys. That's all I have. Congratulations again.

Gregory Waters

Thanks Chris.

Operator

And up next we'll take a follow-up question from JoAnne Feeney.

JoAnne Feeney - ABR Investment Strategy

Yeah, thank you. Just one more question on the SRIO business, and more generally, the business of the LG base stations. You've talked in the past about how you've added some functionality to the basic SRIO function, and that was of intensely driving content from $50 up to $100.

Can you describe for us whether that's happening, and whether your average dollar content is growing? And whether your outlook for this quarter, and perhaps for the rest of the year, involves both the benefit of rising content as well as unit growth or basically just help to clarify that for us?

Gregory Waters

Yeah, that's a good question, so give us second to process that JoAnne. Definitely we can answer yes the rising content that's part of the story for sure. I don't -- in terms of rising units it depends, the answer there is it depends. I would the general answer is yes but you made a specific comment of it as real.

We do in fact have stated that we see a very broad and very clear trend towards the more complex versions of SRIO and we definitely have seen that and we definitely expect that to continue, but 50 to a 100 is certainly not something that's happening overnight and I certainly wouldn't factor that sort of thinking into the equation either.

Brian White

Yes JoAnne I wouldn't think about that being driven by SRIO part specifically but where you could think about rising dollar content was in base stations overall would be - as you look at IDT's broader product portfolio, our RF components etcetera that we're starting get traction with and you'll see overall dollar content rising but all of that wouldn't be attributable to SRIO switches.

JoAnne Feeney - ABR Investment Strategy

Yes, I think that was the earlier implication was that there were socket, sort of adjacent socket wins next to SRIO that involved RF or power management. That would raise that total dollar content. But it sounds like you're saying you're seeing both unit growth sequentially continuing, plus that rising dollar content. Is that a fair summary?

Gregory Waters

Yes.

JoAnne Feeney - ABR Investment Strategy

Okay. Great. And then one follow-up. I apologize if I missed this someplace. Did you guys do buybacks in the quarter, and what's left in the plan?

Brian White

Yes, JoAnne, we have spent $30.7 million to buyback $2.4 million shares and we have $75 million remaining on our existing authorization.

JoAnne Feeney - ABR Investment Strategy

Okay. That's it from me. Thank you.

Gregory Waters

Thanks JoAnne,

Operator

And next we’ll hear another follow-up from Harsh Kumar with Stephens.

Harsh N. Kumar - Stephens Inc.

Hey, guys. Greg, you've been there now almost six months or so. I'm curious, as you look out, what's the hardest thing you see on the horizon for your job or for IDTI for the next six to 18 months?

Gregory Waters

The hardest thing Harsh would be most difficult thing in other words?

Harsh N. Kumar - Stephens Inc.

Yes, almost difficult thing.

Gregory Waters

I have to tell Harsh there are plenty of difficult things. I mean this is complex business like many others, the tech business is never for the faint of hearts but I don't see anything that daunts me with respect to where are we bringing this company?

IDT, one of the benefits of it and one of the things you can't know until you're on the saddle is, do you have to the intellectual brain trust and people would experience, they can develop, they find, develop and deliver is really complex products in analog semiconductors and I guess if I had any lingering concern coming into the job it -- is bad. There's no way to really test that until you're really doing it, and you get your fingers into things like product development and product marketing.

And while we've got, we always have building those teams, we got that in spades, we have got a great team here as far as the running game and I am very encouraged not only the people that are here, but some of the new people they have elected, they come to work here and the Executive Team and into the product ranks.

So, if you ask me in December of last year, what would worry me the most it was the unknown of that and not only I have seen it, I am not worried about it. It's a competitive advantage or one that we’re going to bring into.

So, that's one. The second thing is just in terms of the operational running game. I mentioned to you, I think IDT has had a strong, strong operational team for a long time. These are good people. They know right what they're doing, but we haven't necessarily had a ton of focus on for instance working capital management in the past.

We do not -- so it's in the same boat is what I said earlier about timing. I think it simply focus that will get there. And right now all of the three markets that we elected to put our investment into are growth markets.

