Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  
TRANSCRIPT SPONSOR
Wall Street Breakfast

Cirrus Logic Inc. (CRUS)

F1Q08 Earnings Call

July 25, 2007 5:00 pm ET

Executives

Jason Rhode - President & CEO

Thurman Case - CFO

Analysts

Craig Hettenbach - Wachovia Securities

Jay Srivatsa - Roth Capital Partners

Adam Benjamin - Jefferies & Company

Blaine Chris - Jefferies & Company

Jason Pflaum - Thomas Weisel Partners

Dan Morris - CIBC World Markets

Tayyib Shah - Longbow Research

Jonathon - Longbow Research

Vernon Essi - Needham & Company

Ian Gilson - Zacks Investment Research

Bob Sales - LMK Capital

Mike Hughes - Delaware Investments

Heidi Poon - Piper Jaffray

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic first quarter fiscal year 2008 financial results conference call. At this time, all participants are in a listen-only mode. Later we will open the call for your questions. Instructions for queuing up will be provided at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may now begin.

Thurman Case

Thank you, operator, and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer. Before we begin, I would like to remind you that during the course of this conference call we will make projections and other forward-looking statements regarding, among other things our estimates for the second quarter fiscal year 2008 revenues, gross margin levels, combined R&D and SG&A expenses, stock compensation expense, as well as our estimates and assumptions regarding our future revenue growth and profitability.

These statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially from our projections. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise.

Please refer to our press release issued today, which is available on our website at www.Cirrus.com, our latest Form 10-K for the fiscal year ending March 31st, 2007, as well as our other filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from our current expectations.

I also want to mention before we proceed that all financial numbers are prepared in accordance with Generally Accepted Accounting Principles. We have provided detailed financial information on our website in the investor section. Before I recap financial highlights from the first quarter, I would like to note that we have modified how we will be reporting revenue.

We will now report revenue in two product categories, Audio Products and Industrial Products. Previously, we reported revenue in three product categories, Mix Signal Audio, Industrial, and Embedded. The Embedded products category included products that were sold into both audio and industrial applications. Audio-related products previously reported within this category will now be reported under our new Audio Products category.

While our ARM processor and communication product lines will now be reported within the Industrial Products category. We believe that providing financial information in these two categories provides you with a clearer picture towards our end markets and long-term opportunities. This reporting structure also aligns better with our internal product line structure.

Moving now to the financial results, net revenue in the June quarter was $41.1 million compared with $43.6 million in the March quarter and $45.2 million in the June quarter one year ago. Revenue for our two product categories was as follows, Audio Products contributed $22.5 million in the June quarter, while Industrial Products provided $18.6 million in the quarter.

Historical revenue breakdowns are available on our website for this new product category reporting structure that we are discussing today. We had no OEM customers representing more than 10% of revenue, and one distributor, Avnet, contributing 30% of revenue.

Gross margins for the June quarter decreased slightly to 59.2% compared with 60.2% in the March quarter, and 60.1% in June quarter a year ago. This decrease in gross margin was driven primarily by a change in both customer and product mix. Combined R&D and SG&A expense was $23.9 million in the June quarter.

This includes stock-based compensation expense of $565,000 in R&D, and $925,000 in SG&A. This also includes approximately $500,000 in expenses related to our recently concluded stock option review. Interest income for the first fiscal quarter was $3.5 million, up slightly from $3.4 million in the previous quarter. Net income in the fiscal quarter was $4 million and earnings per share was $0.04 based on 89.7 million diluted shares.

Turning now to the balance sheet, total cash and marketable securities at the end of June increased to $278 million from $272 million at the end of the March quarter. Our total cash per diluted share increased to $3.10 at the end of the June quarter. We ended the June quarter with $19.4 million in net receivables compared with $19.1 million at the end of the March quarter.

Inventory at the close of the June quarter was $17.5 million, up 6% or $1 million, from $16.5 million at the end of the March quarter. Our capital expenditures were $3.5 million in the June quarter compared with $400,000 in the March quarter, as we acquired certain Class D technology assets and intellectual property from TriPath Technology.

Depreciation and amortization expense in the June quarter totaled $1.7 million compared with $1.8 million in the March quarter. And now Jason will discuss our business operations and guidance for the upcoming quarter. Jason?

Jason Rhode

Thank you, Thurman. In many respects, the first quarter was a challenging quarter. However, we are beginning to see signs of long-term success as a result of our decision a few years ago to focus on high precision analog and digital signal processing products.

As we've said last quarter, revenue for older products is declining at a faster rate than we've seen historically, which is impacting near-term overall Company revenue. However, design wins and backlog for newer products are growing, which indicates that our plan, which indicates our strong position for long-term growth, and I am confident that our plan is working.

I would like now to provide a brief update on our products, beginning with the Industrial Products category. These products include an integrated circuits designed for a variety of utility metering, power management, precision measurement, energy exploration and communication applications, as well as our line of ARM processors.

Revenue from Industrial Products in the June quarter came in at $18.6 million compared to $19.1 million in the March quarter. As we had expected, revenue for our seismic product softened and we're anticipating continued weakness due to uncertain customer demand patterns. On the other hand, demand for our utility power meter products is something I'm particularly excited about, as we've made significant progress penetrating key customer accounts.

