Cypress Semiconductor,'s CEO Discusses Q2 2011 Results - Earnings Call, Jul 21, 2011 Transcript

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 |  About: Cypress Semiconductor Corporation (CY)
by: SA Transcripts

Operator

Good morning and welcome to the Cypress Semiconductor Second Quarter 2011 Earnings Release Conference Call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. T.J. Rodgers, President and CEO of Cypress Semiconductor. Sir, you may begin.

T. J. Rodgers

Good morning. We're here to report second quarter of 2011. I will start out with our CFO, Brad Buss, with the numbers.

Brad W. Buss

Thanks, T.J. Thanks everybody for attending. Just a couple of quick housekeeping things. As you know, these are preliminary, unaudited results. We obviously encourage you to go through our 10-Q in excruciating detail when it's filed in August. And as usual, everything is forward-looking. There's a ton of risk factors. We encouraged you to look through them, and we don't have a duty to update them.

And I also just want to say today is a historic day at Cypress, in that we actually paid our first dividend. It was $0.09 per common share outstanding, and we just gave $15.3 million to you. So we encourage you to spend it on a lot of Cypress Touch products in the U.S. or enjoy a holiday in Greece and help everybody out.

I'll go through Q2 results, and then I'll take a look at the items. So we have really good revenue in Q2. We came in at the top end of the range at $255 million. That was a 9% sequential increase. It was actually 14% sequential -- or 13%, I should say, sequential increase, if you strip out the Image Sensor business that was partially in Q1 that we sold. So obviously, a very strong growth rate for us and probably one of the best that you'll see, I'm sure, in our semiconductor peers.

Our handset revenue grew 32% sequentially, and we also had a really big increase in tablet revenues. We saw increases in our wireless and consumer-end markets, and we saw a slight decreases though, as expected, in wireline and our computation-end market. We really don't see any end market being in trouble at all, and -- however, we continue to monitor the macro and inventory positions, and Chris can talk further on that later.

If you look at it by division, our MPD decreased 5% as expected, due to the Image Sensor business sale that I talked about. If you adjusted Image Sensor out of MPD, they actually increased 4% sequentially, slightly better than our normal seasonal expectations. And then, we saw growth in SRAM and in our auto business actually. In DCD, we saw a 4% revenue decrease, really driven by our legacy com business and West Bridge.

CCD had record revenue in Q1. They increased 22% sequentially. Obviously, TrueTouch hit another new revenue record, and they grew a whopping 52% sequentially and over 350% year-on-year, again, due to handset growth at Tier 1 customers and significantly higher revenues in tablets. Just a side note, CCD is now our largest division by revenue, and they crossed the 50% mark for the first time and ended up at 51%. And just to put in perspective, that's up from 39% in 2010. TrueTouch is also our largest individual product family. It surpassed our synchronous SRAM business unit, and we have a bunch of ton of great design wins, which I'm sure Chris and Norm will talk on further.

If you look at handsets as an end market, which again, in early 2008, we really didn't even participate to any degree, it grew 32% sequentially, almost 200% year-on-year. And handsets are now our largest end market, and that accounted for 29% of our revenue.

So just winding back to TrueTouch real quick. Our guidance for 2011 has to more than double versus 2010. So that yielded an implied revenue range of around $180 million to $200 million. So based on our strong first half results, a very strong design pipeline and obviously, some increased tablet revenues, I was really glad to see that Chris and Norm are ponying up even higher revenue. And we're going to increase the guidance by $50 million and now expect a range of $230 million to $250 million for fiscal 2011.

On a GAAP basis, we had net income of almost $41 million. We had a $17 million tax benefit, and that was -- yielded us $0.21 per share, and that was more than double from the prior year. Our non-GAAP net income was $63 million. That yielded fully diluted EPS of $0.32, and that was at the higher end of our guidance and, again, was at the highest level since 2000. This is a EPS growth of 33% year-on-year at a rate that's 2.3x faster than the sales growth. We enjoyed 100% fall-through of the incremental GP dollars, and we also generated lower OpEx, which gave us that big increase. If you strip out the Emerging Tech business and just look at the core business, it yielded $0.36 in EPS, PBT of $70 million in -- on a PBT percent of 29%. So we continue to execute very well in both of our core and our Emerging Tech areas.

The non-GAAP gross margin was 57.2% went down from 58.1%, mostly due to standard product and customer mix. We had some higher depreciation from our S8 fab expansion that we talked about and then a couple of odds and ends in inventory and cost. Our core semiconductor gross margin, without Emerging Tech, was 58.2%. Our average utilization in our one fab in Minnesota was 89%, up from the high 70s in Q1, and I would expect to see utilization remain relatively stable in Q3. Wafers from our foundry partners were almost 50%, and again, I'd expect that to increase into 2012. Our average corporate ASPs remained healthy, and they increased slightly to $1.49.

The non-GAAP OpEx was down as I expected, and it actually was a little lower than my guidance. We came in at $83 million, and again, remember Q1 was slightly elevated due to some litigation expense with wrapping up the SRAM. We had a worldwide sales conference for the first time in many moons and the standard seasonally higher payroll taxes. Headcount remained relatively flat, even after we made substantial additions in our PSoC and TrueTouch business groups, and we're extremely focused on OpEx, continuing to look to drive our model. And I think you'll see us out probably the lowest OpEx percent of revenue in over a decade, which we're quite proud of.

Non-GAAP tax charge was $300,000. That gave us an effective tax rate of less than 1%. We had some benefits from some tax credits, and -- mostly due to a higher mix of foreign earnings. And I would expect the non-GAAP tax rate to be about 2% for the balance of the year and somewhere between 3% and 5% for 2012, and we'll nail down that closer to the end of the year.

The balance sheet continues to remain very strong. Our cash, cash and equivalents and short-term investment totaled $359 million, and that increased $98 million from Q1. We used $101 million to repurchase 5.3 million shares. We also had a couple of YEPs outstanding that could have brought in another 6 million shares, but the stock price moved up right before expiration, and instead, we got a really nice, big $3 million gain that yielded an effective annual return of 25%. So we'll keep yielding those big gains to pay that nice dividend to you all.

Since we announced the $600 million stock repurchase program in late Q4 '10, we've taken out 15.4 million shares. We have another 300 million remaining under the authorized repurchase program, and like I've said before, we'll continue to be opportunistic in deploying that cash.

Basically, if you look at our cash, it's about $2.21 per outstanding share, and 34% of our assets are in cash and investments. And as usual, we continue to have no debt. Cash from ops was very strong at $77 million. It increased by $42 million due to higher earnings and really decreased working capital needs. Our AR and inventory was extremely well managed within the quarter. Our rolling 4-quarter cash from ops totaled $291 million or 31% of sales, which is quite strong in the industry. Free cash flow was a strong $43 million, even after we paid $34 million for the bulk of the CapEx to support the S8 expansion, and I expect to see strong cash flow continue for the balance of the year.

Net inventory dollars was $105 million, a very slight increase from Q1 due to planned inventory die bank build. The good thing is our days of inventory decreased very nicely by 10 days from Q1, and that's the lowest we've had in 3 quarters. And also, as usual, in that $105 million of net inventory there's $5 million of noncash stock-based comp charges and about $15 million of inventory per inventory build that will be consumed over a couple of years. So if you exclude that and look at what we call a true operating inventory, it's only about $85 million or 71 days, which is very conservative, considering our focus on proprietary products. For Q3, I'd expect to keep inventories roughly flat, and I think days of inventory, again, will decreased by another 5 to 7 days.

