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National Instruments Corporation (NASDAQ:NATI)

Q3 2011 Earnings Call

October 26, 2011 5:00 PM ET

Executives

David Hugley – Vice President, General Counsel and Secretary

Alex Davern – Chief Operating Officer

Dr. James Truchard – President, CEO and Co-Founder

Pete Zogas – Senior Vice President, Sales and Marketing

Analysts

Anthony Luscri – JPMorgan

William Stein – Credit Suisse

Rob Mason – Robert W. Baird

Mac Muirhead – Longbow Research

Operator

Good day, everyone. And welcome to the National Instruments Third Quarter 2011 Earnings Conference Call. Today’s call is being recorded. You may refer to your press packet for the replay dial in number and pass code.

With us today are David Hugley, Vice President, General Counsel and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, President, CEO and Co-Founder and Pete Zogas, Senior Vice President of Sales and Marketing.

For opening remarks I would like to turn the call over to Mr. David Hugley, Vice President, Corporate Counsel and Secretary. Please go ahead, sir.

David Hugley

Good afternoon. During the course of this conference call we should make forward-looking statements including statements regarding future revenue growth opportunities and our guidance for Q4 revenue operating expense and earnings per share, our potential product releases and success in large accounts. We wish to caution you that such statements are just predictions and that actual events or results may differ materially. We refer you to the documents the company files regularly with the Securities and Exchange Commission including the company’s most recent annual report on Form 10-K filed February 18, 2011 and our most recent quarterly report on Form 10-Q filed July 29, 2011. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements.

With that, I will now turn it over to the Chief Executive Officer of National Instruments Corporation, Dr. James Truchard.

James Truchard

Thank you, David. Good afternoon and thank you for joining us. Our key points today for the third quarter are, record quarterly revenue, record revenue for our CompactRIO and TXI products and the successful execution of our 2011 investment plan.

I am extremely pleased to report continued strong revenue growth and an all-time revenue record in Q3. We believe our ability to deliver record revenue despite the rapid decline in the global purchasing managers index in Q3 is a validation of the strength of our business model and our ability to execute.

In addition we’ve made significant progress on growing our large orders, demonstrating that the investment decision to grow system level businesses is paying off. I believe our strategic investment in innovation and customer adoption are key to our future growth and I continue to be optimistic about our position in the industry.

In our call today, Alex Davern, our Chief Operating Officer, will review our results. Pete Zogas, our Senior Vice President of Sales and Marketing, will discuss our business and I will close with a few comments before we open up for your questions. Alex?

Alex Davern

Good afternoon. Q3 was a very successful quarter and there is some clear positives to take away. First we had record revenue with very strong year-over-year growth in orders over $20,000. Second, we have essentially concluded our 2011 investment plan. And third, for the year-to-date we have successfully kept our non-GAAP revenue and expense growth in balance growing revenue 22% and expenses 23% year-to-date.

Revenue for Q3 was $255 million, up 16% year-over-year and non-GAAP revenue for Q3 was $271 million, up 23% year-over-year. As described in our press release, for Q3 we have two adjustments between GAAP and non-GAAP revenue. The first is for $3 million and relates to the purchase accounting for deferred revenue for our AWR acquisition. This adjustment was included in the guidance we gave for Q3 and will continue for the next several quarters.

The second adjustment is a $13 million accrual which we have taken in Q3 related to our GSA contract with the U.S. Government. And I terminated this contract in May and this adjustment covers the expected costs to resolve a contract disagreement with the GSA. This dispute was discussed in our Form 10-Qs filed in both April and July.

From our product point of view, revenue for our traditional and control products, which now only represent 6% of revenue, was up 1% year-over-year in Q3 while revenue for all of our other products was up 24% year-over-year. Backlog increased slightly in Q3 compared to Q2 and our deferred revenue balance increased by $3.2 million sequentially.

Now turning to expenses. As we discussed on our last call, our decision to make significant investments in 2011, coupled with our strategy of recruiting the majority of engineers as they graduate from university in June, July and August has resulted in significant spike in our year-over-year growth of our total expenses in Q3. So in line with our investment plan, our non-GAAP operating expenses were up 30% year-over-year in Q3.

Overall head count was 6,130 up approximately 650 people or 12% since March and up 18% year-over-year. We believe these investments give us the ability to fully leverage the strategic advances we’ve made in our lab PXI data acquisition and CompactRIO platforms and are necessary to drive our long term growth.