Last quarter, we had also -- last quarter we also introduced a new family of industrial precision measurement-aided [e-converters] that offer the best DNL performance in the industry. This product family demonstrates our ability to turn innovation into successful products that our customers value. A recent highlight occurred yesterday when we completed the acquisition of Apex Microtechnology.

Apex, which is based in Tucson, is a proven innovator in high-precision, high-power amplifiers used in a wide variety of applications in aerospace and industrial markets. Apex has valuable experience in dealing with very challenging products that involve high voltages. Apex has a strong reputation and a valued brand within its customer base.

Longer term, we see synergies to combine Apex's high-power high-voltage knowledge with our signal processing and IC design capabilities to develop longer-term growth opportunities. Bottom line, this is a great acquisition for Cirrus Logic. It expands our expertise, gives us entry into new markets and customers, and adds top line revenue growth with strong margins.

This $42 million acquisition represents a strategic use of our cash. I would like to note that we continue to evaluate opportunities to improve our capital structure. However, at this time we have no plans to announce additional acquisitions or a stock buyback. Overall, I am excited about the long-term growth prospects for Industrial Products.

Let me turn now to our Audio Products. Components in this category include data converters, Class D amplification products, audio processors and interface circuits, and are used in a wide variety of consumer, professional and automotive audio applications.

This product category contributed $22.5 million of our June quarter revenue, down from $24.5 million in the March quarter, as revenue during the quarter was affected by slower demand for older products. However, products in strategic markets that we have invested in, such as portable, are continuing to grow.

In the portable market, we've achieved year-over-year growth, as multiple Tier One customers begin volume production during the September quarter. We have the opportunity to build and expand upon this initial success for future generations of new products with these same customers.

In digital TV, we continue to gain acceptance and traction for audio processors and mixed signal components, with the opportunity for meaningful revenue contribution next year. I'm also pleased with the increased backlog from products that serve the automotive market.

We provide solutions for car audio amplifiers, head units and telematic systems. The automotive segment is a market in which we began investing heavily several years ago, that is starting to pay off with multiple customers beginning volume production with new programs.

Longer-term, we believe it is a good market for Cirrus Logic, as premium car audio becomes increasingly popular, driving long-term positive trends in high quality car audio products. For Audio Products overall, our strategic investment in portable and automotive products have positioned us well for long-term growth. In the September quarter, we expect audio products to return to revenue growth due to both seasonal factors and strong demand for our innovative products in multiple Tier One accounts.

Let me now discuss our guidance for the second quarter of fiscal year 2008, which includes the acquisition of Apex Microtechnology. Our overall expectations are as follows: Revenue is expected to range between $46 million and $51 million. Gross margin is expected to continue to be in the 58% to 60% range.

R&D and SG&A expenses are expected to range between $25 million and $27 million, including the share-based compensation expense of approximately $1.6 million. The September quarter guidance sees growth of 12% to 24% sequentially. I am pleased to see revenue growth from new products and new customers, particularly as reflected in the backlog for portable and automotive products.

Longer-term, we are in a good position as the early acceptance of new products from key customers demonstrates that Cirrus Logic can achieve growth and capture market share from our competitors. Building on these successes, I am confident that our strategy is working, and I feel we are well positioned for long-term growth. We are now ready to take your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Craig Hettenbach with Wachovia Securities. Please go ahead.

Craig Hettenbach - Wachovia Securities

Jason, can you provide a little visibility into some of the legacy products in terms of, at this point what percentage of revenue they are, or how much longer you think that would be an overhang to the overall business?

Jason Rhode

No, we really don't break out our products any further than Audio and Industrial. I will say it's a significant -- it's a significant amount of products. Older products are products that we define as seven years old or older. We've got a fairly -- a good amount of that. It's across a broad variety of the product lines, and I don't necessarily think that's all bad. We're in a lot of markets where products have very long lifecycles. It's just we have seen a bit of a trend of increase in the rate of decline in the past quarter or so.

Craig Hettenbach - Wachovia Securities

Okay. And then for some of the new consumer products that you spoke about, some seasonal growth in calendar Q3 and some new customers. Can you help give us a little visibility in terms of the pace of some of these new products, how they ramp? Is it a steady ramp in the next couple quarters? Are there any quarters where there's a bigger inflection point to some revenue from new products?

Jason Rhode

Well, yes, that's a good segue. I appreciate it. That is really the thing to be excited about, is that as we were forecasting some growth this quarter, it is reflective of the fact that the newer products that are ramping in are finally in a position to outpace some of the older stuff that's gone away. We've seen good design win success over the last year in portable and automotive, and that's finally starting to show up in some backlog for some significant new developments.

We've already made shipments to that. And the ramps of various different programs in everything from portable and DTV, power meter, automotive, precision power, as you can imagine, that all varies pretty, pretty widely in terms of how quickly things take off.

Craig Hettenbach - Wachovia Securities

Okay, and then last one, if I could. Can you just discuss order linearity through the June quarter? And do you have any view on inventory levels in the channel as we go into a seasonally stronger part of the year?

Jason Rhode

Well, inventory levels in the channel went up a little bit last quarter, not anything terribly significant. And certainly it's in line with the revenue growth that we expect going in the fall, so we think that was definitely healthy. Can you define a little bit more what you mean by order linearity?