Revenue through disti was 71%, a new record. And as such, I think you see the deferred income went up. That's all very consistent with the amount of revenue we're doing through disti, as well as the fact that most of PSoC goes through disti. If you look at the metrics that we track through distribution, the weeks on hand of inventory, it actually dropped very nicely from 6.5 weeks in Q1 to 5.7 weeks in Q2, and that's the lowest level of weeks on hand we've seen since 2008. We obviously continue to monitor the distis really close. And just a reminder, we recognize all of our revenue on sell-through. So there's no incentive for us to stop inventory on them, and it's something, yes, we'd never do.

AR was pretty -- was down $2 million. DSO decreased by 7 days. Our aging and reserves are really good. CapEx was $34 million. Like I said, it was finishing off a big chunk of the S8 expansion. Depreciation for the quarter was $13.5 million which was up $1 million. Share count, basic shares are 169,000, fully diluted was 196,000 (sic) [ 192,276 ]. The fully diluted was down 4.5% from the 205 million we reported in Q1.

So as I took -- turn over to guidance, I think you saw in the press release, we had a very solid book to bill of 1.09. We had record backlog, again. We're 96% booked for Q3, and we have very strong visibility into Q4 already. We're obviously mindful of the macro and inventory concerns, so we're projecting our Q3 revenue to be in the range of $264 million to $272 million, which is up 4% to 7%. I think gross margins will be in the range of 57% to 58% and obviously, will vary with the product mix inventory reserves, et cetera.

OpEx will go back up more to a normal range after being below normal in Q2, mainly due to increased litigation expenses and only slightly higher personnel costs. So I think we'll be around an $86 million level, which is down -- if you look at the last couple of years, we're down very heavy from that end of it. And like I said, I expect to have the best OpEx percent of revenue in over a decade. OIE will be $400,000. Minority interest benefit would be $300,000. Tax expense should be about 2%, CapEx of $10 million to $15 million, depreciation around $14.5 million. Share count is always a wild card. I'd peg it around 193 million. So maybe 194 million right now, and you end up getting EPS of around $0.34 to $0.36.

So I'll turn the call over to Chris for a discussion of our end markets.

Christopher A. Seams

Thanks, Brad. Let me give the revenue splits by geography first. With the growth in the handset segment and the CCD growth, we see the continued shift of our revenue shifting into Asia-Pacific. North America declined to 16% of our sales, and Europe declined to 13%. Japan and Asia-Pacific, together, were 72% of our sales this quarter.

Units went up about with revenue, 8% up, 271 million units. And as Brad noted, we were up $0.01 on ASP. The pricing environment has -- continues to be very stable, very normal, I would say. There are a nominal part-by-part, account-by-account declines, but those are being offset inside of Cypress as we sell more higher value, higher ASP products and keeping our ASP up at about $1.50.

Brad commented on the Q2 end market perspective. Looking forward into Q3, we'll see continued strength in the consumer and the handset markets, and across the board, all of our markets will either grow modestly -- well, at least grow modestly within the quarter. So we expect all end segments to be just above flat to growing.

From an order pattern perspective, expedites were up at the start of the quarter. I think we told you in the call last time, we had seen some higher expedite activity in our SRAM products due to the disaster in Japan. That continued at the start of the quarter and has ebbed throughout the quarter. Cancellations remained at, what I would call, normal, just transactional, moving orders around levels, nothing to note there.

Our lead times. When I talked last time, we had our memory products and some of our touch products were above our 6-week target. We've gotten our touch products back down to the 6-week target, and the SRAM demand from the effect of Japan has continued. Some of our asynchronous static RAMs are still in the 12-week lead time area. Brad noted that our backlog increased to $379 million. It's a record for us. And our book to bill was above unity at 1.09.

By division, the book to bill CCD was 0.93, frankly because of the effect of our pulling our lead time in several weeks CCD throughout the quarter. That's why you have book to bill as below unity, and we continue to have a very large backlog in CCD and pretty good visibility on the orders. Memory products was 1.4 and Datacom was 1.14. As Brad said, we entered the quarter 96% booked, so I don't get to take a vacation this time. I have 4% work to do. And as we had in the press release, I really have to work on Q4. We do have 50% of that quarter booked, so a pretty good feel pattern into the fourth quarter as well.

Let me turn the call back to T.J. now for some more details.

T. J. Rodgers

A couple of business bulletins, then we'll go to questions. We have a major milestone -- well, actually, let me back up. We talked about the turning on the dividend. It was historic milestone for me, too, because now the rate at which I earn money from Cypress is higher from my dividend, since I'm a large shareholder, than it is from my salary. I will make sure the management stays on top of that dividend for all of us shareholders.

Major milestone for the corporation, we hit the 1 billion PSoC unit, and we did that in 8 years, which is one of the fastest product ramps in microcontroller history. And of course, the microcontroller market is decades-old, so entry is difficult against entrenched competitors. To me, it really speaks to the fact that although we count PSoC as being a microcontroller, it is, it has a microcontroller core in it, it really is a new category of products that changes that industry.

By the way, we shipped interestingly enough -- that we had a counter on our website, and the 1 billionth unit got shipped to General Electric. I sent a note to Jeff Immelt, the Chairman, this morning. He and I happened to be trustees of Dartmouth College, our alma mater, saying how strange it is that we would cross paths later in life like that.

Samsung has selected us, selected our OvationONS optical navigation system for its Android-based Intercept phones. So that's a big win. So they'll be using finger navigation on those phones. Samsung, of course, is a high volume manufacturer, growing, a huge win for us.

We also announced today that we're working with NVIDIA, working on a combination of their high-performance multi-core processors and our touchscreen implementations for a touch solution for Android. That was a big deal for us.

Fujitsu has announced that we're on 3 phones. Their code names F-07, -09 and -12 [F-07C, F-09C and F-12C]. They're going to NTT DOCOMO, another big volume win.

We unveiled a TrueTouch family solution, so this is touchscreen that sounds geeky but it's pretty important. It allows for single-layer touchscreens. So about a year ago, I had one of the top executives from Samsung in my office, and I was talking about how we could reduce the cost and improve the performance of touchscreens. And he looked at me and said, "You realize that the whole solution is around $8, and your chip is about $1. So if you take $0.10 out of your chip, $0.10 reduction, it's interesting, but if you can make the touchscreen cheaper, it's more important than your entire chip, let alone a percentage decrease in your chip."

So a touchscreen chip -- a touchscreen is layers of interconnect, like the diamond shaped pattern of copper that forms the touchpad on your computer, except that those layers are made with transparent conductors so you can see through it. It's called indium tin oxide. And today, there are 2 or 3 layers of the indium tin oxide on a touchscreen. So you put a layer, pattern it, put on an insulator, put on another layer of indium tin oxide, pattern it, put on an insulator, put on another layer. That's 3 layers with 2 layers. And this allows you to get lines that cross over each other in the X and Y direction and make a grid. So when you put your finger down, you can measure the X and Y position of your finger or 10 fingers as our products do today. Now those layers are pretty expensive. They're sputtered on. They're sputtered on large area substrate, and if you can make them smaller, it makes a big difference.

What we did was we started working, based on the input from Samsung, on what we called a backgammon pattern. But it's a single-layer of indium tin oxide, and it allows you to get X and Y information with one layer of ITO and then convert it to an X, Y position. We finally got that done, and we've introduced our solution. And what that does is if you look at the world changing today to touchscreens that are capacitive touch. So the resistive touchscreens of yesterday are going away, and capacitive touch is faster, it's prettier, lower in power, et cetera, is taking over.

And the problem is that the old resistive touchscreens are still cheaper, and what that does is, A, moves down closer with the high-quality touchscreens to the bottom. So you can now start taking market share, for example, where you can afford to be put into high-run, high-volume cell phones as opposed to only the high-end smartphones, and brings those features down. It also allows you to go into things that are -- like cameras, GPS, et cetera, where low-cost touchscreens are important. So I took time to elaborate on that point because in the press release, it's kind of interesting but what it really means isn't that clear.