When we look at the results for the broader time scale of the first nine months of the year, you can see the discipline that we have exercised this year in matching expense growth to revenue growth. Specifically for the first nine months of 2011, non-GAAP revenue is up 22% while non-GAAP operating expenses are up by 23%.

As a result, for the first nine months, we have delivered record non-GAAP operating income of $120 million, up 21% year-over-year. This represents a 16% non-GAAP operating margin in line with the first nine months of last year.

Net income for Q3 was $13 million with fully diluted earnings per share of $0.11. Non-GAAP net income was $31 million with non-GAAP fully diluted earnings per share of $0.26, $0.01 below the midpoint of our guidance. The main reconciling item with guidance was a $700,000 foreign exchange loss primarily related to the rapid fall of the euro at the end of September. A reconciliation of our GAAP to non-GAAP results is included in our earnings press release.

As we look to finish out 2011, I’d like to take a moment to reflect on our execution through the last five years. Despite the worst recession in modern history and the recent collapse of the global PMI, National Instruments has delivered strong revenue and operating income growth during the last five years.

We’ve also stayed true to our long-term strategy over the last five years. Increasing our R&D personnel by approximately 70%, our field sales force by 90%, our orders greater than $20,000 by over 140% and releasing hundreds of new products that have expanded our ability to serve customers in a diversity of new application areas.

Key to enabling this performance has been our expanded gross margins. Over the last five years on a year-to-date basis, we have expanded our non-GAAP gross margins by approximately 350 basis points, which has allowed us to deliver a good profit growth, while making the strategic investments necessary to sustain the long-term growth of the company.

Now turning to the balance sheet. Inventory declined by $9 million during the quarter and our cash and short-term securities increased by $16 million with $336 million as of September 30, 2011. Now, I’d like to make some forward-looking statements.

With the global PMI dipping below 50 in September, we did see the significant decline in Q3 that we had anticipated when giving guidance. Looking forward, we anticipate continued further weakness in industrial economy in Q4 and as a result, we are taking a conservative approach to guidance for Q4. Guiding to 8% sequential non-GAAP revenue growth at the mid-point this is below the historical seasonal average for Q4.

From the expense side, we have essentially concluded our 2011 investment plan and we will see the pace of new hiring slow dramatically in Q4. As we look out to 2012, we have become more cautious and we anticipate limited personnel additions in 2012. Now turning to specific guidance for Q4.

We currently expect revenue for Q4 to be a new all time record and to be in a range of $280 million to $300 million. In Q4, we expect non-GAAP revenue, which excludes the impact of acquisition accounting on deferred revenue to be in a range of $282 million to $302 million. With this guidance, we expect to deliver annual revenue of over $1 billion. This would be a new milestone for NI and a significant step towards our goal of reaching $2 billion in revenue by 2016.

Given that we are closing out our 2011 investment plan, we expect to see a very modest increase in non-GAAP operating expenses in Q4. And looking out to 2012, our objective will be to grow revenues faster than expenses and we believe we will be able to achieve this goal, if we’re able to deliver year-over-year revenue growth in a high single-digit range or better.

We currently expect that GAAP fully diluted earnings per share for Q4 will be in the range of $0.22 to $0.30 per share with non-GAAP fully diluted earnings per share expected to be in the range of $0.29 to $0.37. But these are forward-looking statements and with caution needed actual revenues and earnings could be negatively affected by numerous factors such as any further weakness in the global economy, rescheduling of customer orders, expense overruns, manufacturing inefficiencies, effective tax rates and foreign exchange fluctuations.

In summary, we are very pleased with our strong performance this year and believe we are well positioned to achieve our growth goals. Now I’ll turn it over to Pete Zogas, Senior Vice President of Sales and Marketing.

Peter Zogas

Thank you, Alex. We were extremely pleased with our strong year-over-year revenue growth and our ability to set a new all-time high for quarterly revenue. We believe our performance is a testament to the strength of our business model and validates the investments we have made in growing our field sales force and R&D personnel.

Since September 2010, we’ve increased field sales, head count and R&D head count by 23%. We believe these investments will allow us to continue to deliver world-class products as well as give us the expertise in the field to further penetrate large accounts.

In Q3 our orders over $20,000 grew 31% year-over-year while our orders under $20,000 grew 10% year-over-year. Our average order size reached an all-time high of approximately $4,600. This success reflects the enhancements we have made in our product and service offerings, the excellence of our network of integrators and our outstanding sales teams.