Craig Hettenbach - Wachovia Securities

Just the orders that Cirrus experienced through the quarter, were there kind of month to month, if you will, as you went through the June quarter and you're going into the September quarter here?

Jason Rhode

Well, yes, I wouldn't describe the rate that orders came in during the June quarter as being incredibly linear. It definitely came out of the quarter stronger than it went in, put it that way.

Craig Hettenbach - Wachovia Securities

Okay. That helps a lot. Thanks.

Operator

We’ll take your next question is from Jay Srivatsa with Roth Capital Partners. Please go ahead.

Jay Srivatsa - Roth Capital Partners

In terms of guidance, Jason, could you clarify for us how much of that is from Apex and how much is organic growth?

Jason Rhode

Well, we're not going to get in a mode where we break that outgoing forward. I will say that what we're expecting for this quarter is in line with the press release we made around the acquisition, which is they have been running in the last year in the $4 million to $5 million range per quarter.

Jay Srivatsa - Roth Capital Partners

Per quarter, so you will -- so fair to say that you will recognize the August and September parts of it, right? Or is it for the full quarter?

Jason Rhode

Yes, that's exactly what we're looking at.

Jay Srivatsa - Roth Capital Partners

Okay. In terms of the portable business, can you tell us what portion of your Audio business is portable, without giving specific numbers? Is it significant, is it small, and where do you think you can go from here?

Jason Rhode

It's getting substantially more significant, and it can go up from here. How's that?

Jay Srivatsa - Roth Capital Partners

Okay. Well, I won't ask any more on that one, then. In terms of the legacy products, you said it's a good chunk of your business. However, last couple of quarters you have had that part decline significant enough to really effect your revenues. When do you think that that tapers off to a point where it really becomes a non-issue in terms of your overall growth for the business?

Jason Rhode

Well, it's something that we have to keep watching going forward. But as I say, the good news is it looks like we're finally in a position where the new stuff coming in outpaces the old stuff going away. And that's something that we've been working pretty hard on. We're in an industry, of course, that we sell stuff that takes a good year to design and a good year to go out and have success in the marketplace.

So the growth that we're seeing now is reflective of the changes we made starting two years ago. And obviously, we're doing a lot of work to try to accelerate the pace that these design wins come in and turn to revenue. Well, anyway, so that's kind of where we are with that. It is -- we are starting to see signs that the new stuff is outpacing the old.

Jay Srivatsa - Roth Capital Partners

Okay. In terms of the digital TV product, you didn't say much about that. I know you guys are in several TVs. Where is that segment going? What do you see in terms of the outlook? Obviously, it's a very strong year for LCD TVs and stuff. Could you speak to that segment in a little bit more detail?

Jason Rhode

Sure. We are seeing good increases in the volume that we're shipping there. It does tend to be, for us, last year we had a significant DSP socket that went away. We are shipping a lot of fairly low cost mixed signal audio products into the DTV space. We have recently just started converting some of those sockets into Class D amplifier sockets. I'm very, very proud to announce we've shipped now some volume production Class D amps into a digital TV, which I'm very, very excited about. That's an effort long time coming, and that converts a pretty low cost mixed signal audio product into a little more high dollar Class D amp.

Additionally, we've got some good opportunities we've got some good opportunities going forward for the DSP product line, as there's lately been some changes in the mix of features, especially in some of the higher end sets, some higher end features that really kind of requires a separate DSP that we think give us a good opportunity there in the next 12 months or so.

Jay Srivatsa - Roth Capital Partners

Okay. One last question and I'll step out. Typically over the last couple of years, you've had some seasonal impact in the December quarter for one reason or the other. Do you expect that to occur again? Or do you think smoothing that out with the acquisition that you have now?

Jason Rhode

Well, I would certainly expect the acquisition to smooth that out to some extent. And additionally, I think the biggest trend that we've seen in the last year is we're fairly used to the seasonality that we experience . On top of that, we've had, as we've talked about some of the older stuff going away, some of the newer stuff ramping up. And that's kind of tweaked around the seasonality that we've historically expected. But in this case, with the newer stuff ramping up and with the addition of the precision power products, I would certainly be hopeful that we won't be caught by surprise like that going.

Jay Srivatsa - Roth Capital Partners

Okay. Maybe a last question, housekeeping-wise. Thurman, what was the stock-based comp for the full quarter?

Thurman Case

I'm sorry, I didn't hear you.

Jay Srivatsa - Roth Capital Partners

Stock-based comp for the June quarter, total stock-based comp?

Thurman Case

It was 1.5.

Jay Srivatsa - Roth Capital Partners

Okay. Thank you.

Operator

All right. Thank you. Tore Svanberg with Piper Jaffray. Please go ahead.

Heidi Poon - Piper Jaffray

This is actually Heidi Poon calling in for Tore. You mentioned quarter that lead time came in four to five weeks mostly because of the Industrial Products. Would you characterize it as having stabilized at this point?

Jason Rhode

Yes, I would say it stabilized around that point.

Heidi Poon - Piper Jaffray

Okay. Just turning my attention to OpEx a little bit, with the Apex acquisition closed, do you think the operating -- your operating margin target of 20% has been pushed out a little bit? It looks like the gross margin profile is quite similar.

