Cirrus Logic F2Q08 (Qtr End 9/29/07) Earnings Call Transcript

Oct.24.07 | About: Cirrus Logic, (CRUS)

Cirrus Logic Inc. (NASDAQ:CRUS)

F2Q08 (Qtr End 9/29/07) Earnings Call

October 24, 2007 5:00 pm ET

Executives

Jason Rhode - President & CEO

Thurman Case - CFO

Analysts

Heidi Poon -Thomas Weisel Partner

Rick Schafer -CIBC

Vernon Essi - Needham and Company

Jay Srivatsa - Roth Capital Partners

Tayyib Shah - Longbow Research

Operator

Ladies and gentlemen, thank you very much for standing by.Welcome to the Cirrus Logic Second Quarter Fiscal Year 2008 Financial ResultsConference Call. At this time, all participants are in a listen-only mode.Later we will be conducting a question-and-answer session. Instructions forqueuing up will be provided at that time. As a reminder, this conference callis being recorded for replay purposes. I would now like to turn the conferencecall over to Thurman Case, Chief Financial Officer. Case, you may now begin.

Thurman Case

Thank you and good afternoon. Joining me on today's call isJason Rhode, Cirrus Logic's President and Chief Executive Officer. Before webegin, I would like to remind you that during the course of this conferencecall we will make projections and other forward-looking statements regarding,among other things, our estimates for our third quarter fiscal year 2008revenues, gross margin levels, operating expenses, amortization of acquiredintangibles and share based compensation expense, as well as our estimates andassumptions regarding our future revenue growth and profitability.

These statements are predictions that are subject to risksand uncertainties that may cause actual results to differ materially from ourprojections. By providing this information, we undertake no obligation toupdate or revise any projections or forward-looking statements, whether as aresult of new developments or otherwise.

Please refer to our press release issued today, which isavailable on our website at www.cirrus.com. Our latest Form 10-K for the fiscalyear ending March 31st, 2007,as well as our other filings made with the Securities and Exchange Commissionfor additional discussions of risk factors that could cause actual results todiffer materially from our current expectations.

I also want to mention before we proceed that all financialnumbers are prepared and thus noted in accordance with Generally AcceptedAccounting Principles. A reconciliation of the non-GAAP financial informationprovided in today's call to the most directly comparable GAAP information isincluded in our financial statements and on our website in the investorsection.

Non-GAAP financial information is not meant as a substitutefor GAAP results, but is included for informational and comparative purposes.We use certain non-GAAP financial information internally to evaluate and/ormanage our operations which we believe is useful to our investors. As a notethe non-GAAP financial information we use may differ from that used by othercompanies. These non-GAAP measures should be consider in addition to and not asubstitute for the results prepared in accordance with GAAP.

Moving now to the actual financial results, net revenue inthe September quarter was $47 million compared with $41.1 million in the Junequarter and $48.2 million in the September quarter one year ago. Audio productscontributed $28.1 million in revenue and industrial products provided $18.9million in revenue this quarter. Historical revenue breakdowns are available onour website through these product categories. We had [new] OEM customersrepresenting more than 10% of revenue while one distributor Avnet represented25% of our revenue during the quarter. Gross margin for the September quarterdecreased to 57% from 59.2% in the June quarter and 58.5% in September quartera year ago.

This gross margin was lower than our previous guidance of58% to 60% due largely to growth of new products. We will maintain our focus onreducing manufacturing costs in our new products such as portable, and we areactively driving improvements as we continue to ramp more products in to fullproduction.

Total GAAP operating expenses were $30.3 million in theSeptember quarter and our GAAP net loss in the second fiscal quarter wasapproximately 300,000. On a non-GAAP basis, our net income was $6.2 million andearnings were $0.07 per share, based on 89.9 million diluted shares. We arrivedat our non-GAAP net income by making the following adjustments to our GAAPstatement of operations. We excluded a $3.7 million impairment charge relatedto our investment in Magnum Semiconductor. We excluded a $1.8 million chargeassociated with the in process R&D related to our acquisition of Apex. Weexcluded 555,000 in share based compensation expense. We excluded approximately300,000 of amortization of inquired intangibles, and finally we excluded a175,000 in legal fees related to current activities associated with theincluded stock options review.

Interest income for the second fiscal quarter was $3.2million, down slightly from $3.5 million in the previous quarter, primarily dueto the impact of our $42 million cash acquisition of Apex. Including the 89employees that we added from the Apex acquisition, employee headcount was 545at the end of the quarter, compared to 460 at the end of June quarter.

