Silicon Image CEO Discusses Q4 2010 Results - Earnings Call Transcript

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 |  About: Silicon Image, Inc. (SIMG)
by: SA Transcripts

Silicon Image, Inc. (NASDAQ:SIMG)

Q4 2010 Earnings Call Transcript

February 3, 2011 5:00 pm ET

Executives

Julie Cunningham – IR

Camillo Martino – CEO

Noland Granberry – CFO

Analysts

Raji Hill – Needham & Company

Christopher Longiaru – Sidoti & Company

Richard Shannon – Northland Capital Markets

Operator

Welcome to the Silicon Image Q4 2010 earnings call. (Operator instructions) As a reminder this conference is being recorded Thursday, February 3, 2011. I would now like to turn the conference over to Julie Cunningham. Please go ahead, sir.

Julie Cunningham

Good afternoon and welcome to Silicon Image’s fourth quarter and full fiscal 2010 financial results conference call. I am Julie Cunningham from Silicon Image’s Investor Relations. Joining me today is Camillo Martino, the company’s Chief Executive Officer; and Noland Granberry, the company’s CFO. The agenda for today’s call includes a discussion of the financial results and the product and market strategy from Camillo. Noland will then provide a more in depth discussion of the financial results and will provide a financial performance estimate for the first quarter of 2011. We will then open the call for Q&A.

Before I turn the call over to Camillo, let me remind the listeners that we will be making forward-looking statements based on our current expectations during the call regarding many aspects of our business and the markets in which we operate including but not limited to forward-looking statements about our financial results and performance, our current and future products and technologies, the timing of new product introductions, average selling prices, design wins, market demand for our products and operating expenses. Our actual results may differ materially from our forward-looking statements and we disclaim any obligation to update any of our forward-looking statements.

In addition, our forward-looking statements and the company’s future results are subject to risks and uncertainties, which we described in today’s press release as well as in the most recent periodic forms 10-K and 10-Q filed with the SEC. These documents describe certain relevant risk factors that could affect our future results.

I also want to mention that we have provided a financial metrics table and a reconciliation to non-GAAP financial information to GAAP information in our fourth quarter 2010 financial results press release, which is available on the investor relations section of our website at www.siliconimage.com. With that I will now turn the call over to Camillo.

Camillo Martino

Thanks, Julie. Good afternoon everyone, and thank you for joining our conference call today. Silicon Image is in the middle of an exciting time, and we have made significant progress on multiple fronts in 2010. I will first give a brief overview of the company’s performance followed by a market update. Then Noland will go through the numbers in more detail and provide an outlook for Q1.

Revenue for the fourth quarter of 2010 was $52 million compared to $60.5 million for the third quarter of 2010, and $55.6 million in the fourth quarter of 2009. Revenue for the fourth quarter of 2010 included a one-time benefit of $7.5 million royalty revenue catch up. Product revenue was seasonally down in Q4 as expected. For Q4 EPS was $0.07 compared to a loss of $0.07 one year ago.

For the year 2010 revenue was $191 million, an improvement of 27% compared to 2009. We swung from a net loss of $16 million in 2009 to a net income of $17 million in 2010. We achieved these results by growing our core TV and mobile businesses. While we are pleased these results we still have some work to do to achieve our long-term target model.

We believe that our continued growth in revenue and profit affirms our standard plus strategy. We are driving innovation and industry standards, while delivering value at product innovations on top of the status. Therefore, our revenue growth is not solely reliant on the introduction of new versions of industry standards.

In the DTV market we have made good progress in better aligning our annual cycle of new product introductions to meet the requirements of our customers’ product development schedule. This has improved our ability to continue growing our business. We also intend to implement this approach for the mobile market segment. In 2010, we grew our market share in DTV products. We successfully expanded into the mid-range of TV product lineups, while growing our market share in the high-end.

As recently highlighted at the Needham Conference, for 2011 we achieved design wins for our core processors in nine of the top 10 TV makers. We believe this positions us well in the DTV space heading into 2011. At this year’s Consumer Electronics Show in Las Vegas, we demonstrated our latest technologies and products aimed at enhancing the connected HD experience.

We showed our new ViaPort Technology, which simplifies DTV connectivity by adding an HDMI output to the TV, allowing consumers to add an HDMI sound bar to audio video receiver downstream from the DTV in a simplified manner. This technology also allows consumers with all their ideas [ph] to access premium DTV features such as 3-D [ph] support by creating a direct connection by the 3-D enabled Blu-ray disk player and a 3-D enabled DTV, for example.