At our annual NI Week User Conference in August we announced more than 50 new products and delivered more than 200 technical sessions to a record crowd of approximately 3,300 engineers and scientists. We released LabVIEW 2011 which incorporates numerous user-requested features from our passionate user base that accelerates their productivity while continuing to allow users to innovate on a stable platform for mission critical applications.

When customers buy LabVIEW they’re plugging in to a vast ecosystem of NI and third party add-ons available through the LabVIEW tools network as well as the ability to interact with almost any hardware device through the more than 10,000 available instrument drivers. When customers use LabVIEW combined with the modular hardware approach with NI Data Acquisition, CompactRIO and PXI they are able to quickly integrate system components and do their jobs faster, better and at a lower cost.

As we continue to expand our software offering the trend towards software based test systems presents NI with significant opportunity. During the quarter we strong year-over-year growth in our PXI modular instruments with our RF and FlexRIO products experiencing record revenue.

In Q3 we released the industry’s first 14-gigahertz RF vector signal analyzer in the PXI form factor. This release represents a significant milestone by offering best-in-class performance in RF at a fraction of the cost of traditional instrumentation and is the latest result of our investments in RF products.

Our continuous introduction of new products into RF has resulted in a 53% year-over-year growth in PXI RF products in Q3. We are also successfully integrating the talented teams from our acquisitions of AWR and Phase Matrix, while at the same time making significant progress in the ability of our sales force to sell large systems in RF.

While we believe our rapid growth rate demonstrates our disruptive presence in RF, we continue to see a tremendous opportunity to grow with our PXI RF offering and the price performance advantages it offers over rack-and-stack instruments. A customer has had success with our new vector signal analyzer and NI PXI modular instrumentation is ST Ericsson, a global leader in integrated circuit design for mobile phones.

A critical process in that new product development is the validation of communication protocols used in next generation mobile devices. ST Ericsson used our new 14 gig RF VSA to deliver test performance ten times faster while reducing system cost by one-third compared to the previous box solution.

In Q3 our Data Acquisition products experienced strong year-over-year order growth, led by our USB wireless Ethernet and C-series based devices. During the quarter we announced three new single-slot compact deck chassis that give engineers and scientists affordability of a data logger with the performance and flexibility of modular measurements.

Our distributed I/O products saw strong year-over-year growth achieving record quarterly revenue. This growth was led by our CompactRIO products, which grew by over 50% in the past year. This quarter NI announced an expansion of the reconfigurable I/O products with the addition of the highest performance and first multi-core CompactRIO systems, as well as the smallest single-board RIO device.

The multi-core CompactRIO system, based on the X86 architecture from Intel brings the RIO platform into a new performance category to meet the most demanding needs of our customer applications. Combined with LabVIEW, NI RIO technology delivers value to our customers by simplifying development cycles, shortening time to market when designing advanced control, monitoring and test systems.

One use case that demonstrates success with single-board RIO and LabVIEW is Saara Embedded Systems, an integrated service and solution provider in embedded technologies. They created a rugged and flexible embedded power monitoring system that has reduced energy consumption at large facilities by up to 15%.

The NI platform allowed Saara Embedded Systems to rapidly prototype their design while saving six months of development. The success of customers like this gives us great excitement about our real products and the growth opportunity it presents.

To close, we were pleased to see our continued investment result in record revenue in Q3. We believe this illustrates our strong position due to our differentiated product offering, our world class direct sales and services organization and our strong alliance partner network.

With that, I’ll turn it over to Dr. T.

James Truchard

Thank you, Pete. I’m extremely please with our execution this year. We’ve balanced revenue and expense growth while driving innovation and executing toward our long-term vision. For over 25 years, our vision has been for software to be at the center stage for how instrumentation is built.

Moore’s Law continues to hold true with our LabVIEW software as well as -- with our LabVIEW software we are well positioned to deliver the performance benefits for test and measurement applications well into the future. LabVIEW is unique and how it combines multi-core and [FVGA] processing capabilities in a single platform delivering tremendous performance capabilities to our customers.

At NI Week in August, we celebrated a number of exciting customer applications, highlighted by the annual Graphical System Design Achievement awards, which showcased the most innovative products based on NI software and hardware. This year, we received 130 submissions from 20 countries ranging from a milk refrigeration system for use in rural India to a robot that combined the great mobility of wheels on flat ground with legs on rough terrain.

The overall winning submission came from Max Plank Institute of Quantum Optics who used LabVIEW and FlexRIO to build a powerful and versatile custom instrument to implement feedback control for systems as smaller than signal atom interacting with a single photon.