Turning now to the balance sheet, total cash and marketablesecurities at the end of September was $245 million, down $33 million from $278million, at the end of the June quarter. This reflects the $42 million in cashutilized from the acquisition of Apex, which closed on July 24th. Our totalcash per diluted share was $2.75 at the end of the September quarter. Excludingthe Apex acquisition, Cirrus generated approximately $9 million in cash.

I would like to add that we continue to consider appropriateopportunities to evaluate and improve our capital structure.

We ended the September quarter with $23.8 million in net receivables,compared with $19.4 million at the end of the June quarter.

Avnet inventory for the September was $19.5 million, up 11%or $1.9 million from $17.5 million at the end of the June quarter. The increasewas in line with our expectations to meet seasonal demands, and also includesthe addition of Apex’s inventory.

Our capital expenditures were $1.1 million in the Septemberquarter, compared with $3.5 million in the June quarter, when we acquiredcertain Class D technology assets and intellectual property from TriPathTechnology.

Depreciation and amortization expenses in the Septemberquarter increased to $2.3 million, from $1.7 million in the June quarter, andthat includes the approximate $300,000 in amortization of acquired intangibles.

And now I would like to turn the call over to Jason todiscuss our business operations and guidance for the upcoming December quarter

Jason Rhode

Thank you, Thurman. We made great progress in Q2 towards ourgoal of rebuilding the foundations of Cirrus Logic, and positioning ourselvesto achieve our long-term growth and profitability goals. We’ve recently addedto outstanding leaders to the team, which I will discuss in a moment.

Closed on the acquisition of Apex Microtechnology, which weexpect to strengthen our future EPS and diversify our industrial business.

We saw revenues from new products more than double versus Q1driven by products in several of our target markets and multiple new Tier Onecustomers.

On the product front we released several new products tofull production status, and four new first revision products were send to ourfoundry partners.

Additionally, we launched our new clocking product linewhich is now sampling and gathering interest from key customers. In order toachieve our next level of growth and profitability we will continue to focus onimproving our engineering execution, plus re-manage our expenses andre-vitalize our sales approach as we strive to become the first choice inanalog and digital signal processing components for our customers.

I am pleased to report that we’ve added two dynamic andproven business leaders to our management team. Yesterday we announced thatScott Anderson former President and CEO of Freescale Semiconductor has joinedus as Senior Vice-President and General Manager of the mixed-signal audiodivision. Scott will immediately take on the challenge to drive aggressivegrowth in mixed-signal audio. Capitalizing on our already established momentumin portable products and leveraging his automotive background to expand ourautomotive entertainment growth opportunities.

We wanted someone who could provide inspiring leadership forthe division, carry forward our corporate vision, mission and values and mostimportantly deliver bottom line results.

In addition to his exceptional result driven backgroundScott is regarded throughout the industry as an outstanding guy to work withand we are excited to have him on our team.

Also in August we added Tim Turk to the executive team asour new Vice-President in the worldwide sales. Tim brings a wealth ofexperience from his tenure in this role at Cyprus Semiconductor. I am extremelypleased with the progress Tim has made towards re-vitalizing our sales toolsand programs, while establishing a world class sales organization.

Tim is driving accountability into his team and establishinga sales culture and structure that will ensure that we will be systematicallysuccessful. Both Scott and Tim are seasoned semiconductor industry veterans andsolid additions to our team. I look forward to working with them during what Ibelieve are exciting times for Cirrus Logic.

I would like now to provide a brief update on our productsbeginning with the Industrial Products category. These products includeintegrated circuit designs for variety of utility metering, high power,precision measurements and energy exploration and communications applications,as well as our line of ARM Processors.

Revenues from Industrial Products in the September quartercame in at $18.9 million, compared to $18.6 million in the June quarter.

The integration of Apex Microtechnology continues to go verywell. Our high level of due diligence prior to the acquisition is paying off,as all of our expectations for Apex are proving to be right on target in termsof people, products, and financial results.

We are integrating the Apex precision power branded productswith Cirrus's global sales network, which will drive new revenue opportunitiesfor the Apex products with its expanded reach and broader level support. Longerterm the combination of our industrial measurement technologies and Apex willproduce product that expand in a higher volume markets.

This is an outstanding acquisition, as it expands ourexpertise, provides us entry into new markets and customers, and adds top linerevenue growth, while maintaining strong margins.

We've also made significant progress penetrating key globalutility meter accounts, with a strong new product road map, driving longer termrevenue opportunities, as digital meters continue to replace their mechanicalpredecessors.