Also in CES, we showcased our low power mobile HD connectivity solutions design into the retail model like the HTC Evo 4G smart phone and the Samsung Galaxy Tab. We also showed prototypes of MHL enabled devices demonstrating how at MHL enabled digital TV charges the mobile device, while simultaneously delivering HD content.

We first introduced our MHL products in October of 2010, and since then we have introduced MHL transmitters, MHL to HDMI Bridges, DTV core processors featuring both MHL and HDMI capabilities and also MHL IP cores rounding out our MHL portfolio.

The mobile opportunity is large and exciting. In this early phase of HD mobile devices entering the marketplace we are already seeing the mobile category becoming a meaningful part of our revenue stream. In the fourth quarter, the mobile segment accounted for approximately 11% of our product revenue compared with 7% of that product revenue in Q3. We believe MHL offers an improved solution for mobile HD connectivity due to its charging capabilities, as well as its connector agnostic approach.

The MHL products introduced in the beginning of the fourth quarter, announcing traction with mobile device manufacturers. We have made good progress towards their design win goals, as their customers are showing significant interesting in incorporating MHL technology into the next generation CE and mobile devices.

Consistent with our past comments, we believe we will start to see MHL revenue late in the first half of 2011, and more meaningful revenue coming from MHL in the second half of 2011. Based on our preliminary market data regarding HD connected smart phones and tablets, we believe that in 2010 smart phones and tablets together with a digital HD out feature accounted for approximately 2% of worldwide shipments of around 300 million units.

For 2011 we estimate this HD connected category will grow to around 10% to 15% of the total market size. At this early point in the technology adoption cycle it is difficult to estimate our market share, or what proportion will be HDMI or MHL. But we believe we’re reaching an inflection point in the market. The MHL standard is still at the beginning of a multi-year cycle, while penetrating the CE market.

We are pleased to see more adopters join the MHL Consortium and are looking forward to new MHL enabled products entering the marketplace this year. On a geographical basis comparing Q4 2009 to Q4 2010 we achieved revenue growth in all regions. DTV and home theater were strong across-the-board, while China [ph] experienced strength in Legacy storage solutions.

Mobile revenue grew nicely in both Korea and Taiwan. Our long-term strategy is to enhance and simplify the consumers connected HD experience. As we have shared with you previously digital TV is transitioning into smart TVs and mobile devices such as smart phones and tablets are increasingly adding HD video capability.

Consumers expect these devices to seamlessly connect and interoperate. We are well positioned to be a leader in leading the technology innovations and industry standards needed to make these consumer driven requirements. Looking at 2011, we believe the mobile category will drive our growth and DTV will remain a double-digit growth segment for us.

The home theater segment continues to be important, and we expect it to be a consistent contributor. On previous occasions, we discussed the need to continue to invest in technology to achieve our longer term strategic objectives. I’m happy to note that we finalized the licensing and acquisition of certain intellectual property and we are also in the process of completing a small asset acquisition. Both transactions are focused on strengthening our position within the DTV and home theatre markets, as well as applications for use in the mobile space. We believe both of these transactions will strengthen our capabilities to develop the next generation of HD connectivity.

Noland will provide more details on how this technology impacts our financials. He will also provide a more detailed update of our Q4 financial results and also our financial goals for Q1. Noland.

Noland Granberry

Thanks, Camillo. I would like to cover three topics: Highlights of our Q4 and full year 2010 financial results, the impact of our recent investments that Camillo highlighted, and our financial performance estimates for Q1 2011. Unless otherwise indicated, gross margin, expenses and earnings related items are reported on a non-GAAP basis, which excludes stock-based compensation expense, amortization of intangible assets, restructuring charges and other nonrecurring expenses. Our GAAP financial results and a reconciliation of non-GAAP measures referenced in today’s call are available on the investor relations page of our website, www.siliconimage.com.

Revenue for Q4 2010 was $52 million compared to $60.5 million for Q3 2010, and $35.6 million for Q4 2009. Revenue for the full year 2010 totaled $191.3 million versus $150.6 million for 2009.

Product revenue totaled $42.1 million or 80.9% of total revenue for Q4 2010, versus $46.1 million, or 76.2% of total revenue for Q3 2010, and $27.9 million, or 78.5% of total revenue for Q4 2009. Sequentially, product revenue was down seasonally and increased by over 50% year-over-year.