We've added waterproofing capabilities to TrueTouch. It's difficult, obviously. You're measuring the tiny, tiny signal of your capacitance of your finger on a screen, and at the same time, you got mist, salt water, sweat on the screen and how do you separate out the signal from those conductive liquids from your finger. And the answer is that it's pretty sophisticated algorithm in software, and we finally got that to work. It's been over a year.

Clarion announced that CapSense was going to be in the dashboard of a Suzuki wagon. So this is our effort to start proliferating CapSense and TrueTouch later on in the automotive market. We worked through with Redpine Signals to put an 802.11a/b/g/n radio in the PSoC 3 and 5, so you now can design a wireless PSoC 3 and 5 solution. They worked with us, and you can buy that development kit on their website.

We introduced the USB 3.0 version, USB 3.0 being the third generation of 5 gigabit per second, 10x faster than the current USB version of our West Bridge chip. So USB 3.0, the most generic chip, which we've already introduced, FX3, takes a parallel bus, multiple signals, you program them to talk to anything you want. They are programmable to different levels, so they can talk to different kinds of chips. They're programmable to different widths. So you take a, what we call, GPIF, General Programmable Interface -- Generic Programmable Interface and hook it up on one end to whatever you want, and on the other end, the USB 3.0 wire comes out and that'll plug into your personal computers. So USB 3.0, our chip will allow you to hook whatever you want to your personal computer. It's the analog of our FX2 product, which we -- was our biggest product in USB 2.0 generation.

We've now brought out the West Bridge version of that, which has more in it. Instead of a parallel interface USB, it's got 2 more ports on it where you can hook an SD card. So these are non-volatile cards, which means you can come from the outside world and go to a card, you can come from a card and go into your computer, you can come from a card and go into a card. So it allows storage in the middle in effect of USB 3.0. That's important. Because at 5 gigabits per second, handling that data stream is non-trivial.

West Bridge was very successful for us in the USB 2.0 generation. It brought in $10 million per quarter in revenue. And we're hoping the USB 3.0 version will be more successful, because the ability to locally store data is even more needed in that super high-speed USB 3.0.

We've introduced a family of FIFO, first-in, first-out memories. FIFOs are like a linear storage medium where you put data in one end of the memory and you take data out of the other end of the memory, and they allow you to sync things up. So for example, you can put a video stream on the input at some rates, you can have a hiccup in it, you can have a mismatch between the rate you put data in and the rate you take data out. On the other end, you take data out and you can take it out perfectly to put it on your television screen, for example, without any hiccups, glitches or gaps in it.

FIFOs, they've been around for a long time. We think they're going to new life because HD video and imaging is obviously becoming a big deal, and you need some sort of electronic rubber band between the way data goes on and off the Internet and the way -- the perfect way that you want to use it. Our new device is 72 megabits. It's 4x bigger than the second largest device in the market, 18 megabits.

Now we already talked about the dividend. It's payable today. I will make sure, for shareholders, that we actually turn on the bureaucracy properly, and it does show up in my account. I will speak to management.

We got new directors. His name is Dr. Wilbert Van den Hoke. He takes the place of Dr. Evert van de Ven. So we always have one Dutch PhD in our board. Both those guys come from Novellus. They're both extremely technical. They both came through the ranks at Cypress of being on -- we have 7 technology advisory boards, industry experts in software, hardware, et cetera, that come in and help us, and these guys came through our advisory boards, and they were the most outstanding guys in our advisory boards. And we ask them to move them up to the board. Everts been on the board for 12 years. He moves off, Wilbert moves on.

We just announced that Weikeng in Asia and Avnet are our distribution partners of the year. Weikeng did an outstanding job designing in PSoC all over in Asia, and Avnet is moving a lot of RAMs for us. They were our partners. They won the award in distribution from us.

And finally, Cypress seems to have 4 buildings in Silicon Valley. At the peak, we had 1,200 employees here, 2005. We're now down to about 500. That left us with excess buildings. One of them went to SunPower and one of them we vacated by consolidating our people into Buildings 1 and 2. We just donated that building to the Second Harvest Food Bank. The economy is so bad here that the business "business for the food bank" is going through the roof. They're actually running out of warehouse space and actually losing food to spoilage, at the same time we have hungry people. So we are helping them convert Building 4, our Building 4, into a 75,000 square-foot warehouse, and that will allow them to serve 18 more million meals a year. It's a win-win deal. It's a onetime event for us, a $9 million transfer. We hope the shareholders will see past that. After that, Cypress will benefit because we won't have the P&L burden of the building, and community will benefit forever based on that capacity in our Second Harvest Food Bank.

By the way, we don't give a lot to charity. We have a couple of charities that we watch carefully. And the hallmark of what you have to do is you have to be local to get money from us, and you have to be efficient. Second Harvest Food Bank is 95% efficient, $0.95 on the dollar goes through directly to people, largely a volunteer workforce, and that's exemplary. There are very few charities that come even close to that. That's one of the reasons they're on our list and your list.

Okay, we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Ruben Roy.

Ruben Roy

Mizuho Securities. A question for Brad. First of all, congratulations on the uptick in the Touch guide. You've typically been conservative with the way you've guided revenues from that business and especially as it relates to tablet. Can you talk about the incremental $50 million? Just kind of has that been shipped out in the first half? And you're still conservative with the way you're looking at the second half of the year. Or how are you looking at that business in terms of linearity for the year?

Brad W. Buss

I think like we said, I mean, a chunk of it was we've obviously had very good results in Q1, probably slightly better than we thought before. We've seen good growth in Q2. The penetration the team has got across multiple new customers has been very strong. And again, don't forget there is one North American base customer that's had some product delays that's impacted us as well. So we are still able to raise that guidance. And I think, obviously, from looking at the stock chart, you guys are concerned on the current guidance, but you need to make sure you take guidance into consideration as well. Because we actually would've guided very much higher if it wasn't for some of those timing differences. And I think the tablet end of it, again, I'll let Norm talk more on that, the team's done a very good job of bringing up the technology and gaining design wins in multiple areas. And I know many people are concerned on the sell-through, and we continue to monitor it as well. So I'm hoping we have conservative guidance on that.

Ruben Roy

And then in terms of the SRAM and the demand, you guys talked about the demand from Japan continuing. Do you see that potentially uptick, incremental uptick, coming to an end by the end of the year? Is there any visibility? And if you can kind of give us an update on where you think your market share and SRAM is today, that'd be helpful.

Dana Nazarian

Oh, Roy. This is Dana. We saw an increase -- we're already seeing an increase in demand, primarily because our biggest Japanese SRAM competitors' ability deliver -- to deliver was affected by the earthquake. That had a pretty minor impact in Q2. But the backlog's placed in now, and you will definitely start seeing that in the second half of the year. In terms of SRAM market share, we -- it's an imperfect science for us due to ability to get to the level of detail of the product line from our competitors, but we think we're in the 40% range right now.

Ruben Roy

Great. And then just the last question, you guys talked, I think, about West Bridge. Would West Bridge -- the new West Bridge USB 3.0 products later to get a production in the second half. Can you just talk about what your initial design activity look like and how you're looking at the revenue ramp for that business? That's all I have.

Dinesh Ramanathan

This is Dinesh Ramanathan. So we are seeing a fair bit of activity with our customers, and again, it's the usual suspect of customers that we end up working with. The parts are supposed to go into production end of Q3, beginning Q4, but bulk of our revenue and RAM is expected either in the late to second half of next year.

Operator

Our next question comes from Betsy Van Hees.