We believe our core industrial business has now stabilizedand remains a valuable part of our long-term growth, while providing stronggross margins.

Let me turn now to our audio products. Components in thiscategory include data converters, Class D amplification products, audioprocessors and interface circuits, products that are used in a wide variety ofconsumer, professional, and automotive applications.

This product category contributed $28.1 million of ourSeptember quarter revenue, compared to $22.5 million in the June quarter.Revenue from audio products was up in this past quarter primarily due torevenue from new products, and new customer designs.

In the portable audio market, which includes applicationssuch as media players and navigation devices, we have achieved significant year-over-yeargrowth, as multiple Tier 1 customers began volume production during theSeptember quarter. We have increased our revenue from virtually nothing lastyear and we are projecting $11 million for the fiscal year. This representsgood progress from the prior year and leaves tremendous opportunity to grow inan expanding market.

This is a market that values product differentiation in theareas of feature integration, superior audio quality, design innovation andextended battery life, and our initial success has opened the door for futuregenerations of new portable products from Cirrus Logic.

In Q2 we entered volume production with new products andseveral automotive applications. In this market we provide IC solutions for caraudio amplifiers, head units and telematics application. This has been aninvestment area for the company for sometime and will continue to be a keytarget market for us going forward.

Automotive customers value stable suppliers, world classquality, and reliability, and innovative partners to make their productsuccessful. We have great relationships with key customers in this market andthe addition of Scott Anderson into the team will strengthen this advantagesgoing forward.

Variety of products, our investment strategy of combiningstable long-term growth opportunities such as automotive with our otherexciting market opportunities in portable and DTV has a solid position forlong-term growth.

Now, let me review our guidance for the third quarter offiscal year 2008. Our overall expectations are as follows. Revenue is expectedto range between $47 million and $51 million. Gross margin is expected to be inthe 56% to 59% range. Operating expenses are expected to range between $26million and $28 million including the approximately $1.8 million in share-basedcompensation and amortization of acquire intangibles.

In closing, we made great progress in Q2 towards our goal ofrebuilding the foundation of Cirrus Logic and positioned ourselves well toachieve our long-term growth and profitability goals. With the addition of ScottAnderson and Tim Turk, we have strengthened the senior management team. Weclosed on the acquisition of Apex Microtechnology, which we expect tostrengthen our future earnings per share and diversify our industrial business.Revenue from new products more than doubled versus Q1, which indicates that ourplans are sound and the future for Cirrus Logic is very bright.

There is of course much work that remains to be done but wehave addressed many long standing fundamental issues in Q2 and this is makingus a much better company. I am confident we are on the right track toreestablish Cirrus logic as the first choice in analog and digital signalprocessing components. We are now ready to take your questions

Question-and-AnswerSession

Operator

Thank you, sir. (Operator Instructions). Our first questioncomes from Heidi Poon, Thomas Weisel Partners. Please go ahead ma'am.

Heidi Poon - ThomasWeisel Partner

Hi, thanks for taking my question. I just wanted to get alittle more color on your product refresh especially, the legacy products, thatwas giving you problem last quarter. Earlier you commented that you think thecore businesses are now stabilizing, so are you just suggesting that maybe theseismic product has stabilized and maybe parametering has grown enough tooffset that?

Jason Rhode

Yeah. I was intending to pretty much state that, rather eventhen imply it. Our core industrial business across the board, we think we havestabilized and we think we have got some good growth opportunities goingforward.

Heidi Poon - ThomasWeisel Partner

So can you give little more color on the seismic demandpicture for next [year], for next few quarters?

Jason Rhode

Well, as we say as near as I can tell it that appears tohave bottomed out at this point now and should be fairly stable going forward.It's a volatile market and we have got a variety of customers in there. Some ofthem are doing -- appear to be doing very well, others lack a little bit ofvisibility and to what they are doing but as we have said we've got pretty goodconfidence that it seems to have stabilized.

Heidi Poon - ThomasWeisel Partner

Okay, secondly can you discuss your backlog coverage at thispoint in particular with the higher mix of these consumer products? How do youthink your seasonality will look like especially go into Q1?

Jason Rhode

It sounded like two questions, let me answer it that way.Backlog coverage wise we haven't seen really any drop in visibility relative tothe current quarter's backlog. It supports the forecast that we've put out justnow very nicely and as far as further quarters out we don't really put anysignificant -- any specific guidelines out beyond the current quarter. But thatsaid we believe we are pretty well positioned going forward so.

