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International Rectifier Corporation (NYSE:IRF)

Goldman Sachs Technology and Internet Conference

Feb 15, 2012 02:40 PM ET

Executives

Oleg Khaykin - President and CEO

Analyst

Jim Schneider - Goldman

Jim Schneider - Goldman

My name is Jim Snider from the semiconductor here at Goldman and it's my pleasure to introduce IR today. IR is a broad line supplier of analog products into the communications, computing, industrial, consumer and military aerospace end markets and with those from the company is Oleg Khaykin. Welcome Oleg.

Oleg Khaykin

Thank you Jim.

Jim Schneider - Goldman

So just wanted your thoughts at sort of very high level on or maybe sort of tactical over actually on near term business trends, clearly you've seen similar things to the rest of the industry over the past couple of quarters, we've seen a pretty pronounced in store correction across the industry. But it looks like something your business has started to turn the corner at this point and guided the sales flat up 9% for the March quarter I believe it was. Can you give us a sense of what you've been seeing from customers? What times you think that they were actually at the bottom of the cycle and what do you think the reflection looks like from here.

Oleg Khaykin

Well I think really December and March quarter should be taken together kind of the floor and really depending on whether you took your poison in the December quarter or you spread it out between two quarters, if you took our word, dropped in the December quarter, you're probably more towards down in the March quarter, if you took bigger drops like which chose to do in the December quarter, you're going to see some recovery. And the basic thing is it always comes down to the end demand and the end demand do not really drop that much. Because I look at my sell-in and sell through numbers last quarter in Asia, my sell through was down in single digits in demand, but sell-in was down 30 to 40%. So there is clearly everybody is burning inventory and inventories are being burned not just steady distribution semiconductor company levels but all the way up to the retail aspect. Everything is evenly coming down and one of the things that everybody has forgotten, 2008, 2009 and I talked to some of our customers in their procurement, I said well, what is the deal with the device, well, I am under strict orders to reduce inventory. I don't care. I'm not even if you give me 5-10% discount, I am reducing inventories come hell or high water because my TL wants floor inventories and that percolates all the way across industry.

So the good news is that last quarter and this quarter things are coming down. The other one is I look at the economy in China coming to pick up. They had a big slowdown because of the liquidity crunch that took about three months but it really hit us hard and hit lot of the industrial and their consumer conception in the December quarter. It's not coming back, they opened all the tickets in December, so it's going to proclaim.

So where we are right now is, we're seeing some orders come in but a lot of that is very much like people pinging, they said, hey I got an order coming in, do you have a product. If you have products in a shop right now, they'll take it, if not, they'll have somebody else have it. At the same time you're seeing people putting orders for the next quarter because they figure June and September are the very strong quarters generally in the cycle and with inventories being depleted, everybody hedging their back that suppliers might run out of buffer stock and they will have to hit hard lead times.

But what I am seeing today if I say characterize the order pattern between cancellations push out and orders coming in, it's clearly in a positive territory.

Jim Schneider - Goldman

Got it and then you mentioned Asia and I either missed but didn’t ask about post Chinese New Year. What have you seen from your customers in China post the holiday. Clearly there is always a lot of the companies have talked about the things were strong and generally ahead of the holiday. They are always strong in generally you have the holiday. Just question is what are they after the holiday.

Oleg Khaykin

Yes, look March quarter is seasonally weak quarter anyway. So we did get orders. Right before our earnings I mentioned we got three days, we got orders and the question was is it people just catching up or is it real orders. But to me now I have two weeks and what I am looking at is hey, it's not a one trick pony not one blend. Its consistently the positive signals are out way the negative signal which is very from the beginning of the December quarter where you had negative signals far outweigh the positive signals. So the net gain or losses to your visibility in the quarter is more positive than negative. But that is probably varied by depending what you chose to do in December. If you chose to not take the first market business and del with the inventory or you chose to push the product in with some incentive because then if you did then March quarter will be weaker for you, if you didn’t, March quarter should be stronger for you.

Jim Schneider - Goldman

Understand that's there.

Oleg Khaykin

But that's sad. Really I think June and September where everybody is counting on that to accomplish.

Jim Schneider - Goldman

Exactly. One of the follow-ups to that is, I think we've heard now from several of your peers, I think everybody is in consensus that few one of the bottoms of the industry, the question is we've seen a little bit more diversions of opinion about how quickly we snap back from here. So we'd love to get your view on that and your view on which end markets you think snap back faster versus slower.