Betsy Van Hees - Wedbush Securities Inc., Research Division

Wedbush Securities. I was wondering if you could go back to the SRAM. You mentioned that book to bill was 1.4 and that lead times had an asynchronous increase to 12 weeks. Is there any concern as you're looking into Q4 that you could have some double bookings there as your largest Japanese competitor starts to get its fab back online and ships product?

Dana Nazarian

Betsy, it's Dana again. Not too much of a concern. I mean, we monitor the distributors very tightly, their inventory. Part of the reason for the high book to bill is the fact that the lead times have pushed out, so the customer base is ordering farther out. But it's something we monitor pretty tightly. We're always concerned about that. To say that that isn't happening at all would be probably wrong, but we have flags and react appropriately.

Christopher A. Seams

The question Dana answered was, are we going to end up having a spike in revenue based on concern about SRAMs, which then will create inventory in the world that we will have to catch up with later if there's a shortage -- I mean, as the SRAM business drops off. And he said that's not going to happen, and I agree with it. With regard to the bookings, do we have a double booking, I believe we do. But that we no longer -- one of the things we changed in last year is, we no longer count distribution bookings at full value and report all that to you. We actually looked through distribution and market shipments. And of our distributors, we call it mass balance in the company. And it's our method that we use to prevent from growing our inventory internally. It also prevent us from jamming channels. Let me talk about a fab for a minute. One thing you can do wrong is, when you're trying to control inventory, you start wafers based on your business unit. Managers say, "Well, I need so many wafers for this customer, so many for that." You jam a bunch of wafers in the line. You get too many wafers coming out of the line. They sit in inventory, you build your inventory. We solve that problem with mass balance by -- in fact, when we want our overall inventory to stay flat, we don't allow wafer starts except for what comes up. So if 5,000 wafers come out in a week, we allow 5,000 wafers to go in, period. And then the argument isn't I want to start wafers for this customer, that customer, the argument is which 5,000 wafers should we start. And by doing that balance, we never allow more wafers to go up and go in and go out. Therefore, we can't build our inventory. We now taken that concept to the end shipment of true distribution. So when distributer ship to the end customer, and we don't report revenue, remember, until they ship. We do not report revenue shipments to distribution. So the failure mode is a pile of a bunch of inventory, and we think things are hot and they're not because they're piling up inventory in that shipment. So we now look at their end shipment, and we don't ship to them unless it matches their end shipment. So when we see their inventory growing, we pull back. And we're currently working the kinks out of that system. So that system absolutely will guarantee we're not going to have a book to shipments due to the phantom bookings of -- from distribution or double bookings. I do believe we have -- I don't believe the world has got a 1.4 book-to-bill right now, probably 1.2 because of the Japanese disaster and the other 0.2 is due to distributors trying to hoard some inventory, so they can take advantage of the situation. But we're on top of that and will not cause a spike in the later swail in our revenue.

Brad W. Buss

And Betsy, just to add, as Chris said, our overall lead time for the company other than Async are fantastic. They're some of the lowest that's been around 6- to 8-week range. And Async will be down around that range by the end of the quarter. And the customers understand that, and I think they're booking accordingly to that. So I wouldn't expect Q4 to go crazy.

Betsy Van Hees - Wedbush Securities Inc., Research Division

And then I just have one follow-up question. Brad, could you help us in terms of, as we're looking at Q3, how are -- how should we be modeling the growth by business? Which is going to grow the most and which is going to grow the least?

Brad W. Buss

I'd expect to see growth really in all the divisions across the board. SRAM will probably grow a little faster than it has because of some of the Japan stuff. DCD generally tends to grow lower just because of the product cycles they're in. And CCD will continue to do well. I wouldn't expect a 22% increase sequentially obviously in there, but they'll grow very healthy as well.

Operator

Our next question comes from Vijay Rakesh.

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

Yes, Sterne Agee. Just wondering on the TrueTouch side. You mentioned in the last call that you are getting into China and they're working for it. I just want to get an update on how that's going.

Norman P. Taffe

Vijay, this is Norm. Yes, I'm glad you brought that up. We are having quite a bit of success in China. And actually, part of the years we're seeing growth. Haven't had that much material impact on our sales to date, but we'll have a greater impact the second half of this year and into next year. I'd also comment that item that T.J. pointed out at the beginning of the call has been particularly effective there, the fact that we can do single layer designs now with multi-touch. And specifically, we can now enable Android phones so we can have 2 fingers on a single layer. We can allow Android support and feature phones. That's been very attractive to a lot of the Chinese handset customers and leading to significant design wins this quarter in that space.

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

Leading expect China to become a deal for second half or first half next year. Last question here. On the DCD side, any updates on the full year guide as you see your OEM, the optical stuff ramping up at Samsung, et cetera?

Dinesh Ramanathan

Yes. So this is Dinesh. So the finger navigation stuff all is primarily inside our Emerging Technology space. And yes, we do see -- actually, we do see our revenue on an uptick with those design wins coming in, primarily in the second half of this year.

Brad W. Buss

Yes. If you look at Emerging Tech, a good portion of the growth was obviously due to that and second half will be stronger than the first half, really, just due to ramping of new products. Then we'd expect it to continue to grow nicely into '12 as well, Vijay.

Operator

Our next question comes from Blayne Curtis.

Blayne Curtis - Barclays Capital, Research Division

Barclays. Just a couple of question maybe first for Brad. Just from a high level, can you talk about your 96% book? Just reference that -- if that is higher than normal and what is normal. And then the 50% book for Q4, give us any visibility as to what's driving that, the bookings in the Q4 and a better visibility there?

Brad W. Buss

I'll put Chris on the hook for this one.

Christopher A. Seams

My boss, sorry, already motioned to me, and T.J. wants to answer that question.

T. J. Rodgers

Oh, a decent quarter is 55% booked at the beginning of the quarter, and you then have to book and turn, book and ship 35% during the quarter. When you get above that, you're almost undoubtedly going to dump backlog into the next quarter. We also look at bookings in the quarter after next. Those numbers in a terrible quarter look like 10% booked quarter after next, so that would be our fourth quarter at the beginning of the third quarter. And the highest number I've ever seen is 50%. That's the highest number I've ever seen in a 4-year horizon, which is what I look at. And the highest number is 50%, and that's what we recorded this quarter.

Blayne Curtis - Barclays Capital, Research Division

Got you. And a question for Norm on the TrueTouch business. I don't want pick at it because obviously you've delivered 2 substantial quarters. When you do look at the full year guidance, it doesn't look to suggest much sequentials going forward. So just maybe some color as to you talked about some push outs. Is there any inventory you're seeing in the market? Or is that a factor of just the customer ramps? Or any color would be helpful.

Norman P. Taffe

Yes, well, we did grow TrueTouch 50% last quarter, and I think it's unrealistic to expect to talk about that rate going forward. But we are going to grow in the second half. I would also say, we obviously raised the guidance with the expectation that we won't disappoint that guidance. I know that Brad indicated the tablet success. That's been a big piece. Tablets are certainly beyond our expectations. But I also say that handsets this year are going to be beyond our expectations despite one significant disappointment relative to expectations. So overall, we see very strong growth, and I think it's impressive, frankly, after the growth we had in Q2 to actually grow significantly off of that number, which is what we expect in Q3.

Brad W. Buss

Yes. I think we're mindful of some of the customer issues that I think are well known in the marketplace and have adjusted our expectations accordingly, which again I don't think most of you had in our -- in your numbers. But I didn't see anybody adjusting Q3 numbers at all when some of that news hit. And then again, same thing on the tablets, a very good success. We continue to monitor the sell-through we see actually another handful of design wins that'll continue to roll out. And just I'm sure the question will come up, of that revised guidance that we gave, tablets are somewhere between 10% and 20%. So it's not like there's we need 1/3 or 1/2 of the business to come from tablets for those of you that get all bunched up on the sell-through end of it. So that’s a very reasonable number, I think, that's definitely attainable.