In addition to the winner solving industry challenges of today, NI technology now is being used to solve some of the most challenging engineering challenges of tomorrow in academic institutions across the globe. In renewable energy, for example, innovation through Graphical System Design comes from Virginia Tech, who recently was named the overall winner of the EcoCAR, a three year collegiate vehicle engineering competition sponsored by the U.S. Department of Energy and General Motors using NI technology.

The Virginia Tech team successfully built an extended range electric vehicle that incorporated the hybrid control strategy to optimize for fuel efficiency achieving approximately 82 miles per gallon equivalent.

And in RF and Communications research this quarter NI released a new teaching platform called the Universal Software Radio Peripheral to train the next generation of engineers on communications system design, software defined radio and digital signal processing. This new educational platform functions as a scalable solution for communications experimentation, research and rapid prototyping.

Leading institutions such as Stanford have adopted the platform because for the first time ever students have affordable access to high frequency signals earlier in their academic career.

Now I’d like to highlight the particularly strong growth of our CompactRIO and PXI-based RF product sales, each exhibiting greater than 50% year-over-year growth in Q3. The success of these product initiatives show the value of investments we have made. One way we are placed to take advantage of RF is through the successful integration of the AWR and Phase Matrix acquisitions which brings to NI strong expertise from these talented teams.

We believe these acquisitions enhance our product portfolio and our ability to serve customers throughout the RF product development cycle and will accelerate the deployment of RF and wireless technologies to significantly improve customer productivity to increased connectivity between design, validation and production test functions.

In summary I was extremely pleased with our performance this quarter as we delivered record quarterly revenue, stayed true to our long-term vision and responsibly managed our business. We have invested in our business this year through hiring talented employees, returning $36 million of dividends to shareholders and acquiring strategic companies that will allow us to expand our positions in the coming years.

While the future economic weaknesses that impact on us -- impacts our short-term profitability, we see it as an important investment for our long-term goal of reaching $2 billion in revenue by 2016.

I would like to thank our customers for their commitment to innovation and our employees for their efforts in taking our company vision and shaping a bright future for National Instruments. The daily commitment of our employees to innovation has further differentiated National Instruments from other players in the markets we serve and will provide a strong foundation to support future growth and profitability.

We will now take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Anthony Luscri with JPMorgan.

Anthony Luscri – JPMorgan

Hi. Thanks for taking the question.

James Truchard

Hi, Anthony. How are you?

Anthony Luscri – JPMorgan

Good. I was wondering if you guys could dig a little bit more into your $2 billion revenue target in 2016. Can you talk about the drivers that underpin that target and the puts and takes there?

Alex Davern

Yeah. Maybe historical reference might be useful to why as we talked about it this targeted NI week as well. Between ‘03 when the economy stabilized after the last recession in ‘08 we were able to successfully double the size of the company and improve our profitability as we went along that journey in that timeframe.

As we look out to the next five years we believe we’ve done an excellent job of identifying significant opportunity for National Instruments. We’ve also obviously been very persistent in investing to meet that opportunity. And so we believe that it’s a realistic goal for us to pursue as we go forward and perhaps Truchard would care to comment in terms of his view of the long-term opportunity for the company.

James Truchard

Sure. In the tested measurements phase we in many ways especially for high-performance testing and validation and production tests have redefined the marketplace and now modular instrumentation it’s really the standard way for doing high-performance tests. And so this has enabled large opportunities across a broad class of applications.

And then in the second space, in the industrial bed of space using the same software technology we’re able to expand is where we like to say the first time in history you can have advanced measurements in the same system that you have advanced control. And this creates highly differentiated positions in this space, industrial embedded where in the past it meant needed custom design.

Anthony Luscri – JPMorgan

So that $2 billion that excludes any sort of acquisition impacts or it doesn’t?

Alex Davern

It -- our goal is we’re striving forward is based on organic growth. I mean there may be some acquisitions along the way, but we don’t have any anticipated acquisitions as part of our thinking.

James Truchard

We’re constantly looking for complementary technology, but our more vision to build, to grow our organically based on the strategy for this virtual instrumentation.

Anthony Luscri – JPMorgan

Okay. Thanks. And then a follow up would be in terms of new market opportunities you mentioned 53% year-over-year growth in RF and I wanted to dig a little bit more into that. Is that -- are you gaining penetration in the development side, or is this more production or is it both? Can you provide a little context around that number?