Oleg Khaykin

Well I think you've got to look always at the end market consumption. I think Asia is doing very well. US is okay but not spectacular. Europe is concerning to me. Last time in 2008-2009 everybody shut down their factories and shutdown their inventories way down and for two quarters all the inventory bled out of the channel. This time around semiconductor companies have some inventory and nobody took drastic measures like shutting down fabs for weeks at a time and letting go big chunks of their labor force. So as a result, I don't think snapback this time is going to be as extreme but there is going to be some snapback nevertheless and not just because the demand jumps a lot. Demand is still there but it's just everything in the supply chain as it bleeds out.

Let's say BestBuy places an order with one of the major manufacturers and they say I don't have any goods, so they look to their contract manufacturers, I don't have anything in stock and before you know, it’s the whole supply chain is now, there is nothing in the buffer stock and now you are being faced to the three month semiconductor replenishment cycle, that's when people start crumbling for the product. But this I think you know to the extent that the economy even that Asia being strong, US being okay, Europe being weaker, just on that demand profile alone you should see mini-quarter cover during September quarter.

Jim Schneider - Goldman

Fair enough and then you mentioned the inventory depletion across the supply chain. Can you talk about just your customers, particularly the distributors and where you think they are. We've heard also some commentary about they are still in reduction mode or whether they are just keeping mobile at this stage. What are you hearing from yours?

Oleg Khaykin

Clearly their distributors have lots of inventories and they have lots of borders and they want to have no inventory when they have no work, right? So it’s a prey on. I mean the whole point of distribution is traditionally you buy in the weaker time of the year and you smooth out the cycle. Well today all distributors all worry about returning their working capital which means they don't want to hold their inventory which means, what is your role in the supply chain. So I think really I would see big difference. We see some private distributors actually buying products because they want to have it, because they know in six months there is going to be demand and they'll make a lot of money and they made a ton of money the last time around. Others are trying to maintain their roots of inventory, take it down further but even more importantly to me I think a lot of my customer and say what guys think is while across the board might see us all I might got to take my inventory down. The whole argument is still very good, the shipping.

So they are consuming inventory and everybody is hoping that the previous link in supply chain is sitting on lots of finished goods products that can pull in at the snap of their fingers. Initially my view is going to be the case probably until the end of this quarter and the moment people start seeing that some of their supply saying sorry, don't have anything plus market, if you needed to start production, that's when people start to really place real orders accounting from lead time and the demand and things like that. Right now, if you can get a product on the snap of your fingers, why bother planning your launch on supply chain.

Jim Schneider - Goldman

Understand, so you talked about the inventory depletion, I think it's fair to say for better or worse, your inventories are not depleted by any strength. You pointed out almost a record high days but even on the dollar basis they are…

Oleg Khaykin

And some of it we made some bets we thought a lot of June, September was supposed to be very strong so we overbuilt a bit, we took advantage of the foundry and the (inaudible) and some sweet heart pricing deals in the March quarter, then some of our customer knew that we were going to cover to SAP and SAP's nickname in the industry is stop our production, we're worried that we'll shut down, it will cause disruptions. So we have some customers took on more inventory in September than they should have. So net, net we ended up but clearly we put have less inventory.

But for us it’s a bit different, our product lasts five to seven years. So that's an inventory I can sell, it's not perishable. And for me the tradeoff I am doing right now is how much do I take my manufacturing down to accelerate, take the inventory down faster or do I maintain utilization a little bit higher and take that slope slower. Because do you want to convert inventory into cash and how much of the under absorption you are willing to take. So we're trying to do a balancing act, so we don't under utilize our factory too much which will, if you take it down too much it starts having yield problems, you start having all kinds of manufacturing issues and at the same time make sure we keep burning off the inventory and reducing the level of that.

Jim Schneider - Goldman

Fair enough, maybe you can give us some insight into the choice that you're making in terms of how much you plan on taking utilization down from this quarter.

Oleg Khaykin

I think generally if we tried to about 70% some fabs a little bit less, some are a little bit higher, but even when we reduce 70% we would rather take a one week mandatory shut down and when everybody comes back around the staff that 80-85% because it's just fundamentally better to run fab at a fuller utilization because then a whole lot of things run better than if you are running at half shift or you are on one shift or you can't really shut down the fab. Tools generally do not like to be sitting idle.