For 2010, product revenue increased 24.6% to $152.8 million versus $122.7 million for 2009. The year-over-year increase in product revenue is due to increased market share and higher demand for our products over the course of the year. Product mix is a major factor in the changes in our overall average selling prices for products. For Q4 as well as for 2010 year, our average selling price for product sales was $1.39 per unit.

IP revenue for Q4 2010 was $9.9 million or 19.1% of total revenue, versus $14.4 million or 23.8% of total revenue for Q3 2010, and $7.7 million in Q4 2009, or 21.5% of total revenue. Included in the Q3 2010 results was the one time royalty catch up of $7.5 million previously announced. After the royalty catch-up adjustment, IP revenue grew sequentially and on a year-over-year basis, primarily due to higher royalty revenue realized in the quarter.

IP revenue for 2010 totaled $38.5 million, including the $7.5 million one-time catch-up versus $27.9 million for 2009. Excluding the one-time catch-up, IP revenue grew over 11% year-over-year primarily as a result of increased royalty activity during the year.

Product gross margin approximated 51.3% for both Q4 2010 and Q3 2010 as compared to 42.3% in Q4 2009. Product margins continue to be higher than our target range as a result of positive variances in product mix. As we noted last quarter, we expect our product margins to trend down sequentially due to product mix and return to the high side of our target range. Despite this trend, we expect to maintain an overall gross margin level of 55% or better in Q1.

Our IP gross margin was 98.3% in Q4 2010, 99.5% in Q3 2010 and 92.4% in Q4 2009. The change in IP gross margin is a result of changes in the mix of IP customization revenues.

Our overall gross margin for Q4 2010 was 60.3% and was the result of continued favorable product mix and higher IP contribution. Gross margin was 52.8% for Q3 2010, including the one-time royalty revenue catch-up, and 53.1% for Q4 ’09.

For 2010, our product gross margin was 49.7% versus 44.9% in 2009. Our IP gross margin was 99.3% for 2010 versus 95.7% for 2009. Overall gross margin was 59.7% for 2010 as compared to 54.3% for 2009. Our overall margins were higher as a result of the favorable variance, product mix and higher IP contribution, and the one-time royalty revenue catch-up.

Operating expenses for Q4 2010 were $25.4 million compared to $23.7 million in Q3 2010, and $24 million in Q4 2009. The increase in operating expenses for the quarter is reflective of higher R&D expenses, as well as higher incentive related accruals as a result of the better than planned performance. The higher R&D expenses primarily relate to certain transition costs we are incurring as we establish and increase our R&D footprint in Asia.

Operating expense for 2010 and 2009 were $95.2 million and $104.1 million respectively. The decline in operating expenses was primarily the result of the restructuring activities that were completed in 2009, and ongoing expense management activity.

Our headcount as of December 31 was 432, excluding contractor resources, compared to 420 in the September quarter, and 405 a year ago. Operating income for Q4 2010 was 5.9 million compared to an operating income of 14.3 million in Q3 2010 and an operating loss of 5.1 million for Q4 2009. For the year, our operating income totaled 18.9 million, as compared to an operating loss of 22.3 million for 2009. The improved operating performance on a year-over-year basis is primarily driven by the increase in revenue, an increase in gross margin as a percentage of revenue, as well as lower operating expenses.

For Q4 2010, other income was $0.5 million compared to $0.6 for Q3 2010 and $0.8 million for Q4 2009. For the year, other income totaled 2.3 million as compared to $3.0 million for 2009. Other income decreased primarily due to lower yields on investments due to current economic conditions.

In connection with the closure of our R&D sites in Germany at the end of 2009, we entered into a two-year R&D transition agreement to facilitate the completion of certain in process projects being performed in Germany. We were able to complete those projects a year earlier than anticipated and have begun to transition new projects to our Asia locations in China and India. As a result, we have taken a restructuring charge of approximately $2 million. Partially offsetting this charge is a credit in the amount of $1.4 million, representing certain favorable accumulated translation adjustments released as we finalize the formal steps in closing the German legal entity. These non-recurring amounts are excluded from our non-GAAP results.

Also excluded from our non-GAAP results is stock based compensation, which totaled 1.4 million for Q4 2010, compared to $1.8 million in Q3 2010 and $2.7 million in Q4 2009. For Q4 2010, our non-GAAP net income was $5.3 million or $0.07 per diluted share. Non-GAAP net income for Q3 2010 of $13.7 million or $0.18 per diluted share included the one-time royalty revenue catch-up of $7.5 million.