Jason Rhode

I think I understood your question.

Heidi Poon - Piper Jaffray

Yes, I'm trying to see if you think that you could still hit 20% operating margin maybe sometime in fiscal '09, or do you think it's pushed out a little bit at this point?

Jason Rhode

I was expecting you to ask about fiscal '08, and I would have said probably no. Relative to fiscal '09, I've not tuned it up exactly in that range. I will say long-term, I have personally an operating profit goal that is north of 20%. I believe that the real meaningful thing for us to keep track, and frankly for you guys to keep track relative to us, is have we implemented a corrective action plan and a continuous improvement plan towards achieving operating profit margins that are in that range. I don't think we'll get there this year. I don't think it's out of the question for next year.

Heidi Poon - Piper Jaffray

And you're talking about fiscal year, right?

Jason Rhode

Yes.

Heidi Poon - Piper Jaffray

Okay. Also, in industrial, you mentioned earlier that you expect continued weakness, and that because of the seismic issue, do you think that customer inventory issue will take you a couple of quarters to go through?

Jason Rhode

I think at this point I'm not so concerned that we've got a customer inventory issue. We've got customers in that space that are doing very well. We've got other customers in that space that don't appear to be doing so well. And it appears -- it's a pretty complicated market in terms of when oil prices go up, how recently has everybody refurbished their fleet or their land-based system, and when they are going to buy again.

I would say the outlook for seismic is a little bit uncertain, and so we're being a little bit cautious relative to that. But what we're really excited about is now with the precision power products coming onboard, with some of the successes that we've had in the utility metering space, that our Industrial Products appear to have the ability to start to cover some of that and show some additional long-term growth outside of the area of seismic. So…

Heidi Poon - Piper Jaffray

Do you think the Apex product lines will grow at a rate that would be similar to the core business rate?

Jason Rhode

Well, what rate are you using for the core business rate?

Heidi Poon - Piper Jaffray

Like if you used the consensus estimate on year-over-year growth for Cirrus Logic pre-acquisition?

Jason Rhode

Right, okay. Well, I think I'm expecting good things from the Apex guys. They have historically, the last couple of quarters, they have shown some good growth. I think that the acquisition in and of itself can post some good growth numbers for us that are definitely supportive of our overall growth targets. Certainly, their margins are attractive. Additionally, as we go forward, I think we're going to be able to see some synergy between what we're doing and here in Austin, and what they are doing in Tucson.

They have got a great mix of technology and customers that's a little bit different to, but related to our own. I think as we go in there and help them a little bit with their IC design strategy, that's going to help a lot. I think we've got a much, much broader reach in terms of sales force. That's going to help drive some growth in their products that they have not been able to achieve before. We've got some other avenues in terms of distribution and catalog distributors that I think will drive a pretty meaningful number for them.

And then as well, I'm especially excited after I went down there around when we announced the signing, that they are actually going to be able to help us with a lot of what we want to do, as well. They have got a lot of expertise relative to high voltage and that's we're dabbling in a lot of areas here in Austin that are related to high voltage, and I think they are going to really be able to help us with some applications-related skills around that technology.

Heidi Poon - Piper Jaffray

Okay. Great. Thank you.

Operator

Thank you. Adam Benjamin with Jefferies & Company. Please go ahead.

Blaine Chris - Jefferies & Company

This is Blaine Chris for Adam. I was hoping that together cut at this legacy question. I mean, if you look at the old and new splits, seems like the audio GSC product has dropped off pretty substantially, down from 6 million down to 2.5 kind of level. Is that the right way to think about it, that the audio business is expected to go away at the audio DSP, and then industrial portion of the DSP maybe is kind of flattish? Is that a better way to look at the legacy products?

Jason Rhode

No. No, we're not expecting DSP to go away at all. We definitely went through a period where we didn't come out with a lot of new products quite a few years ago. We've fixed that problem. We've come out with some very compelling new DSPs in the last year or so, and we're expecting to continue that trend. Where it's an area we're investing in because we really believe in some of the opportunities for growth there, both in terms of that we can drive with new silicon products, but also we're layering on top of that a new tool strategy, and going after some new markets. So no, we're not at all expecting the audio DSP to go away.

Blaine Chris - Jefferies & Company

Okay. So it kind of bottoms at the 2 to 3 level and then you see that at a growth prospect in '08?

Jason Rhode

Where are you getting this number?

Blaine Chris - Jefferies & Company

If you just take the difference between your break, I mean essentially you divvied out the DSP group, and DSP embedded into the Audio and Industrial buckets. If you just net out the two.

Jason Rhode

Right. Yes, again, I don't want to get too close to breaking out individual revenue targets for the different product lines underneath Audio and Industrial. But I will say that I don't expect DSP to go down from where we are right now.

Blaine Chris - Jefferies & Company

Okay, fair enough. And then on the power meter business, I think you had a more tempered tone last quarter. Now you're talking there's some growth prospects. If you could just kind of give us a refresher on what's going on with the power meter market?