Jim Schneider - Goldman

Yes, and you referred earlier to phenomenon where you think in an up cycle you start to get a scenario where customers or distributors whoever they maybe see that you've got inventories ready and they'll just grab it. Are you sure you can take advantage of that.

Oleg Khaykin

Every time they come in they get top order demand if you have it and how long is lead time, well lead time is for me to ship from my hub to their hub. And that's a lot of the business strategy. Now they are still out of bulk of the business is planned and they buy on regular levels. The big up or down, what's going to happen is kind of transit how much of these some of these look, I don't have any product, I need it right away. So being able to respond is good. And if there is indeed a snapback in June quarter, September when we actually be saying look wise old man that we actually had some inventory on hand to take advantage of it. We'll see.

Jim Schneider - Goldman

Fair enough. And then relative to the margins that you guide margins are down another 400 basis points in the March quarter and you ultimately commented on the call where you said, relative to a year ago when you are doing $300 million and about 40% plus gross margins, that because of the increased mix of power management devices this time around, the margin recovering might look like high 30s versus low 40% gross margin. So, how should we think about those dynamics in terms of whether its mix or utilization or both.

Oleg Khaykin

Well let's think all right, we were about say high 38-39%, about $300 million revenue run rate, right. So to the extent we get back to that level we should at those margins very quickly because the difference between what we guided this quarter and that margins it's purely it's all fab leverage and anything beyond that is the mix of leverage and the topline growth leverage. So I think in terms of gross margin expansion, clearly the kind of lowest hanging food the ones that will materialize within couple of quarters as business recovers will all be driven by the better utilization of the fab.

Jim Schneider - Goldman

Okay, maybe talk about some more product oriented trends. I think you probably got 20-30% you tell me if closure today is kind of multi-screen type components. On your earnings call you said that some of your competitors had been very aggressive about pricing in the spot market to move inventory. You also said that you really don't want to participate in that because it hurts you on the backend of things when things recover. So you can maybe talk about whether you're seeing that same type of pricing dynamic in the market and how you're thinking about pricing going forward.

Oleg Khaykin

It's called the spot market incentive was really a December quarter, we're seeing a lot less of it today and there is nothing wrong in giving somebody an incentive let's say 7-8% to move the inventory if he knows he's going to get consumers. And I know that the right people will take it and they'll build their own shipping. The problem is, as I said, I talked to the customers, they said I don't need any product. No matter what discount you give me, I am under strict orders to reduce my inventory. While distributors don't want it either, so who’s going to pick it up? The brokers pick it up. SO these are companies who are like in China and Singapore and do you really think they are going to go and create for your product? They don't. what they do is they go to their highest margin, highest ASP market and six months later when the market recovers, say to your North America, Europe, South America and their whole profit model is exploiting grey market opportunities and they go into those markets and they go to all your major customers and they offer them the product at a lower rate.

First of all, absolutely this is off your legitimate distributors and reps who spend a lot of time and money to create that demand for you and all they are seeing is product coming in, somebody undercutting them and it takes about two-three quarters to burn itself out. But it really demoralizes some of your best friends in the market. And obviously it kills your sale and you living money on the table. So my perspective yes, I did not see that any of this business would actually get consumed. I said it's like cash in the bank, why would I want to give somebody my cash at 5% discount? If I sit on it, I'll wait and I know this product is going to sell anyway the next two quarters, I'm effectively going to realize 10% on my cash. It's not a perishable inventory.

Jim Schneider - Goldman

Yes, so is it true that kind of discounted behavior that price aggressiveness from your competitors was really just a December quarter event or you seem them not continue into the third quarter?

Oleg Khaykin

Well it may be happening in this quarter but it was much more pronounced and much more visible in December quarter, its last for today.

Jim Schneider - Goldman

But you think it's basically unsustainable for your competitors to continue.

Oleg Khaykin

I presume they want to make money eventually. If anybody who works in manufacturing, it takes huge effort to reduce your cost by 1 to 2%. You can destroy 5% of your ASP at the snap of a finger and it will take you like several quarters to get it back. So people have done those deals but in the end if they do want to maintain their margin for business model they are going to have to either erase prices or restate their operating model.