Excluding the catch-up revenue, non-GAAP net income for Q3 2010 totaled $6.2 million or $0.08 per diluted share. For Q4 2009, our non-GAAP net loss was $5.0 million or $0.07 per share.

For the 2010 year, our non-GAAP net income totaled $17.4 million or $0.22 per diluted share, including the royalty revenue catch up and $10 million or $0.13 per diluted share, excluding the catch-up revenue. For 2009 we realized a non-GAAP net loss of $16.3 million or $0.22 per share.

On a GAAP basis, our net income was $4.2 million or $0.05 per diluted share for Q4 2010, as compared to our Q3 2010 GAAP net income of $9.5 million or $0.12 per diluted share. For Q4 2009, we realized a GAAP net loss of $66.9 million, or $0.89 per share. Our Q4 2009 results included several previously announced restructuring charges and tax adjustments. For the 2010 year, our GAAP net income totaled $8.2 million or $0.10 per diluted share as compared to a GAAP net loss of $129.1 million or $1.72 per share, which included the restructuring charge and tax adjustments previously noted.

Diluted weighted average shares outstanding for Q4 2010 and Q3 2010 were 80.5 million and 78.1 million respectively. Weighted average shares outstanding for Q4 2009 were 75.4 million. For the year, diluted weighted average shares were 78.3 million versus weighted average shares of 74.9 million for 2009.

Moving to the balance sheet, cash and investments as of December 31, 2010 was $190.5 million versus $184.6 million at September 30, 2010, and $150.6 million at December 31, 2009. For the year, the company’s cash increased 47.8 million from operations and financing activities, offset in part by investing activities of 7.9 million. Included in the cash from operations was 18.1 million of net tax refunds, offset by approximately 17.4 million in restructuring payouts.

For Q4 2010 our accounts receivables totaled $22.6 million, or 39 days sales outstanding and was in line with our expectations. Days sales outstanding for Q3 2010 and Q4 2009 was 36 days and 55 days, respectively.

Net inventory as of December 31, 2010, was $10.2 million, which represents 8 turns on an annualized basis. This compares with 11.6 million or 7.7 turns at September 30, 2010, and 7.7 million or 8.3 turns at December 31, 2009. Capital expenditures for Q4 2010 were $1.5 million compared to $1.0 million for Q3 2010, and $1.9 million for Q4 2009. For 2010 capital expenditures totaled 4.8 million versus 4.9 million for 2009.

This completes my summary of our financial results. Next I would like to discuss our Q1 2011 financial outlook. Before I provide our Q1 guidance, I would like to comment on the impact of our recent investments, and more specifically on those other events that directly impact our expense outlook for Q1.

As mentioned in the past few quarters, we are making additional R&D investments as we look to execute on our longer term strategy. As Camillo noted, we finalized the licensing and acquisition of certain IP and we are in the process of completing a small acquisition, both of which are focused on strengthening our position within the DTV home theater market, as well as applications for use in the mobile space.

Combined with these investments totaled approximately 13 million of which 3 million has been paid through December 2010. The remainder will be paid over the next few quarters and expensed over the next 5 to 7 years. With respect to the asset acquisition, we acquired product lines as well as 10 employees [ph] associated with the transaction to support customers in the technology.

We expect to recognize some revenue in Q1, and believe the revenue over the course of the year, while not expected to be substantial will more than offset the related cost during the 2011 year. Longer term, we expect these investments to provide additional revenue opportunities for our 2012 year and beyond.

As planned, we project the following higher than normal expenses for Q1. First, our new strategic investments just mentioned. Second, R&D costs associated with the transition and certain development expenses. Third, our participation in the CES and Mobile World Congress trade show events, and finally, higher employer payroll taxes during the first-half of the year.

We continue to focus on our expense management and expect our expenses in subsequent quarters to trend lower. Considering these factors, the following represents our financial outlook for the first quarter of 2011; revenue $47 million to $49 million, gross margin approximately 56%, GAAP operating expenses approximately $28 million, non-GAAP operating expenses approximately $26 million, interest income approximately $0.5 million, non-GAAP tax rate of 18%.