Blayne Curtis - Barclays Capital, Research Division

And maybe just one final one on the Optical Nav, you saw a huge step up in Q2. Just any perspective as to how diverse that business is. You did announce Samsung as well. And then any way to frame that opportunity for you guys going forward.

Brad W. Buss

I would say it's fairly concentrated obviously at this point and really the next couple of quarters, and you could read into that accordingly. And -- but I think going forward, the design wins that he's seeing on the current product, the new products and some other new applications outside the handsets looks very promising for 2012. And again, being PSoC based, we're one of the only guys under that can do CapSense touch, trackpads, Stringer Nav [ph], all programmable and all on PSoC. And that's a huge competitive advantage for the customer base.

T. J. Rodgers

One of our design wins right now with optical navigation that is not producing revenue yet but will, there's an optical navigation button on a cell phone, a given cell phone. And inside that optical navigation sensor is a PSoC called Krypton. Krypton is our highest volume screen controller. And for example, it controls -- oh, let's see. It's in millions of units of MP3 players, let me put it that way. So what the company realized is that by having an optical navigation system, they weren't using PSoC, they could program the PSoC further to control the screen and are now going to have optical navigation and the screen and the touchscreen all controlled by one chip that's on the order of $1. So that's the penetration into the lower-end phones that will expand our volume. Optical Nav also is going to go in other platforms. I can't talk about it but very different from cell phones.

Operator

Our next question comes from Sujee De Silva.

Sujeeva De Silva - ThinkEquity LLC, Research Division

ThinkEquity. Can you talk about the bookings for the fourth quarter being record high? Is that somewhat a directionally new norm for you, guys, given the product shift you've seen? Or should we still expect cyclical kind of returns at historical visibility?

Christopher A. Seams

Yes, Sujee, this is Chris. Frankly, as we've been thinking about it, I think probably some of the bookings further out even or our lead times were pretty good or not relative to our lead times from our customers, but they're booking a kit of parts for Product A, Product B, Product C. It's probably reflective of some of the longer lead items, and they're bumped, but they have to go to get booked. And frankly, on a proprietary world, they have to give us visibility and they just book up because they're booking up to their product rollout forecast. So it's going to take a while for us to move our historicals that T.J. talked about. But being much more proprietary, I would expect those lows to edge up over time.

Brad W. Buss

And I also think, Sujeeva, there's a ton of new customers in many parts of the company. And they tend to give you a 3-, 4-, 5-month look as you start to ramp and we're benefiting from very strong design win activity.

Sujeeva De Silva - ThinkEquity LLC, Research Division

Great. And then a question on ONS and Touch that are both doing well here. Just on smartphones alone, should we think of it being on either/or that you'd have content? Or should we expect future phone designs to really try to bring both those on at the same time?

Christopher A. Seams

This is Chris. Let me say, right now, we're working on a trifecta. The trifecta would be that we have an Optical Nav, a TrueTouch solution and a West Bridge USB 3.0 solution. And we're working on things beyond the trifecta, where more and more content would come in to Cypress. And with our building blocks of IP both in the design world and within our families of PSoCs, we're able to piece together solutions for that space and others in the world very, very quickly and get our customers to market with an integrated BOM or higher value solutions. So right now I aim for the trifecta, and I dream of things beyond that.

Operator

Our next question comes from Steven Eliscu.

Steven Eliscu - UBS Investment Bank, Research Division

Yes. UBS. So first question, regarding litigation in the wireless world, that's become, of course, a lot more topical recently. And with regards to TrueTouch, are you seeing any change in the way customers are viewing you and their willingness to, or lack thereof, to bring new entrants on that don't necessarily have the same patent portfolio?

Norman P. Taffe

Steve, this is Norm. I think that's a very good point you just made. We actually are seeing that all the noise kind of come back again from a couple of years ago. And one of the things we're seeing is the big OEMs are frankly reluctant to entertain a lot of these newer entrants because they don't have the substantial IP position. And from our perspective, a couple of days ago, I think one of a -- a significant OEM made a comment that while they love competition, they would really prefer that the competitors come up with their own IP. We hold very much that same position. And I'll point out that we now have over 500 patents in PSoC either applied for or granted, and over 100 of those are in the Touch space. So we think that, that strong patent position is one of the things that's allowing us to continue to be very successful at the large OEMs.

T. J. Rodgers

And we're going to make sure we protect that.

Steven Eliscu - UBS Investment Bank, Research Division

Great. That's helpful. Just also asking another question around TrueTouch and your raised guidance. Can you give a sense, so just because new designs are coming on that you didn't necessarily plan for when you gave earlier guidance that you see ramping later in the year? Or is this just the designs that you have that are turning out to end up looking better than you originally had thought?

Norman P. Taffe

That's a good question. It's a little bit of both. I will tell you that there are a couple of OEMs that we were hesitant to guide in our guidance for the year. Not sure that we will penetrate that, haven't been turned on incremental major OEMs. And actually, most of their growth will in the second half of the year, and I think that has allowed us to raise the guidance accordingly. And some of the designs we had have proved to be more successful than we really expected. The smartphone space is growing more rapidly every quarter than people thought, and those designs we already had have done the same.

Steven Eliscu - UBS Investment Bank, Research Division

Great. And my last question is just around Synchronous SRAM. Can you give us a sense just some of the things that are going on? We heard from a couple of the FPGA guys talking about wired and wireless infrastructure and enterprise networking. And can you give us a sense what you're seeing in each of those 3 segments with regard to your Synchronous SRAM business, what you saw on Q2, what you expect in Q3?

Dana Nazarian

Well, what's going on, bigger picture in those spaces is again with all the increase in handsets and tablets and video on Internet. There's a general increase in demand for higher bandwidth products. So that's right up our alley and Synchronous SRAMs will make the world's fastest QDR device. And that's what the customers and the market is pushing us to keep increasing the bandwidth of the pipeline. And so we're working with both processor solutions and FPGA solutions to be able to configure our parts for higher, what we call, random transaction rate. So it's nothing specific to Q2 or Q3. It's just a general trend in increased density and increased bandwidth to make these applications successful.

Steven Eliscu - UBS Investment Bank, Research Division

I guess tactically are you seeing any lingering effects of inventory rebalancing that has been sighted in the -- especially the enterprise area? And any pockets of strength or weakness in wireless or wired telecom?

Dana Nazarian

No, I think what happened is in 2010, there was a pretty massive ramp up after a sluggish 2009, and that balanced itself out towards the end of 2010. And now it's back to a more predictable pattern this year.

T. J. Rodgers

The SRAMs that ebb and flow and have the potential to stop the channel are Asynchronous SRAMs and generic SRAMs that go and everything else. Synchronous SRAMs, the cheap one is $10. It's commonly $40. You're shipping to 10 companies or 12 companies in the world. They know you know them. If any, you're qualifying them. You know exactly they have 4 or 8 or 12 or 16 in a system. And the pipeline is very transparent. They don't want a bunch of $40 RAMs sitting around in their inventory. You never ever would prevent them from shipping a router because you didn't ship them an SRAM. And therefore, everybody watches that pipeline, and that pipeline doesn't sort of explode and contract the way the commodity SRAMs do.

Operator

Our next question comes from Raji Gill.

Rajvindra S. Gill - Needham & Company, LLC, Research Division

Yes, Needham & Company. A question on the guidance. Just following up. If you could take your commentary, Brad, about different segments, it would imply that there is kind of a massive deceleration in growth on the CCD business. And I know you had mentioned that's due do some sort of timing of your product push outs, but that kind of begs the question that, that particular customer represents a large amount of the TrueTouch revenue. So just wanted to give a sense, is that the case? And kind of what's your -- do you see any risk in the fourth quarter if those products could be potentially delayed further out?