Jim Schneider - Goldman

It's not an exactly related question because the deals with more the high volume, bigger die size type markets, but I was wondering if your take on 300 millimeter capacity, select number of your competitors, TI (inaudible) have been aggressive about 300 millimeter. Was wondering if you see that as a wise strategy for them or wise strategy for you to take some of the larger die sizes that are high volume and convert to 300 millimeter either internally or externally.

Oleg Khaykin

I think TI and Maxi most of their dies are very small and I think most of what they are taking is their IP. So clearly on the 300 millimeter, clearly you have a benefit of fixed cost leverage, right, when you go from 8 inch to 10 inch. But there is more. I mean 300 millimeter equipment is by default more capable. It's much more expensive to maintain, the wafers cost more money, but we have bigger area but the bigger allure here is it gives you a better alignment. You have better performance.

So if you're doing like 25 to 35 layer IP, its actually good idea but you've got to have a huge volume because they are small volume die. Remember the 25 wafer fault that goes into the 300 millimeter is going to have in many cases annual, one year worth of demand and remember analog unlike memory or processors or A6, like Xilinx and other have huge die, NVidia they have relatively few skews in astronomical volumes. In analog, your die often is very small but you have a huge number of skews, very high variability. So it's very unprofitable to run low and medium volume, high mix product for the 300 millimeter fab. So most of the competitors what they are doing is, they are looking for something today, I have in high volumes like microcontrollers, baseband, application processors for wireless, where they can run at least some products very high volume, fairly low mix or they have a large die where even the low volume requires lots of wafers.

But that said, we look at purely at economics because you also have to look at the 300 millimeter wafers, because they are heck a lot more per square inch than 8 inch wafers, so you're starting with higher cost base material and then you hope that your benefit of conversion reduces it. So there is no magic. Reality is finding 300 millimeter, I can get it to more in Taiwan. They are more than happy to build my products 300 millimeters. Looking at the core prices today of 8 inch, I don't think it's economically justifiable yet.

Unidentified Analyst

(Question inaudible).

Oleg Khaykin

Down cycle is a utilization game. So in the end in three years we've expanded our market shares significantly. We grew very nicely. If I look at our peak-to-peak, the prior peak was September quarter '08, our business about 2012, million a quarter. Last peak was 317 in the summer of last year. So we expanded our peak-to-peak $105 million. Our trough to trough, our trough in the March of '09 was $133 million and we lost $30 million. Our trough in December quarter was 230 million, so we expanded that by $97 million and our operating loss really actually would have been a breakeven but we had a one-time hit that one of our licensees overpaid so we had to give them money back. But its roughly couple of million dollars loss. So in that respect, clearly scales matter and we intend to continue grow aggressively.

We have the right products, we have the right design interactions. We have the right customers. So my perspective, the topline story is very much intact. Downturn, this is the nature of the industry. For every six quarters you are going to have great quarters, you're going to have two ugly quarters. But you've got to look at as where were you at the peak of the last cycle versus peak of the next cycle, so I always think in terms of the two three year horizon where we're going to come out and the other thing is ultimately your technology is by far in this business the biggest driver of your long-term prospect and it gives you an idea last week it was APEC conference, there is two really big trade events, events of power semiconductors. One is the APEC conference in US and (inaudible) conference in Germany in May.

And the topics that everybody talks about last week, there were really just two themes that really matter was digital power and GaN. And IR is the only company at the nexus of both of these points. So three years ago it was all esoteric discussions, digital power and GaN. Today it's like hey, it's happening, this is what we need to be thinking about in next turn. So in that respect we are extremely well positioned where the industry is going and with the complete redevelopment of our break and butter technologies, our current low voltage, mid voltage MOSFET, IGBT, low voltage IT products that we introduced last year and this year. We are very well positioned in interim. So I think the couple of in my view is the topline growth, it is on track. The gross line will expand as soon as the revenue returns back to where it was and I think with the new product introduction and probably tester growth in our IT business units, we will hope to get over the 40% threshold and even that's a key implementation, costs us a lot of money and still giving us some headache, I believe that ultimately will enable our OpEx to scale much better as the revenue goes from here to 300 and beyond at requiring much less SG&A increase thus giving us better leverage.