So, Harsh I'm not worried strategically. I think all of our intensity paranoia and what keeps me awake at night is kind of the normal execution stuff, which is nothing different in terms of its intensity or what I’ve been doing for a long time.

Harsh N. Kumar - Stephens Inc.

Got it, great. That's helpful. I'm sorry. I didn't mean to cut you off.

Gregory Waters

No, no. That's it Harsh, thanks.

Harsh N. Kumar - Stephens Inc.

And then as a follow-up, if I can ask you -- in the past, whenever IDTI has cut businesses or discontinued them or sold them they've been money losing businesses, or vastly inferior profitability to the core company. Would you be able to comment on what the trends financially were for the high speed data converter market that you just sold?

Gregory Waters

We probably could get a nutshell because it's in disc ops. And it's kind of public anyway. So, for instance, it’s in disc ops now but we're still burning cash on it which I remind people is that as we complete our process for that business, free cash flow will go up all by itself simply because we're not burning cash on that.

Brian, do you want to comment on that more specifically?

Brian White

Yeah Harsh, just one point of clarification. We sold a portion of our high speed data converter business during the quarter. We did not sell the entire business.

So, we are still working on the remainder, you can see the financial impact of that business in the GAAP financials within discontinued operations.

This latest quarter is a little bit complicated because you got gain/loss point through that to actually see a gain in disc ops on that sale.

But I would probably encourage you to go back to the quarter before and that will give you a better idea of what the loss is from that business on a quarterly basis.

Harsh Kumar - Stephens Inc.

That's fair guys. Thanks. And that's it from me and congratulations again.

Gregory Waters

Thanks Harsh.

Operator

And once more from Craig-Hallum, we'll hear from Anthony Stoss.

Anthony Stoss - Craig-Hallum Capital

Hey Greg. Again on the wireless charging front, I'm just curious in terms of why you think you're getting your design wins when you land them, what are your hearing most often? Is it size, power drain or something other? Thanks.

Gregory Waters

Great question, Tony. Let me try to separate the enablers and the differentiators. The enablers which everybody has to have including us is, does it work, can you make it in our apparel, is it small enough, cheap enough and you get the size, and those are all critical.

But I wouldn't say that those are necessarily differentiators all in their own. The thing that's wining us designs, I would say thus far is this, one of which is we are an early mover in this and the technology is complex.

As you'd know your background, if you pick any new comm standard, it almost doesn't matter what it is, whether it was early WiFi, early Bluetooth, early anything, there is communications protocols, there is RF.

The passive designs which are outset of our normal semiconductor if they're poorly done, will mess up the whole system which customers doing this for the first time can do.

So I would say our differentiators are as follows. I would say, one we really understand the staff, in deep level can manipulate it, know how it works, know the idiosyncrasies of the standards, the unwritten standards and all that very, very well.

The second differentiator I'd say, is that this market and one thing that many people miss, is really centric around power. You may be able to do in better micro controller, or something like that, does not necessarily translate into success of moving in this. It's really about power.

Then, so if you know how to do PMICs really well, that's the main core competency that you need to build this things. That's two and our team is good at that.

The third thing I would say is that we have a very unusual ability, a level of programmability around this product. This is what allows us to make very rapid changes to this at major customer's request. And we are big enough to have that global footprint, but small enough we can go really, really fast.

So I would say those are the big three.

Anthony Stoss - Craig-Hallum Capital

Great. Thanks for that.

Gregory Waters

Thanks Tony.

Operator

We have no further questions at this time. Gentlemen, I'll hand it back to you for any additional or closing remarks.

Gregory Waters

Okay. I'd like to thank everybody for joining us and the interest in our company. It's been a very interesting year and I think we remain very enthusiastic about the future of IDT.

I would remind everybody that Brian and myself will be at the Oppenheimer Conference in Boston on August 13th. We look forward to speaking with many of you during the quarter.

And last but not least, I'd like to recognize the achievements of all of our IDT people for making this great turn. Thank you.

Operator

And once again that does conclude today's conference. We thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Integrated Device's (IDTI) CEO Gregory Waters on Q1 2015 Results - Earnings Call Transcript
This Transcript
All Transcripts