Jason Rhode

Yes. It's an area that we've been in for a good long while. We've made a misstep or two somewhere around the 2000 timeframe, which was pretty unfortunate. But a couple years back, we reinvested in that space and we've seen significant design win progress at a variety of different customers, in a lot of interest in the U.S., in Europe, in Asia. So it's really around the world that we've got some new investments in products that we haven't announced yet, that we think will drive some further growth. Anyway, it's an area that is clearly a trend globally that's going to be pretty significant, and then as well for within Cirrus Logic, we feel like we're doing a good job of taking share in that space.

Blaine Chris - Jefferies & Company

Okay. Thank you.

Operator

Thank you. Jason Pflaum with Thomas Weisel Partners. Please go ahead with your question.

Jason Pflaum - Thomas Weisel Partners

I guess first, on the outlook, I guess if you back out the contribution from Apex, at least by my estimates here, it looks like you're guiding core revenue to a range of 43 to 48, which is a little bit lower than, at least where I was at, and I think where the Street estimates were for this quarter. Is the major variance there really just the legacy? Or are there any other I guess contributing factors to perhaps a little bit less growth there?

Jason Rhode

Well, we don't, again, without breaking out a whole lot of detail on legacy and whatnot, this is our first quarter forecast in Apex stuff, so you can probably imagine that we're being a little bit cautious on some of that. We want to make sure that we're not in any kind of position where we would miss. I think that at the end of the day, we've got a lot of new stuff ramping and hopefully we will not be at the bottom end of that guidance.

Jason Pflaum - Thomas Weisel Partners

Okay. And just generally I think you can talk qualitatively about your visibility into this quarter and maybe the backlog coverage heading into the quarter, just to get a sense for how it may compare to prior quarters?

Jason Rhode

Yes, now that's a good question. We definitely came into the quarter with a stronger level of backlog relative to our revenue outlook than we did last quarter. We feel much better about the visibility we've got this quarter.

Jason Pflaum - Thomas Weisel Partners

Okay, and then last question, just on the gross margin. I was thinking about the guidance range, and it seems like the Apex probably running a little bit higher than corporate average, but maybe more growth out of the lower margin consumer segment this quarter, just kind of offsetting that. Is that kind of the way to think about the margin dynamics this quarter?

Jason Rhode

Yes, that's a very good characterization.

Jason Pflaum - Thomas Weisel Partners

Okay. All right. Thanks, guys.

Operator

Thank you. Dan Morris with CIBC World Markets. Please go ahead.

Dan Morris - CIBC World Markets

Most of my questions have been answered, but one on the OpEx, I'm assuming with APEX in there for this next quarter, you guys I think originally said that they were running about 1.5 to 2 million in OpEx. Could you help us out a little bit with the breakout between R&D and SG&A there?

Jason Rhode

Yes, historically we really don't break that out. So certainly the number you tossed in for Apex is, we're not changing any of our expectations for that.

Dan Morris - CIBC World Markets

Okay. And is there any cost synergies that you think you guys can realize over the next little while on that number?

Jason Rhode

Well, relative to Apex, I mean as part of that acquisition, the CEO and CFO left. We're not targeting anything further on that. And again, cost reduction and OpEx it's obviously a fairly sensitive topic. That's part of our job is absolutely making sure that we're evaluating that at all times, making sure that it's well deployed to support our growth strategies, making sure that we're investing our money wisely. We're investing for growth, and we absolutely believe in our strategy to achieve that growth. But as I say, we're evaluating that at all times.

But this falls into one of those categories, if at any time in the future I do have plans for how we're going to maybe make some reductions on that, it's unlikely that I would ever be able to talk about that in advance of actually doing so. So probably falls into that category of questions I'm going to get every quarter, and every quarter not going to ask or not going to answer.

Dan Morris - CIBC World Markets

Okay.

Jason Rhode

That's just one of those things.

Dan Morris - CIBC World Markets

Fair enough. And just one last question on the industrial, and you're saying that you are expecting some continued weakness and you sort of addressed it. But do you anticipate Q3 being kind of a bottom for that business?

Jason Rhode

Yes, I don't think we're really in a position at this point to give any real specific guidance on fiscal Q3 for Industrial. I will say that there's a lot of good growth factors going on there, and there's, as I say, a couple good complex dynamics going on with respect to seismic. So exactly how that shakes out is we'll see how that goes. But overall, I would expect the Industrial Product certainly to be up relative to where they are, or where they were last quarter.

Dan Morris - CIBC World Markets

Okay. Thank you.

Operator

Thank you. Tayyib Shah with Longbow Research. Please go ahead with your question.

Jonathon - Longbow Research

This is Jonathon on behalf of Tayyib. I was wondering if you could give us some more information on where the portable audio design wins you're seeing are coming from?

Jason Rhode

You know, we've got multiple Tier One design wins with customers from pretty much all regions around the world. In particular, that's an area where we really don't break out any kind of customer detail. That also falls into the category of questions I fully expect to get every time, and you can fairly well expect I probably won't be able to give you a whole lot of detail on who they are with. We take our customer confidentiality pretty seriously.

And also, in the area of driving value of our business and also providing you guys information so you can do your jobs, a lot of times, that's in conflict and we've got to come down on the side of protecting the value of our business.

Talking about design wins specifically is kind of, in my view, the corporate equivalent of painting a "kick me" sign on our back, so I would prefer to avoid that. But in any event, the portable design win momentum has been very strong. We've got multiple design wins with Tier One customers for multiple products, pretty much in every region around the world. So it's an exciting segment to be in, and it's a great product line that we've got going forward.