Jim Schneider - Goldman

I want to follow-up on one of those points which was just the power management business. I think when you came in, you made a decision to revitalize that with the street mart business you went from I think it was 40 million this quarter to at the bottom of the cycle to 125 at peak and I think you came out at number one share in discreet MOSFET but clearly there is a question about whether competitors get more aggressive and trying to take back that share so, do you think you can kind of hold that share position and what do you think that's the…

Oleg Khaykin

Well I think this business is very strategic for us, that's what gives you volume and scale because developing each new technology platform takes money and doing 125 million a quarter is a heck a lot better than doing 40 million according to terms what's your ability. And not only did we grow from 40 to 125, we actually expanded the margin on that business at the same time. And it took care of obviously the technology but also operations and we continue to do the same thing.

So look, there is always going to be competition but I think today we are much more capable of withstanding competitive pressure and responding in a MOSFET market than we were in three years ago. Three years from now we are going to be in even better shape than we are today because the things that we are doing today will give us fruits of our labor in one to three years, the things we did in 08 gave us benefit in 2010-2011. So I feel very good about the business sense. I look at it as two ways. To me the MOSFET business is a pyramid. There is a bottom half that doesn’t care really about efficiency performance, it's really the price and you can leverage the business take it when you want it and leave it when you don't want it. There is no hard feelings. But there is a top half where it's all about price performance. That's where your technology is appreciated and that's where the level of integration can give you higher margins and higher revenue and that's actually our next three year's push is to exploit and get deeper penetration into that upper half.

We did a very good job capturing big share in the bottom half and we're going to continue to maintain it, but we're also not going to more heavily to the upper half and what it means is like taking the same MOSFET that we'd normally sell as a discreet and take combining in with the driver I see putting into the same package, co-packing it and selling it as one power stage. So A, it makes you much more unique because a lot of discreet competitors don't have these drivers and you actually reduce the form factor and you make significant savings on the pairing and packaging. Because you know in discrete semiconductors, your cost structure is roughly 50-50 between assembly in test and the silicon. If you can eliminate assembly and test, on one of the packages and combine them together that gives you much bigger capture of the volume, better margin, better pricing. And it's exactly same technology we have today. So it's just really through packaging you can open new market segment for yourself.

Unidentified Analyst

Can I ask about the enterprise power? There is a lot of discussion or maybe even hype about the Intel Romley generation and what that kind of means in terms of next year. Can you maybe give us a sense of what your share position was in last product cycle, what it is normally and how should we expect that business to perform for you this year?

Oleg Khaykin

With Romley we do have some lower market share; one of major customers wants three sources from two. So we were the number one so we lost some share there. But I'll tell you one thing. I am not really concerned much about Romley. I think Romley is the blimp on the radar. It's going to be one of those short-lived interim generations. Really I think the next generation, it's kind of tick-tock right, because it's already been delayed by six to eight months and the next product that Intel is going to show is the Brickland. That is actually the VR12.5 and that's taking, it’s a much better product and its taking full advantage of digital power and in that generation we have actually an increase in market share from where we have before. And actually it's amazing one of the things that we noticed in January which was unexpected is the demand for the previous generation chipsets or the service because a lot of the major OEMs are maintaining the prior generation while they release Romley but they are busily putting all their efforts to only the follow-up which should be start to ramping at the end of the year beginning next year. So even if you look at VR11, was launched, it had a very, the thing was launched with very short-life and really 11.1 was the two stores, three quarters of the volume. I think the same thing now.

So its tick tock, tick as usually the minor, the tock is the one where they drive most of the volume. And but the other thing is that it's clearly all going to digital power and today we did an acquisition last year CHiL, I'll tell I am not a big fan of acquisitions and generally they don't amount to much but this is one that is going to be wildly successful beyond all expectations and what we saw is, we saw the server went unexpectedly faster in converting to digital power management but what really surprised us in the last six months is how fast the whole laptop performance, desktop and the ultrabooks are all going to digital power. And that is really, we saw they all take two, three years before the mainstream gets digital power but it's all going to start converting radically middle of the shift. So feel very good about this business product.

Jim Schneider - Goldman

I want to be sensitive of the fact we don't have a breakout session here, so maybe open up to any questions from the audience before I start with some more.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible).

Oleg Khaykin

Well I think as we get into our stated margin in upper teens, so we get to 300 million and above that's really where we're trying to get into and up.