And Q1 diluted shares outstanding are projected to be approximately 82 million. The increase from Q4 is primarily the result of increased common stock equivalent shares being included in the EPS diluted share calculation, as a result of our higher stock price. We expect longer term that this share count will be in the 82 million to 84 million range. As we noted on our prior calls, we believe our product business continues to follow our normal seasonal patterns. As such our guidance for Q1 reflects our expectation for seasonal declines in product revenue for the quarter. We also believe product revenue for the second quarter will be higher than Q1, in line with the typical seasonal patterns. In addition, we expect Opex to trend towards the 25 million level, and in Q2 and long-term. Longer term we expect Opex to be in the 25 million to 26 million range.

This concludes my remarks. Operator, we will now take questions.

Question-and-Answer Session

Operator

(Operator instructions) And that question comes from the line of Raji Hill of Needham & Company. Please go ahead.

Raji Hill – Needham & Company

Yes, thanks and congrats on good results and execution. Question on just so I heard right on the TV market, or on the TV business you had said that you would look to grow double digits in terms of the growth rate in your TV business, is that correct, did I hear that right?

Camillo Martino

Yes, that is correct. The DTV business year-on-year, that is correct.

Raji Hill – Needham & Company

That is also tough compare anyway in 2010, what are your expectations for I guess the overall digital TV market, because if you kind of look at some – these preliminary IDC data, we are looking at the overall Digital TV market may be to be up around 12% to 15%. So are you looking to kind of grow in line with the overall market rate, any color there in terms of the market dynamics will be helpful.

Camillo Martino

Sure. We have seen those market reports as well. I mean that is consistent with our thinking. You know, when we say double-digit growth, obviously we would expect to grow at least in line with the market, but if you look at the strategies we are putting together both in the new innovations on annual cycle, and new customers that we are bringing in to the fold, we talk about the number 9 for example out of the top 10, as opposed to just 8 in the previous year. That is how we would conclude so to be at double-digits, but considerably we can say that we did better than the typical market annual growth.

Raji Hill – Needham & Company

And any kind of estimation in terms of what your market share was in 2010, you said it increased, any color there and what are your expectations for your market share in 2011?

Camillo Martino

Sure. If we look at the markets that we are really focusing on, specifically the mid-range and the high-end DTV markets, you know, we would say the market range would be 60% plus, maybe someway between 60% and 70% in that range for those two segments of the market.

Raji Hill – Needham & Company

Very good. And just kind of switching gears to the mobile side, the increase by about 1.4 million sequentially, if I heard you math correctly, what are your expectations I guess for if you look at the mobile phone business in terms of cable tax rates, any color in terms of design win momentum, anything along those lines will be helpful.

Camillo Martino

Sure. You know, first of all I think we are very pleased with what we have done so far in the last couple of quarters, especially with the 7% in Q3 and followed by the 11% in Q4. What we would anticipate throughout the year is that our mobile revenue will increase obviously beyond the 11% throughout the year. I think it is a little bit early to talk about market shares of say, MHL at this point. I think we even commented during my prepared remarks, we expect it show good adoption, we’ve talked about it. The difference between now and say six months to a year ago is six months to a year ago we were talking about the potential of MHL hitting the market. What we see today as the differences we actually see the momentum, and that is why we can talk more confidently about that.

As Raji, as I have mentioned in the last couple of quarters, we anticipate in the first-half of this year to see some announcements, including some revenue in the next quarter specifically, but with the more meaningful revenue to occur in the second half of this year. So we are very confident in that particular statement, and it is very consistent with the messaging that we have given to date.

Remember, when we talk about the mobile category it includes both HDMI as well as MHL. So that is the other dynamic. So the first dynamic is that the overall mobile category is growing for us, and over time you can see the revenue we have today transition from predominantly HDMI to predominantly MHL-based solutions in the mobile category.

Raji Hill – Needham & Company

Yes, sure. So, you are kind of talking about HDMI as a category, and 2011 would represent or you think would increase 10% to 15% of the total smart phone and tablet market size. There are a lot of variations in terms of the market size of tablets, but smart phones are probably around $340 million, $350 million. The issue of $370 million, another $20 million for non-Apple-based tablets, you could be looking at I guess an overall TAM [ph] for you in the plus 45 million range in terms of units for 2011, just the overall TAM. They would use HDMI or MHL, is that kind of what you are looking at in terms of the unit TAM for this particular category?