Jonathon - Longbow Research

Okay. Do you see the strength in that continuing through the end of the year?

Jason Rhode

Yes. Yes, definitely.

Jonathon - Longbow Research

Okay. Thanks a lot.

Operator

Thank you. Vernon Essi with Needham & Company. Please go ahead.

Vernon Essi - Needham & Company

Most of my questions are answered. Just a quick two here. Did you give depreciation out, Thurman, for the quarter?

Thurman Case

Yes, we did. Depreciation was, let me look. Yes, depreciation and amortization expense for the June quarter was about $1.7 million.

Vernon Essi - Needham & Company

$1.7 million. And then Jason, I guess if we just back up a step, you've acquired some assets here in the Class D market, and it seems like you're getting some traction in some interesting areas. How is the overall market looking relative to some of the larger players that have sort of come in and taken share over the last couple years? Is there anything changing in that dynamic, or…?

Jason Rhode

You're talking specifically Class D?

Vernon Essi - Needham & Company

Yes, just in Class D.

Jason Rhode

Yes, it's an interesting market. I mean, obviously people have been forecasting that Class D is going to take over the world for about 20 years. I think we're slowly getting to the point where people have recognized that Class D wins, when you really have got to have Class D, which means weight or power efficiency are absolutely required by the application because it does still bring a lot of other technical challenges with it.

There has definitely been a lot of the smaller guys slowly getting out of the space. I've never understood why anybody would go into Class D as their only, as their only product line. It's a very, very challenging space.So I think for a larger company that has a broad audio product line, it's a logical thing to do. It's very supportive of some of our other businesses. In particular if you look at our recent, or most recent product announcement, it's a combination of our Class D amplifier, along with our high performance audio A/D converters.

And of course, we sell that along the rest of the broad line audio components that we make. So in that context, I think it's a business that makes a lot of sense. As a standalone product line, I really don't understand that business model. And I think we're starting to see some of that shake out in the market, with some of the bigger players increasing share there, as you point out.

Vernon Essi - Needham & Company

Sure. And what do you think gives you the, I mean obviously, the sales aspect of it is huge for you folks, having the footprint in audio. But what gives you a competitive advantage, say, over your other competitor within your state up the road a bit? For instance in that example, what brings to bear there, why would it be yourselves versus the big company?

Jason Rhode

Well, there's an element of a similar issue with the rest of the audio converter stuff. It's a big market and it's pretty difficult for one guy to cover all of the different mixes of features and performance and power levels and all of that with perfect efficiency. So, it's certainly, I don't think we're forecasting 100% share any time soon.

Certainly we'll win some battles and they'll win some. Most recently our most recent product introduction is a little more integrated. It was a pretty characterize it as a pretty adventurous development with the inclusion of the A/D in there. We're doing this stuff in straight foundry CMOS, which I believe potentially gives us a cost structure advantage in the long run. And the other guys, of course, would play that as they have got the fab in-house, so they have got a process advantage. I'm not sure that's true. In any event, it's a complex competitive dynamic. I think it will be a while before that market shakes out real clearly.

Vernon Essi - Needham & Company

And then if we were just to look at, I mean this stuff has always been sort of best friends to the automotive add-on audio market, but it seems to obviously be breaking out a little bit on the flat panel television front. Where are we in that transition? I mean would you say that it's almost fully penetrated in terms of every flat panel television going out the door seems to have Class D within it? Or are we still getting incremental market share within those televisions?

Jason Rhode

No, I would say it's still very, very fragmented. Different customers have a completely different view, they have either decided that they don't need it at all, that they desperately need it and it's absolutely mandatory in every set they have got, specific customers will be on Class A-B and have decided they need Class D, and then they will stumble on incorporating Class D and decide to go back.

It's a very complicated dynamic in that space and so far, it's the introduction of our new product, the CS4525, the feedback that we've gotten on that is that it's a very good fit for DTV, that it does solve a lot of the technical problems that people have faced in terms of the integration, the power levels, the speaker EQ that we incorporated there. So it solves a bunch of problems, but it's still the view from individual customers about exactly where they are in the adoption, it really varies widely. So I think there's a lot of dynamics still to play in that market.

Vernon Essi - Needham & Company

Okay. Thanks for the update.

Operator

(Operator Instructions) Ian Gilson with Zacks Investment Research. Please go ahead with your question.

Ian Gilson - Zacks Investment Research

Going back to Apex, do you have any idea to what the additional goodwill will be and what the quarterly amortization rate of that would be?

Jason Rhode

No, we're really not prepared to give any kind of estimate on that right now.

Ian Gilson - Zacks Investment Research

Okay. Thank you.

Operator

Bob Sales with LMK Capital. Please go ahead.

Bob Sales - LMK Capital

Most of my questions have been answered. I had a couple. Thurman, what does the inventory situation look like at disti? I don't know that you guys have broken it out in terms of weeks. But if you could just help us understand how it looks at the end of the current quarter, either quantitatively or qualitatively versus past quarters?

Thurman Case

Well, the distributors have gone up slightly when you look at our distributor inventory, but we would expect a slight increase going into the holiday season. None of it is out of line. In actuality, their turns we monitor very closely our distributor turns, and how much inventory they are taking.