Pete Zogas

Yeah. This is Pete. We are seeing RF in a broad perspective of applications. Wireless is pretty much everywhere and so our customers are doing everything from validating designs to production level tests. Our Government sector is using RF products for signal intelligence, applications. So RF is very important and a growth opportunity just because of the wide adoption of wireless technology everywhere. But it’s a broad based play for us, not a vertical segment.

James Truchard

And when we look at the broad market for RF technology it’s a very large market. We’re a relatively small player in this large market. We believe we have a very disruptive technology. We think that positions us well for future growth.

Anthony Luscri – JPMorgan

Okay. Thank you.

Operator

And our next question comes from William Stein with Credit Suisse.

William Stein – Credit Suisse

Thanks, guys. A few questions on the M&A that was complete. What was the incremental revenue that you saw from that from those two transactions in the quarter on a non-GAAP basis.

Alex Davern

Sure, Will. This is Alex here. I think we guided in the Q2 call about $9.5 million in revenue sequentially and it came in right at that level. So it’s about 4% or roughly growth relative to the acquisitions. So, I think from an all in we were a non-GAAP at $23, looking at that organic I believe it would be $19.

William Stein – Credit Suisse

Okay. Great. And then maybe digging a little bit more to the M&A. Any comments on early successes with customers for successes in integration where you’re seeing kind of customer acceptance or customer enthusiasm around these products being acquired by NI?

Alex Davern

Well, I’ll start with the last question. Customer enthusiasm has been quite high. We’ve seen very good acceptance by our customer base across the board. On the side of integration, it’s gone very well. We’ve been very compatible and it’s really helped build a strong expertise in this area, so we’re very pleased with these acquisitions at this point.

William Stein – Credit Suisse

Maybe one more, if I can slip in a question on end markets. Any comment on strength or weakness by end market would be really helpful?

Pete Zogas

Yeah. Some of, I guess adding a little bit of color to that. We saw quite a bit of growth in everything around mobile devices, smart devices as you know is growing rapidly and presenting quite an opportunity. And we’re seeing some realization of that opportunity there.

Energy, accounts, everywhere from optimization of energy usage to all of the alternatives and the tracking that’s going on. We’re seeing application success there, even physics and academic has been, we had a fairly strong growth in Q3.

William Stein – Credit Suisse

Great.

Alex Davern

One area we could talk about of weakness I think that would be probably pretty broad based too is in the semi-sector is the one area where we did see a noticeable shift in customer demand in that particular space and we’ve seen quite a bit of that from other companies that are also involved in serving that market as well.

William Stein – Credit Suisse

Yeah. Not surprising. Great. Thank you.

Operator

(Operator Instructions) Our next question comes from Rob Mason with Robert W. Baird.

Rob Mason – Robert W. Baird

Yes. Good afternoon.

Alex Davern

Hey, Rob. How are you?

Rob Mason – Robert W. Baird

I’m very good. Alex, if you could frame what level of, call it fourth quarter global PMI. Frame the lower end and upper end of your guidance relative to where you think the PMI might head?

Alex Davern

So, I’m not sure, I wanted to be maybe that specific about an exact range, but let me tell you generally what’s concerning me is certainly when we look at the preliminary numbers for October for Europe. That’s my point of greatest concern frankly.

My personal expectation or maybe I should put this as a basis on which we’re setting guidances that will see the average PMI for Q4 be below the average PMI for Q3. So I think it’s quite likely that it may average under 50 for the quarter and that’s the assumption that we’re building into our guidance.

Rob Mason – Robert W. Baird

Okay.

Alex Davern

Obviously, we’re choosing to give guidance that’s sequential growth below the historical average of Q4 sequential in the last ten years and that’s a reflection of an expectation of a below average PMI.

Rob Mason – Robert W. Baird

So when you said the preliminary numbers for Europe, is that France, Germany, the PMI or is that reflective of your own daily order intake?

Alex Davern

That’s reflective. There’s a preliminary report put out, I believe it was on Monday…

Rob Mason – Robert W. Baird

Right.

Alex Davern

It covers all of the euro zone and the U.K.

Rob Mason – Robert W. Baird

So this is not necessarily reflective of your daily order rate thus far.

Alex Davern

No. Specifically – I’m specifically referring to the PMI data itself.

Rob Mason – Robert W. Baird

Sure. Okay. How has your daily order rate been in October?

Alex Davern

Well, obviously our experience to date is built into guidance, so we fully consider that in setting guidance.