Camillo Martino

Yes, it is hard to say a little bit to say exactly what the number is. Maybe it is a little bit less than that, maybe it is a little bit more than that. But it is probably in the ballpark plus or minus, and when we talk about – I don’t think I said HDMI, I was talking more HD. So, high-definition category, which will include both HDMI and MHL, but clearly in 2010 there was no MHL, but in 2011 we do expect to see some MHL as a percentage of this total HD category we just talked about.

Raji Hill – Needham & Company

Okay. Just one last question on the tax rate, tax rate is 18%, is that the tax rate we should be using going forward, and is that a percentage of the pre-tax income or are you looking at it as a percentage of revenue. I just want to get attention [ph] on the tax?

Camillo Martino

Yes, just to clarify, and a good question Raji that this is all in pre-tax income, where in 2010 we actually had that rate applying to revenue, and as far as what we see going forward it is the rate that we will look to have from a non-GAAP standpoint.

Raji Hill – Needham & Company

Okay, great. Thank you very much.

Operator

(Operator instructions) And our next question comes from the line of Christopher Longiaru with Sidoti & Company. Please go ahead.

Christopher Longiaru – Sidoti & Company

Hi guys. Congratulations on the results and guidance.

Camillo Martino

Thank you.

Christopher Longiaru – Sidoti & Company

I guess my biggest question here right now from a jargon that mobile revenue is really tied to the HDMI fold and then the Evo, am I correct in saying that?

Camillo Martino

That is the product that has been talked about publicly of course, that is correct.

Christopher Longiaru – Sidoti & Company

Right. All right. And so, essentially what is the difference in terms of your content, and is where any difference in terms of your dollar content in an MHL design versus the HDMI design or the Evo, and would we basically expect this design when you see the same type of ramp as you have seen with the Evo?

Camillo Martino

You know, I would say the ASP between those two products is roughly comparable. There is no real appreciable difference either way. So we would expect this category to grow as there is more adopters. Remember, this product category, this chipset that we have launched, this multiple chipset that we have launched will be embedded both in the handset and as well as tablets, as well as I would say an adaptor category, even in a docking station, which would convert an MHL to an HDMI signal, and so that particular chip could reside in a docking station itself. It could reside in the cable, physically in the cable and then the connector end as well. So it will go into a variety of different product categories to throughout the year.

Christopher Longiaru – Sidoti & Company

Okay. And so in terms of there is no real difference in terms of the chip, whether you put it into the phone or you put it into the cable, or what have you?

Camillo Martino

Well, I mean in a phone typically you would have a true MHL transmitter, I mean that is where that function would reside. Now, if you are talking about a conversion function. Remember we talked about for the next number of years, you are going to have to figure out how a MHL phone is going to connect to an HDMI TV because today the TVs are always high as the transition hasn’t yet started.

So in that case there is going to be this conversion application that could be in the dock or an adapter type of an application. They are two different ICs. Right, one is an MHL, true MHL transmitter, and the other one is more of an MHL to HDMI bridge type of IC.

Christopher Longiaru – Sidoti & Company

Got it. Okay that is all I have for now. Thank you, guys.

Camillo Martino

Okay. Thank you.

Operator

(Operator instructions) Our next question comes from the line of Richard Shannon with Northland Capital. Please go ahead with your question.

Richard Shannon – Northland Capital Markets

Hi guys. Once again congratulations on the very nice numbers and guidance. I guess my first question, Camillo, talk a little bit about the mobile opportunity in 2011, if you could hazard a guess would you think that you would get more product revenues in mobile coming from HDMI or coming from MHL?

Camillo Martino

You know, it is a good question. I think what I had been saying and previously is first of all I have been saying is difficult to predict, but if I was to – the last time I took a guess at this it was probably 50-50, but I think the closer we get into the year as we are now, we probably would predict that the revenue would be a little bit more on the MHL side compared to HDMI.

Richard Shannon – Northland Capital Markets

Okay. And did you comment in your prepared remarks Camillo you said you expect MHL revenues in the second quarter, are you explicitly denying, or stating that you don’t think you will have any in the first quarter? Is that how we should interpret that?

Camillo Martino

You know, there may be some MHL revenue at the end of the quarter, just as production starts to take effect, but we don’t consider that to be meaningful revenue. So that is why we look at Q2 as a better quarter to predict MHL revenue. So, we don’t fully get the fact – there will be some MHL quantities in Q1. But the more meaningful number would be in Q2, followed by as I mentioned in my prepared remarks even more meaningful revenue will occur in the second half of this year. It is very consistent I think Richard with what we have discussed in the past.