We believe that we're in pretty good shape along those lines, and we don't see any anomalies or anything that raises a red flag for us that says that they are carrying too much and could affect us going further down into the year.

Bob Sales - LMK Capital

And then Jason, in terms of the buckets of opportunity on the Audio side being portable, auto and digital TV, can you help at least weight the importance of those opportunities, perhaps first by the near term, the next couple quarters, and then maybe longer-term as you look out over the next year, year and a half?

Jason Rhode

Well, I would say they are all pretty important. I wouldn't want to take our eyes off of any of them. They are all significant in the short-term for different reasons. Automotive, we started investing in longer ago. I think everybody knows that that's a market where it takes a while to take off.

But in my mind, that's one of the things that makes it valuable for us. We've been around for a long time. We're not going anywhere. So we've got the patience to go after markets like that. It's also a segment that very much values quality, which we view as one of our primary differentiators against some of our Tier Two and Tier Three competitors. So that's a space that we expect to continue to invest in. We expect it to continue to do good things.

Similar with portable, it's a very difficult design challenge, which is of course, good. We believe it's good for us. It's a segment that's growing, there's lots of excitement about it. It's bringing a lot more attention to audio overall, so that's of course, something that's pretty important. DTV is growing really quickly. I think there in the long run, of the three that you mentioned, that's probably the one where there's the biggest risk of integration. So we'll monitor that one pretty closely.

But at the same time, we talk about the products that we're pushing there, the more integrated products that we're pushing there, the Class D amplification, that's something that is fairly difficult to integrate into the big square processor in the center of the board. So we'll see how well that fares going forward. But in any event, all three are pretty significant and present a pretty exciting opportunity for us going forward.

Bob Sales - LMK Capital

And then taking that one step further in the audio and portable audio and auto side, if we were to try to look for your components in automobiles and where they are showing up, would it be -- are we thinking more in terms of luxury auto with high end sound and high end entertainment? Is that the -- or is it a broader opportunity than that?

Jason Rhode

It's pretty broad. Some of the new customers that we're shipping to this quarter are targeting a very, very broad cross section of products. I don't want to be too specific about it. But it's everything from very low cost value, value line cars into the flagship luxury stuff that we've been in for a long time.

So we've definitely diversified the automotive market that we're shipping into. The one that I can be specific about, I don't think it's any secret that our largest customer is Bose, and there's certainly some -- a big component of that that's automotive. So I highly recommend that you all go buy cars with Bose in them.

Bob Sales - LMK Capital

I'll buy three of them this quarter to help you guys out.

Jason Rhode

Outstanding.

Bob Sales - LMK Capital

And in the automobile, what is the range of ASP content, if you will, for a given automobile? I know it's all over the map. I'm just trying to get a feel for…?

Jason Rhode

Yes, it really is. I think our lowest cost mixed signal component that we sell in automotive grade is below $0.50 certainly. I would have to look at the automotive grade DSPs that we sell, but well north of $5.

Bob Sales - LMK Capital

Right, but are you typically in an opportunity selling multiple components that…?

Jason Rhode

Quite often that's the case.

Bob Sales - LMK Capital

Okay. And then in the portable audio, do we think about the ramp in your opportunities as handheld, more on the handheld portable audio? Or more so on the components of audio that we see taking off because of things like the iPod add-ons and so on? Or is it all over the map?

Jason Rhode

Yes, it's all over the map. We've got multiple design wins in portable audio players themselves, in the portable media player type products, and certainly the last segment that you touched on there are the docking stations for portable devices. That's really an exciting opportunity for us.

We've seen multiple design wins there for a pretty broad variety of products, everything from very low cost mixed signal, the DAX and A/D converters, all the way through our Class D amplifier products. And for some higher end systems, the full DSP. And much like the audio, that's often a case where we're selling more than one component into the same box.

Bob Sales - LMK Capital

Got you. And then lastly on the power meter business, what has changed? What is it about that particular segment that allows you guys to have an opportunity to penetrate the market or grow? What is the technology change that's going on with meters that creates an opportunity, and give us an idea of the content in those, as well?

Jason Rhode

Well, there's an ongoing trend that has, gee, I don't know when it exactly started, but it was a good long while ago, to go from mechanical meters to electronic meters. And then as a furtherance to that, the electronic meters have become more and more complicated over time.

So it's a big, big market, and there's a fairly constant pressure of turnover there in terms of the end design. So I think it's a market that is growing, and that will exist for a good long while. And there's a lot of pressure to increase the complexity of the meter, either for things like automated meter reading or the meter telemetry, so they can read them remotely.

In countries like China, there's a prepaid metering system in a lot of cases, areas like India where theft of service is a big concern. So all of these various reasons really favor a more and more advanced electronic meter, and so that makes it an exciting market to go target.

Relative to why we're taking share from our competitors, it's -- we've invested in that space. We've come out with real compelling new products that we've announced at various times in the last year or so. And we're going to continue to do that going forward because it's an area that we believe can really help us drive some growth.

Bob Sales - LMK Capital

Okay, and last question for you. Can you just outline for us with this transition from the existing standard in DVDs to Blu-ray and I guess whenever that takes shape, just talk about the threats and opportunities on your business?