Brad W. Buss

No, I don't think so. I think we've been very conservative in our numbers, guidance and expectations in that area. And if anything, I'm hoping to get surprised the other way.

Rajvindra S. Gill - Needham & Company, LLC, Research Division

Is there a particular customer that represents a bigger magnitude of revenue in TrueTouch versus others?

Brad W. Buss

Well there’s always a bigger customer in every group that is bigger than somebody else. But -- I mean, we don't have the 10% customer for the company overall. There obviously are 10% customers within TrueTouch. I think it's some of the incumbents that we had. And like Norm has mentioned, we picked some very big share up out of few other guys that we have and maybe Norm wants to elaborate on that a little more.

Norman P. Taffe

Yes, actually, I would say while we have some very large customers in that space of course because it's a concentrated space, I think the breadth, of course, because it's a concentrated space, I think the breadth of significant contributors has grown quite a bit. In fact, in Q2 and in Q3, one of the reasons for the growth we're seeing is customers 3, 4, 5 and 6 being substantial and really an increased breadth of big Touch customers.

Brad W. Buss

Yes. If you wound back a year ago, 2 guys, 3 guys, any big fart and one of them would've been painful, right? And now it's really not as big of an issue. I mean, somebody would have to substantially go cut in half or go to 0 for us to even feel it. I think, hence, the reason even with the one customer you're inferring, I think, we are still able to crank that guidance up substantially.

Rajvindra S. Gill - Needham & Company, LLC, Research Division

And if you can maybe talk a little bit about the competitive landscape, how it's kind of shifted quarter-over-quarter. Any significant changes there with some of your other 2 rivals and follow with the other question about the patents. I mean, do you think that could be a differentiator in terms of new entrants moving into the marketplace? Or any thoughts around that will be good.

Norman P. Taffe

Yes. This is Norm. Let me address it a couple of ways. First and foremost, from a competitive standpoint, we're quite confident that we're actually gaining momentum from position standpoint. One very important development in the past quarter is, we began sampling to lead customers our fourth-generation device. We absolutely expect that to reestablish Cypress as the technology leader in touchscreens without a doubt. And you'll be able to hear more about that later in this quarter, and that's already at -- that kind of feedback I just mentioned comes directly from the customers. And while we introduce that device to the lead guys, our engineers are working on the fifth generation part. So we can talk a lot about new guys showing up and entrants in the market. But the fact is this is a complex solution play, and we've got a ton of experience. And we keep making it tougher and tougher, and the challenge gets harder and harder. It's also some -- I repeat, every time, this is not just a chip story, it's about actually knowing how to design sensors and how to design the firmware, how to deliver a whole solution to this market and then address the constantly changing needs. And as T.J. pointed out, most of the cost in this thing is not the chips anyway. It's us allowing the cell phone manufacturers to go to ever thinner and lower cost total solutions. And that's a very, very complex technical problem. And then to add to your point you made, the IP is certainly a part of that, and we absolutely think that the differentiated benefit that we have great IP and patented IP in that space.

Rajvindra S. Gill - Needham & Company, LLC, Research Division

And just a last question, T.J., you described it very accurately in terms of the shift to the single layer. Do you give up any functionality or in terms of the accuracy or precision or performance when you move from multiple layer to a single layer? And how are you -- how is Cypress involved in that process? Are you working with the sensor suppliers themselves or how does that process work when you move from, say, multiple layer to a single layer?

T. J. Rodgers

Yes, the -- that's a good question. We've actually had to reorganize a little bit because we really are selling solutions not a chip. One of the things that the new entrants in this market we'll find withering is that they have to give a solution. They can't just make a chip and say, "We've got good signal to noise, buy my chip." We actually have an organization in sales and marketing and deals with partners. ITO itself is different companies of different technologies, and they're different to drive with a chip. So one of the advantages of PSoC is you can reconfigure the chip to do different things with different sensors. So we work with partners. Can we name a partner?

Brad W. Buss

Sure, any of the major partners of the old PPK [ph], all those kind of guys.

T. J. Rodgers

And we develop chips to drive their screens. Now to answer your question do you lose performance, some, sure. If you want our best solution, you're going to take a 3-layer, you're going to have X, Y and a ground plane to make it noise 0. And you're going to take our biggest chip and you're going to have a screen that's spectacular. You're going to have hovering capability, et cetera. And when you go down to a single layer, you give up some of those features. But for a user, you can make a really good screen. So in another way, you can take a phone and wouldn't have a screen in that at all and put a screen on it that’s really very nice, very cheaply. But no, is that the full-featured top-end screen, no. It gives us some of that stuff. You still have multi-finger. And you have multi-finger then do the gestures. Once you can do that, then you're in a different category. After that, if you hover your finger near the phone near the icon, you're about to expand under an inch of your finger, so it's easier to touch, no. But we provide that with our -- a bigger more, extensive solution. It's a family. Our touchscreen chips go from $0.60 to $4, and there's -- they stock all the way to the middle.

Operator

Our next question comes from John Vinh.

John Vinh - Collins Stewart LLC, Research Division

Collins Stewart. First question is you talked about having some visibility into Q4. You seem very confident about your TrueTouch guidance. Would it be safe to say that you would expect TrueTouch to continue to grow into Q4 at this point based on your visibility?

Norman P. Taffe

This is Norm. Based on what we see so far, I'd answer that as, yes.

John Vinh - Collins Stewart LLC, Research Division

Just a follow-up question on single-layer. Are you seeing any sort of opportunities to place single-layer to larger screens like tablet-sized screens or is it really focused on smartphones today?

Norman P. Taffe

It's really focused on smartphones today, as customers who took, some call it Sensor on Lens, there could be opportunities in the larger screen space. But today, it's really a handset play.

John Vinh - Collins Stewart LLC, Research Division

And then also just a clarification on your Tegra announcement. Can you give us a little bit more visibility on that? Would we expect to see design wins today on Tegra-based platforms? And can we expect to see production wins this year with your single-chip solutions on Tegra?

Christopher A. Seams

This is Chris, John. Yes. I think it's going to be timing of the end customer but it will be late fourth quarter, I think, that, that's possible and for sure in the first quarter.

John Vinh - Collins Stewart LLC, Research Division

And then just the last question for me. On gross margins, given that TrueTouch is going to be the majority of the revenues in CCD, right now, you seem to be kind of plateauing out at 58%. How do we think about CCD gross margins longer-term? Are there opportunities to drive gross margins higher back to that 60% level? At this point, if you could talk about the puts and takes there that will be helpful?

Christopher A. Seams

I mean, definitely, John. I mean, don't forget, we've got USB and clocks in there. The USB, it tends to be at the lower end of that average. And as we roll in the USB 3.0, one, that's going to be a nice ASP boost, a margin boost and a revenue boost, and that will be really in 2012. And I think more importantly, and I think it be good for Norm to comment, the design win traction, PSoCs 3 and 5, is very strong right now. As that turns into revenue, that will be a margin adder as well. So I think going into '12, CCD has definitely going to be moving more to the right of the range. But don't forget, we want to run the company in the 58% to 60% range. We're still doing a lot of handsets. We do a lot of PC consumer-orientated stuff and we want to continue to grow much faster than the industry that we have, delivering those kind of margins and a 30% PBT. But in a lot of product sides we may get in margin, we may decide to deploy in other areas as well.