Rob Mason – Robert W. Baird

Okay. Maybe one last question. I may not have made all the proper adjustments here between the GSA deferred revenue, but it looked like your product revenues, gross, excuse me, product gross margin ticked down year-over-year and obviously sequentially as well and I was just curious maybe what was behind that?

Alex Davern

Sure. When you do the math from a non-GAAP, there should be a table in the earnings release, I believe. From a non-GAAP point of view, gross margins were down sequentially about a full point, about 100 basis points. Year-over-year they were flat.

The drop sequentially is really a number of causes. Number one, we did see some, probably 20 basis points impact from the combination of the AWR Phase Matrix acquisition and number two, we did reduce inventory by about $10 million in the quarter and that’s a deliberate decision to make sure we’re well-balanced as we move forward and that has some negative impact on gross margin.

And then you’ll notice in Q3 last year and most years we tend to see a reduction in gross margin because we tend to see weakness in relative revenue from Europe in the third quarter and that tends to be a factor that seasonally brings our margins down in Q3 and tends to bring them up in Q4 and we saw that pattern again here in the third quarter.

Rob Mason – Robert W. Baird

Okay. You continue to be satisfied with the gross margin on the system level orders then?

Alex Davern

Absolutely, I mean, I think the best way to look at that is over the last five years, as I talk to Nicole, our orders over 20-K are up 140% and they’re not at 48% of revenue in Q3, which I believe is probably an all-time high. But our gross margins over that five years are up almost 400 basis points. So, yeah, I feel very good about our ability to deliver strong gross margin on these larger orders.

Rob Mason – Robert W. Baird

Okay. Thank you.

Alex Davern

Thanks very much, Rob.

Operator

Our next question comes from Mark Douglass with Longbow Research.

Alex Davern

Hey, Mark.

Mac Muirhead – Longbow Research

Hi, gentlemen.. It’s Mac Muirhead calling in for Mark. How are you?

Alex Davern

Good. Good. And yourself?

Mac Muirhead – Longbow Research

Doing well. Thank you. Let’s see just to hit a little bit on the -- you mentioned you’re worried a little bit about Europe. I was wondering could you give a little more commentary on possible order patterns in Europe, Asia towards the end of the quarter if you could. That’d be helpful. Thank you.

Alex Davern

Sure. I understand the question. I guess what I’d share is we had a pretty linear quarter. We had a strong September, order growth in Europe, Asia and America pretty much reflects the revenue growth that we had in the press release. So there’s very little difference, backlog barely moved. It was up slightly in Q3.

And then obviously our expectations are what we’ve seen in October so far is fully baked into our guidance for Q4.

Mac Muirhead – Longbow Research

Okay. All right. That’s all I have. Thank you.

Alex Davern

Thank you very much.

Mac Muirhead – Longbow Research

All right.

Operator

(Operator Instructions) And we’ll take a follow-up question from William Stein with Credit Suisse.

William Stein – Credit Suisse

Great. Can we just get a view on tax rate, non-GAAP tax rate going forward Alex. In my model I traditionally had 20% and I think you haven’t posted something that high in a while. What should we think about for that going forward?

Alex Davern

The model I’m using right now we will see an increase in the non-GAAP tax rate in the first quarter. I think somewhere in the low 20s is probably a good estimate.

William Stein – Credit Suisse

All right. Thanks.

Operator

And we’ll take a follow-up question from Anthony Luscri with JPMorgan.

Anthony Luscri – JPMorgan

Hi. Thanks, guys. My follow-up is regarding the unfortunate events in Thailand that are going on right now. Can you talk a little bit about the exposure you may have there in terms of commentary?

Alex Davern

Sure. As we look at these events it’s really tragic to see yet another natural disaster unfold with such a big impact on a country that perhaps isn’t best equipped to deal with it. From a practical point of view we’ve looked at our own supply chain. We’re not aware of any direct impact on our ability to deliver product at this point in time.

However, the indirect impact that may manifest itself from an inability of our customers to get supply necessary for them to produce their own devices is really impossible for us to tell. So from a direct impact we don’t see anything at this point that we’re aware of, indirect, we’ll have to see how it plays out as we go through Q4.

Anthony Luscri – JPMorgan

Okay. Thank you.

Operator

(Operator Instructions)

Alex Davern

Okay. Thank you very much for joining us today. We appreciate your questions and we’ll talk to you next time.

Operator

That does conclude today’s call. Thank you all for your participation.

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