Jason Rhode

At the moment, I would say that's definitely a big opportunity rather than a threat. In particular, the high-def audio standards that are incorporated with the Blu-ray and Blu-disc players and the compatible AV receivers, for example, that really brings with it a pretty computationally complex decode, and potentially re-encoding, or what we would call a transcode process.

We've got a great audio processor for that, and we're talking to a lot of pretty significant Tier One accounts about both players, receivers, and the like. So we think that, actually that trend provides a pretty meaningful opportunity for us going forward.

Bob Sales - LMK Capital

Do you think that could be a material revenue opportunity in fiscal year '08?

Jason Rhode

Towards the end of the year, we're expecting to see some actual production shipments.

Bob Sales - LMK Capital

Great. Thanks for your patience in taking all my questions.

Jason Rhode

Thank you.

Operator

Thank you. Jay Srivatsa please go ahead with your follow-up question.

Jay Srivatsa - Roth Capital Partners

Thanks for taking my follow-up. If you look at the product mix, Jason, it's -- I think the current quarter's like 45/50, Industrial and Audio. How do you see the product mix changing over the next say, year or so as you look ahead? Similar percentage or starts to favor one or the other? Or can you speak to that?

Jason Rhode

We're expecting growth from both. If I had to hazard a guess right now, I would say they probably stay pretty similar in terms of mix.

Jay Srivatsa - Roth Capital Partners

Okay. Another question. If I look back on the past couple of years, your revenues have been kind of around the low 180s, and if I take out the Apex, it's probably likely that '08 might be kind of in the same range.

As you plan your strategy for the company, what are some of the areas you're looking at beyond the current ones that you have spoken about, to really take the Company to the next level in terms of revenue growth?

Jason Rhode

Yes, that's definitely probably falls under the category of things I probably wouldn't want to talk about in advance. But I will say that we've had a bunch of very good sessions with myself and my staff about the kind of company we want to be going forward, and about the various different opportunities we've got in front of us to layer growth on top of this thing. That's absolutely what we're committed to go do.

I think we've got a lot of opportunities to do that within the space that we're already in. I think we need to get a lot more efficient at taking these products we've come out with and turning them into design wins, and ultimately turning that into revenue. And then of course, we're going to continue to look at various different new opportunities and new segments that we could go after to really layer some solid growth on top of this.

Jay Srivatsa - Roth Capital Partners

Okay. Thank you.

Jason Rhode

Yes.

Operator

Thank you. And our final question comes from the line of Mike Hughes with Delaware Investments. Please go ahead.

Mike Hughes - Delaware Investments

Two questions for you. First, what kind of level of revenue do you need to achieve in order to hit the 20% operating margin goal?

Jason Rhode

Well, I don't have that sitting in front of me. I will say we've, I think highlighted our margin expectations, and we've given, I think pretty good guidance on the OpEx. So without the OpEx changing, you can probably back out what the revenue growth would be.

Mike Hughes - Delaware Investments

Okay. So the OpEx number for the September quarter, you can grow the revenue by a fairly good bit without taking that number up, is that right? There's a lot of leverage there?

Jason Rhode

Yes, I believe so.

Mike Hughes - Delaware Investments

Okay. And then the second question, it sounds like you've done a lot of hard work over the last year, year and a half on design wins. They are starting to ramp. The margins are set to expand.

You're going to start to generate really good free cash flow, and you're sitting on about $235 million in net cash. So is there just philosophical opposition on the Board to a buyback? Just what are your thoughts on that?

Jason Rhode

Well, there's a whole host of different opportunities to go do with our cash, one of which, the $42 million acquisition of Apex, I think is probably one of the best possible ways to go about turning that cash into an asset for our shareholders. It's something that we look at a lot.

We make sure that we're considering all the various options and it again, falls into that category of questions that I fully expect. Although I was surprised this time, we got all the way to the last question, that I fully expect to get on every call and it's just something, if we have big plans on, we're probably not going to be able to talk about.

I wouldn't say there's philosophical opposition to it. I would just say that we need to consider it against all the other options. And frankly right now, I'm still so excited that we were able to find Apex and bring that deal in.

Mike Hughes - Delaware Investments

But you did say in your prepared remarks that you were not looking at any large acquisitions at this point. Is that correct?

Jason Rhode

I think I said that we're not set to announce anything related to acquisitions or buybacks.

Mike Hughes - Delaware Investments

Okay. Thanks a lot.

Operator

All right. Thank you. Management, please continue with any closing comments.

Jason Rhode

Just wanted to say thank you for all your questions, your interest in Cirrus Logic. I'm excited about our prospects and our strategy to drive growth. I want to note that we'll be attending Roth Capital Partners New York Conference on September 5th and 6th. If you're participating in that conference, we hope to talk with you then. Thank you, again, for your interest in Cirrus Logic.

Operator

All right. Thank you. Ladies and gentlemen, this concludes the Cirrus Logic's first quarter fiscal year 2008 financial results conference call. You may now disconnect. Thank you for using ACT Conferencing. Have a very pleasant rest of your day.

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

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

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

Source: Cirrus Logic F1Q08 (Qtr End 6/30/07) Earnings Call Transcript
This Transcript
All Transcripts