Brad W. Buss

Let me talk about the way we view and what we drive towards gross margin as a philosophy rather than where we are this quarter and going the next couple of quarters. If we want to make the company more valuable, the market wants 2 things. They want profit, right now, our bonus plans don't pay our full bonus until we have 25% profit, our model is 30%. But there are companies out there that are very profitable in the 30% -- 25% to 30% range whose share price has been stalled for years in high-tech. So second point is the market wants growth. If you take that back to your portfolio of products, if you want growth, you're going to couple up with high-volume Asian manufacturers and they're not going to give you the great gross margins. Our products range in gross margin from -- some of our ultra high volume older products might be as low as 40% and some of those products are 85%. So we adjust gross margin, in fact, by changing our portfolio. What businesses we go in our -- or where we take PSoCs because it pretty much can go wherever we want. So the balancing act is we could go into the 80% gross margin only, keep the growth of the corporation very modest, report a little bit more profit and they have no growth. And we kind of think 60% gross margin’s the sweet spot, and if we got above it, we deliberately take on some business at a lower gross margin as part of our portfolio of products and we could have growth and good profitably. So 60% our target and if we're on either side of it, we will be doing active management to drive towards that target.

Operator

Our next question comes from John Pitzer.

John Pitzer - Crédit Suisse AG, Research Division

Credit Suisse. I guess, Brad, following up on that gross margin question, I just want to dig in a little bit deeper because, overall, company revenue grew about $22 million sequentially, and that effectively was mostly TrueTouch. And gross profit grew about $10 million sequentially. And so that's about a 47% incremental gross profit on the revenue growth. And even if I adjust for depreciation, you're still coming out about a 50% incremental gross margin. So I guess I want to better understand the gross margin uplift opportunity in the TrueTouch business, especially because you could paint an argument of incremental competition coming in and/or pricing pressure in the overall smartphone market as you're moving to 2012. Can you help me understand that a little bit?

Brad W. Buss

So I think 2 things. I mean, we dropped 100% of the incremental GP at the bottom line, which obviously was amazing. The margins went backwards, not quite a point, right? And part of it is the mix of the customers, the products. And don't forget the emerging Tech grew right? I mean, that became a pretty big nudge way below the corporate average margins, so that starts to weigh on you a little bit. That's why I gave the comment and we've shown in the release what the core business did. It was in, I think, 58.2%, the core business ended up doing, right? So really most of it, really, was mix, a little bit of depreciation on the S8 expansion, we took a few inventory charges like everyone else. Higher input cost were pretty minor. Wafer stuff's been pretty flat. We're seeing the impact of gold. All like T.J. was saying, I mean the real big thing is really just going to be the mix of products going forward. I don't think you're going see anything radical in the touch area at all for the next year.

John Vinh - Collins Stewart LLC, Research Division

But I guess as a follow-on, is there leverage as touch grows so that the margins within touch get better or do we expect margins in touch to kind of be flat from here even as the market expands?

Norman P. Taffe

This is Norm. We believe there is leverage to go even further north in touch and already has very healthy gross margins. Part of that is because like -- as I mentioned, we just brought out our fourth generation product, our ASPs in touch actually have continued to go upward every quarter. The reason is because the customer is adopting the higher-end solution, the multi-point solutions. And also, they influence things like the tablet space, where you get -- again, you're addressing a higher value solution insulating up where you're pricing. So we think there's increased leverage and margin opportunity there. And Of course, there's also cost for some things we constantly to make sure we can deliver that.

Brad W. Buss

Yes. I'd still think you're going to see a combination of the margins. Being able to be in the 58% to 60% range. And then again, I think we've done an amazing job on OpEx, you continue to see other people inching up their OpEx having to invest heavily to go do new things. A lot of our heavy lifting is done. We rolled out some massive platforms from Touch, PSoC 3 and 5, the USB 3.0 and even, quite frankly, a lot of the Emerging Tech investment is probably starting to tee. And I think you're going to see tremendous leverage from the margin and more importantly on the OpEx, that will get us to that 30% range. I mean, don't forget our profitability on an operating basis has more than doubled since the downturn at the end of '08. And it's OpEx and it's margin, and I think you'll see both of them continue to move up.

John Vinh - Collins Stewart LLC, Research Division

My last question is for T.J. T.J., given all the growth in TrueTouch, it's easy to ignore some of the other good things that are going on in CCD and in fact, on a year-over-year basis, the non-TrueTouch business kind of continues to grow pretty healthy. I'm wondering if you can help me understand how we think about growth prospects for PSoC versus microcontrollers and how you think you're doing on design activity and what kind of growth rate you could see in the non-TrueTouch business within CCD.

T. J. Rodgers

That's a very good question. We ask it ourselves, of ourselves all the time. The last time I reviewed it was Monday of this week for 8 hours in the room I'm sitting right now, the boardroom. I just had it sectioned, but each of the other groups had their section. Power PSoC, Platform PSoC, PSoC 1, PSoC 3. The last time I talked about it was this morning between 7:30 and 8:00 when I dictated a, what I euphemize, actually call an action request, which is a written "request" for me to do something and I wanted an analysis of our design wins in non-TrueTouch. TrueTouch is kind of like catnip. It's huge volume, big wins, it's a lot of fun. But I've been focusing on building up the base, building up the category of e-customers through distribution over time such that when we have the inevitable ups and downs in TrueTouch, we've got that solid base. So we focus on that a lot. It is much more profitable. We're dancing around the question of TrueTouch margins and you -- somebody calculated that we had a huge increase in business at 50% gross margin. Okay, well, I said our gross margin's portfolio is 40% to 80%, and that particular increment of business was with a customer that was in that gross margin range. TrueTouch -- PSoC gross margins in the Cap B sector are much higher than 65%, 70%. And that's a business focusing on building. So we've got that base built up, so when it hits the fan sometime later on for some reason I don't know, that we've got that base that will sustain us. It's a very good question and it's something we think about all the time here.

Operator

Our next question comes from Blake Harper.

Blake Harper - Signal Hill

Signal Hill. I've had my questions answered. Thanks guys.

Operator

Our next question is from Charlie Anderson.

Charlie Anderson - Dougherty & Company LLC, Research Division

Dougherty & Company. I'm just curious on sort of units versus ASP on TrueTouch. Is the market doubling in terms of units and you're having sort of flat ASPs year-over-year? If you can kind of talk about consolidated ASP from here as you've started to layer in tablets. And then kind of wondering where you see that next year, does the unit growth go down but then you have more tablets so your consolidated ASP goes up? Any color there would be helpful.

Norman P. Taffe

Hi, Charlie, this is Norm. I don't actually have that metric up the top of my head as far as what the difference is. I can say, overall, ASP in our touch continues to climb, it's been climbing dramatically over the quarter. And as obviously, but just think, in my head, we're doing more than doubling, we're more than doubling in units. I think, from a rough order, it's the slight increase on the ASP side. Tablet is influencing at a higher ASP level, so that's increasing it. Honestly, relative to next year, I haven't -- we have not done any detailed planning relative to what we see happening next year.

Charlie Anderson - Dougherty & Company LLC, Research Division

If you were to look at sort of your mix of new design wins, what would that tell you about ASP going forward, Norm?

Norman P. Taffe

Well, I think the new design wins that we're getting are at the higher end as people continue to demand multi-touch capability in tablets. So that's why I see an influence. And then frankly, our fourth generation devices get higher end capability, and we expect that to have a positive impact on ASPs.

Brad W. Buss

And then a lot of the non-tablet cell phone stuff is very beneficial on an ASP basis and we've made very good headwind there and that's a big focus area as well for not only this year but the next handful of years, too. The touch is definitely not going to be slowing down anytime soon, but we're not in a position to give any guidance for '12 yet. We'll probably give you a little more clarity here in the end of next quarter's call.