Richard Shannon – Northland Capital Markets

Okay, thanks. Thanks for that. Camillo, when would you expect to see some benefit in your IP and licensing revenue stream coming from the mobile category, in general either coming from HDMI or MHL. Is there something that could have an impact this year, is it more of a 2012 and out story?

Camillo Martino

You know, if we look at the cores, of the licensing of IP cores that is something that we will see this year. In fact I think we recently late last year, we actually made an announcement in the licensing of an IP core to a semiconductor company. So in the next six months, if the revenue that we can see is more on the licensing of IP cores, but clearly royalties is when – is really from semiconductors that are shipping out there in a marketplace, and so that is more of a next year best case, most likely even the latter part of 2012 story in our opinion.

Richard Shannon – Northland Capital Markets

Got it. Okay. And then a couple of questions regarding the TV side, Camillo you mentioned the expectation or hope of getting double-digit growth in TVs, you have mentioned gaining a customer, top 10 customer, that you expect to ship this year. Would it be reasonable to expect that customer to kind of start kind of maybe in the second quarter, and accelerate throughout the year so you won’t get a I think full year run rate benefit from that customer. Is that fair to think it that way, is that kind of that, was that kind of a trend and time frame?

Camillo Martino

Yes, I think that is probably the right way to characterize it Richard.

Richard Shannon – Northland Capital Markets

Okay. And do you think without this customer you will be able to still grow in the double-digit range, or this will kind of get you over that threshold?

Camillo Martino

Yes, okay now we’re really splitting finer details of description. Altogether, let’s just say that we’re comfortable with the expectation of a double-digit growth with everything included.

Richard Shannon – Northland Capital Markets

Okay. Fair enough, and just last question Camillo, on the asset purchase, can you shed any light on the area of technology? Have you done this on any other applications of it and timeframe you might see it.

Camillo Martino

Sure. You know, the technologies are very much in line with what we’re doing in the TV and home theatre markets. I think that is probably the best way to characterize it at this point in time. We are not disclosing the names of the companies that are involved in these transactions, obviously for competitive reasons. One is for competitive reasons, and two the asset purchase is clearly not material enough in order to disclose it. So we think we will start to see the impact – in fact, the asset acquisition does have a little bit of revenue associated with it as well. So, by definition the impact is immediately from that standpoint when the deal officially closes.

I would say the more material impact, the result of these two actions or these two positive initiatives we are announcing today will be felt in 2012 and 2013.

Richard Shannon – Northland Capital Markets

Okay, great. I think that is about it from me. Once again, congratulations guys.

Camillo Martino

There are no further questions at this time. I am so sorry; we do have a follow up question from the line of Raji Hill with Needham & Company. Please go ahead.

Raji Hill – Needham & Company

Yes, thanks for squeezing me in. Just – Noland, could you provide the breakout between CE and PC and storage as a percentage of the overall product revenue and when you kind of look at your PC and storage businesses, I know they are not the most exciting part, so you will be looking at kind of flattish growth there, or is that more of a steady state of decline.

Noland Granberry

So, from – one of the things we highlighted Raji that we were providing little more color around the mobile side of things, and as you know we have included mobile in the CE space. So Camillo highlighted that mobile is about 11%, and when you combine that with DTV, the DTV home theater space, you have 84% from a CE perspective, and then PC storage makes up the balance.

We anticipate as you move through the year that the PC storage will trend down some as a percentage, although the dollars – there will still be revenue that we anticipate to get from that space going forward, but we do anticipate that it would turn down some.

Raji Hill – Needham & Company

And then on the Opex, you talked about you are kind of seeing a little bump up in the Opex in Q1, but that will start to trend down in Q2, 25 million is that in Q2 will we see trend down to 25 million…

Noland Granberry

You are right. In Q1, it did have a bump up, and we expect it to get closer to 25 million, and run as I highlighted in my prepared remarks that it would be in the $25 million to $26 million range in a longer term, but getting closer to 25 million in Q2.

Raji Hill – Needham & Company

Okay, great. Thank you very much.

Noland Granberry

Yes.

Operator

There are no further questions at this time. I would now turn the call back to Camillo Martino for any closing comments.

Camillo Martino

Well, I just wanted to thank everyone today for participating in this call, and we look forward to updating you on our next call in a few months time. Thank you.

Operator

Ladies and gentlemen that does conclude your conference call for today. We thank you for your participation, and ask that you please disconnect your lines.

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