Unidentified Analyst

One question I want to ask is just on the historical financials and the cash flow generation of the company fundamentally. Over the last three years I think the accumulated operating cash flow of the company has been slightly negative. I am just wondering what are the reasons for that, is that because you need to catch up on past investments, make other strategic investments. Maybe walk us through what has happened to cause that to happen historically and what do you expect the more normalized cash flow of the company to be going forward.

Oleg Khaykin

So when I came in the summer of '08 we had about little over $700 million in cash. So if I look at it then and now including the '08-'09 downturn, in that time we generated roughly about $300 million in cash. In the same time, the CapEx really are called building your house, investing in your fabs, investing your internal capabilities, new technologies, plus SAPs was actually roughly about the same. So you can look at it all the operating cash flow that we generated. It was slightly more than what we spent on CapEx.

So that's that. Then we of course had settlement expenses with the lawsuits, restatement, that was a big chunk of money, $120 million, that's came off from that. So that was really the one thing that reduced our cash forward dramatically. We did about $105-$106 million buyback of stock and we acquired CHiL and there is about $30 million level three securities that were impaired during the downturn. So between all that, that pretty much covers the gaps. So if you take where you were, how much you generated, subtract the cash, subtract the CapEx, subtract site owner expenses, subtract buyback and subtract the acquisitions, it pretty much fits with our stated capital allocation model as we presented about year and a half ago.

Then to me one thing has surprised me. I mean history talks a lot about free cash flow. A lot of industries talk about free cash flow are mature, boring non-growth industry which is exactly what you should be doing if you are not growing. However we grew over 50% from the prior and I prefer to invest my cash in CapEx because it drives my growth. Some companies go off and blow a $1 billion on acquisition but they park it in goodwill. Yet they claim they are cash flow and excuse me, what cash flow are you generating when you acquired $1 billion of acquisitions. You should treat that just as CapEx. I mean cash with cash. So from our perspective a free cash flow is when you are doing your acquisitions. You've got to take all your acquisitions you make, you take all your CapEx that you make and you got to compare against your growth and the long-term prospects.

So from my perspective, the next three years, we actually used to generate free cash flow because I think bulk of our reinvestment in business is done and we've cut up on many years of under investment in manufacturing assets. We are spending aggressively on new technologies that we are introducing. We're putting the capabilities to support those technologies and I don't see now their SAP implementation or the lawsuits are at a statement on the horizon. So I think we are in pretty good shape to generate some cash in that cycle.

Unidentified Analyst

Great and just a last one on gallium nitride just as we finished up, curious, you talked about that being, it sounds like from legal based conferences maybe a little bit more of a near term thing because it was always an esoteric five to eight year timeframe. Give us an update on how big an opportunity could be for you and is it the next couple of years or what timeframe should we think about?

Oleg Khaykin

I'll tell you one thing. I've probably starting to feel a bit better about GaN. Last quarter we sampled our top tier customers because one of the things IR today, we're participating in high-voltage only in IGBT. A big market that's really has grown significantly is not acceptable to us because if you recall IR sold its business about five years ago and so we have a non-complete on the silicon from 2014 and that's really the super junction, the 600 volts for everybody has seen very nice growth, very nice margin. With GaN, we can reenter that market and that's a $4 billion available market that we are not even present today. Not only that, having sampled our 600 volt GaN devices to our customer, as my head of R&D for GaN describes the feedback was irrationally enthusiastic. I mean much better than we hoped and we feel we are to deploying. I made a point, if you have a startup you can release any GaN and call you have a product. Reality is people at IR brand we have sell close to 65 year history. You cannot put a brand on a product that is not as good as divestiture selling today in reliability. Yes, performance is great but you also got a reliability.

And secondly you've got to have the yields and all other manufacturing factors in place so you can do it. We are now approaching in very short term where we need to be and we expect to start initial production of GaN this summer for some of our top tier consumer electronic customers but really what I see probably will be the biggest fastest adoption of GaN is on high voltage and we expect to have production samples, this year with a revenue starting next year and I actually hope we have also a number of marketing strategies and how we're introducing the product to reduce the adoption barrier and I think you should see the revenue hopefully becomes a big success. Because to me if the GaN indeed delivers on its promise, three, four years from now everybody will be talking about IR as the digital power GaN company and that's really is the two hottest trends right now where the power management is going in this industry.

Jim Schneider - Goldman

Great. Well I think we're out of time. Oleg thanks very much for being with us.

Oleg Khaykin

Thank you very much.

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