T. J. Rodgers

ASP in touch is really a matter of mix, and profitability can be good at the low or high end. For example, you can make 30% profit on $1 chip. You can make 30% profit on a $4 chip. So the ASP is not really a very good indicator of your ability to make profit. It's an indicator of how complex the system is. So the high-end touch chips with the $4-plus chips go in tablets because you've got a great big screen, you've got a big chip, you've got a lot of resources. On the other hand, what I described earlier, if we can get a touchscreen in low-end phones, that could double or volume. It will lower our ASP but it wouldn't necessarily lower our margins there or profitability. That's just many more smaller chips at a lower price, but still a good margin. This year, touch ASP is going to be flat to up based on mix and the design wins we see. Next year, I would hope that our ASP is flat to down as we penetrate profitably the mass market of the cell phones beyond the smartphones and really get some volume.

Operator

Our next question comes from Srini Pajjuri.

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

CLSA. A couple of clarifications, actually. Brad, given the increase in guidance for touch, your numbers are going up a little bit but not that much versus your guidance. Just wondering, what are the areas that -- are there any areas that are weaker than you anticipated? As I look at my model, it looks like PSoC only grew modestly in Q2. Was there any weakness with the PSoC versus your prior expectations? And if so, what's causing that?

Brad W. Buss

No, I don't think so. I think the challenge you guys all like to break the divisions down and the different product lines and you make all your assumptions and then you kind of go, that didn't turn out the way I thought. We don't guide down to all 15 of the business units. So there's really -- I mean, from my end of it, nothing. I mean, if I look at our plan that we set for the beginning of the year, as far as coming in to where we expected, it's probably the best we've ever done in the 6 years I've been here and the mix within the product lines have been pretty consistent. I mean, there's obviously puts and takes on delays with customers, but nothing out of the ordinary at all. I mean, the Emerging Tech is probably doing a little better than I would have predicted at the beginning of the year. And touch is obviously doing very well. It's definitely doing better than what I would have expected. But other than that, things are doing very well. I'm very pleased with that, but more importantly, the design activity. I mean, it's been at record levels and it's across the board and there are so many things that haven't ramped yet that are going to be ramping into '12. Again, PSoC 3 and 5, you guys are going to see a lot of that coming next year, USB 3.0, the continuation of touch. I mean, Dana is expanding in the SRAM area. There's really not an area that I don't think you'll see some kind of decent growth, especially when you compare it to what's going on with our peers.

T. J. Rodgers

So the question is really about puts and takes. If TrueTouch is going through the roof and your guidance for the overall company is going up modestly, therefore, the rest of the company, not TrueTouch, must have a take as opposed to a put. And that's true. Where can I name that the business is not to expectations? Commodity SRAMs. We reviewed that all day yesterday. The overall economy and the world is not that great, the Japanese market, which is a very large market, is stunned and not buying stuff right now. And not the communications SRAMs we talked about earlier, but the commodity SRAMs that go in everything else, they are not living up to expectations right now. So that's one of the things that balances off against the TrueTouch home run and gives us a slight upward trend as opposed to putting the 100% of the TrueTouch upside into our numbers.

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

It makes sense. And then Brad, you talked about Q4 being about 50% booked, I'm just wondering and I'm guessing this is related to your normal seasonality in Q4, which is, I believe, it's down slightly. And given the mix shift to handsets and smartphones, how should we think about seasonality this year both for Q4 as well as Q1?

Brad W. Buss

It's a very good question. As we get a pretty substantial portion of our business, like I said, it was 29% in handsets, I would expect that we'll start to follow some level of the handset seasonality. You obviously have new customers that come in that can balance that one way or the other. Sitting here right now, Q4 for us can be up a couple of points, down a couple of point depending on the strength of Q3. I'm expecting that to probably be somewhere in this range at this point in time. And then you throw up the whole, what's going to happen with the debt? What's going to happen with the economy? There's nothing that's concerning us by any stretch at all, but we're mindful of it. So I would keep it there. And as far as the Q1, we normally go backwards pretty heavy. I really don't have any input to give you on that right now. Probably it's generally not going to be the same degree as it has been historically. But let us give you a better look at that next quarter.

Operator

Our next question comes from Christopher Danely.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

JP Morgan. Brad, just a follow-up on that question, how do you expect depreciation to trend next year versus this year?

Brad W. Buss

It'll be up because of the S8 expansion that we've been doing. I mean, it went up $1 million this quarter. I'd expect it'll probably climb again in Q4, and then level out, and then start trending down.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

And then OpEx, going through next year, would you expect it to trend up but less than sales or is there something else going on that could make up or down more than that?

Brad W. Buss

No. Far less than sales for sure. I think you'll see very strong leverage going into next year as well. I mean, our goal is to get 70% to 80% of the incremental GP to fall through to the bottom line.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

And the last question, can you just give us a sense of how much you guys are counting on from tablets this year?

Brad W. Buss

The guidance that I gave that revised that, I said 10% to 20% of the revised guidance with the tablet orientation so...

Christopher B. Danely - JP Morgan Chase & Co, Research Division

On the specific touch guidance?

Brad W. Buss

Of the specific touch guidance, yes. But 10% to 20% of the $230 million to $250 million.

Operator

And our final question comes from Jeff Schreiner.

Jeffrey A. Schreiner - Capstone Investments, Research Division

Capstone Investments. Brad, I just wanted to follow-up with all the commentary about fourth quarter and the fact that it may be a higher level than normal being it around 50% booked already. How much of that, being kind of booked ahead, due to some of the commentary from Dana from SRAM and your commentary related to the North American carrier push out, is that playing a big role in the visibility into Q4 at this point?

Christopher A. Seams

Jeff, this is Chris. The answer is you think it would be that way but it's, frankly, broadly across all 3 divisions. They're all at the top of the range of historical levels into Q4. So some of it in SRAM might be due to that, but I think the proprietariness of the other 2 divisions is just causing customers to lay in their forecasts at this point.

Jeffrey A. Schreiner - Capstone Investments, Research Division

And I want to ask the question in a different way maybe. Tablets is a hot topic sometimes, but normally looking at these landscapes today and who you're working with and who you're building tablets for, how many OEMs are still going to be building tablets 6 to 9 months from now in Cypress' mind?

T. J. Rodgers

So you want us to comment on which of our customers we believe is going to go out of business? We'll take a pass on that one. We love them all and we hope there's 10 more coming, because there are actually.

Christopher A. Seams

Jeff, this is Chris. The notebook market these days is around 200 million units a year and a lot of guys consider that a 200 million-unit market that's open game right now and I think there are going to be a lot of guys still making tablets in the hopes of coming to take that market. And as functionality of the tablets increase over time, that might happen. I think in the next 6 to 9 months, I don't see design activity abating.

Jeffrey A. Schreiner - Capstone Investments, Research Division

One last one, and I appreciate the time. As I typically ask, just wondering where the notebook touchpad revenue stand at this point, and should we start to see some unit shipments become a little bit more significant in the second half to the first half of next year, second half this year first half next year, or have seen some unit shipments already?

Brad W. Buss

No. We've actually seen some unit shipments. We've been ramping into a couple of Tier 1 guys. But more importantly, the design activity with the Tier 1 guys has been very strong. These programs take a while to get into. You generally start on smaller programs, prove yourself, then grow. And we're very pleased with the trajectory. And again, I expect it to be one of our growth areas for next year. And you could use your dividend and go buy a couple of laptops with our trackpad in it. I love mine.

Operator

Thank you. I will now turn the call back over to the speakers for closing comments.

T. J. Rodgers

Thank you very much for attending our meeting. We had a good quarter. We're projecting the next quarter to be good. We've got visibility into the fourth quarter, which looks like it's going to be a good quarter for us after that. We'll have to get back to you in 91 days. Thank you very much for attending.

Operator

Thank you. And this does conclude today's conference call. We thank you for your participation. You may now disconnect your lines.

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