Heidi Poon - ThomasWeisel Partner

Okay can you talk a little bit more about maybe any tractionin DTV you've discussed it before maybe incremental opportunities there butseems like you haven't really mentioned anything solely in that area?

Thurman Case

Yeah we are shipping quite a few of our standard catalogs,mixed-signal audio parts DACs and ADCs into that market but it turns to bepretty competitive space and the pricing of these type of products means thatit ends up -- there will not be any huge revenue contributions as far. We haveintroduced some new parts the CS4525 a while back that is a higher dollar partand that is starting to get a little bit of traction there. We are shippingthat now in some models of DTV although I will say that the portable mediaplayer docking station market has actually turned out to be even a little moresignificant for that particular part. We have some real good opportunities forour DSP product lines going forward in the DTV space and that's something wherewe are looking for some growth next year coming out of that product line.

Heidi Poon - Thomas Weisel Partner

Okay. Great.Thanks.

Thurman Case

Right.

Operator

Thank you, Ma'am. The next question comes from the line ofRick Schafer with CIBC. Please go ahead with your question.

Rick Schafer - CIBC

Hi. Thanks guys. I got a couple of questions. I guess the firstone is, I understand margins took a little dip this quarter. Sounds like asportables are ramping, can you give us an idea how big portables are now as apercentage of sales for you guys? And as part of that answer, I am just curiousare portables the main portion of your audio business that are below corporateaverage? And then just finally on margins, why the big range of guidance forgross margin in the December quarter?

Jason Rhode

Well, I guess I'll take them in the reverse order, the rangeis just, we've got a lot of things in play, we are working on someimprovements. We are coming from an era where we are shipping a pretty bigpercentage of fairly older products. And those are product lines where you'vegot exactly well established margins. And you know exactly what you are lookingat. And we are working a lot of new angles on the new products, and wecertainly don’t expect to dip out of the upper 50s, as we go forward. But we dohave a very good probability or very good potential to grow those portableproduct lines in particular.

That's something where I certainly expect that the longrange model for that product line should be supportive of the overall corporatemargin targets. But it is something that as we brought out brand new products andramp them into initial production, that something is lower than in thecorporate average. So, it's bit of a good news, bad news situation. Yes, themargins took overall dip, but they took a dip, because we are delivering ameaningful new amount of product line growth in that area for the first timelong time. And that's something that we are really excited to say.

Rick Schafer - CIBC

And so is that certainly the main area of audio that’s orthat’s below corporate average and how big can that business be for you guyseither? How big is it now or how big it could be next year?

Jason Rhode

Well, as I said we're projecting roughly $11 million for thefiscal year. That’s out of a market, depending on which estimates you look at,and exactly how you want to segment the market. We believe that's side of theserved market is about $175 million. So, at least a lot of room to grow, andhas been just a great ways of feedback from our customers in that space.

It's a good segment to serve, because the customers do valuethe technical differentiation that we bring to bear there. We believe we've gota sound quality advantage and a size advantage due to the integration of[off-chip] components that we have done. And so, any business like that whereit tends to be a real road map driven business, that first wave of productsseek it out.

You have some initial success and it opens the doors to amuch broader range of discussions with the key customers in the market segment.Opens up the doors for discussions of a lot of derivative type products, andyou know if you have that initial first success, that we've had, we take thatas a very good harbinger of things to come so.

Rick Schafer - CIBC

Okay. And just to be clear $11 million that you quotedthat's for fiscal '08 correct?

Jason Rhode

Right.

Rick Schafer - CIBC

And then again, I am just curious is there any other areaswe should watch within audio that where margins need to improve, or areimproving as we look forward?

Jason Rhode

That’s the primary area, of course, we watch, you got towatch every product line all time. That’s the biggest new thing that’s growingmost quickly.

Rick Schafer - CIBC

Okay. And then its sounds like we should be thinking ofaudio as out growing the industrial business next year, pretty materially?

Jason Rhode

Yeah.

Rick Schafer - CIBC

Okay.

Jason Rhode

Yes, which is good, because we are starting, at this point,if you look at the number we are starting from a bigger base as well and justto put a fine point on it, even just the progress we have made going from Q1 inthe 22 range, Q2 in the 28 range. And we are just excited to see that, becauseit really is on the strength of new stuff happening. This not just, okay we hada bunch of old designs and the September quarter is stronger, really there arelot of new products that we are shipping at this point.

Rick Schafer - CIBC

Right. Is there anyway you put it, like a timetable or anykind of rough idea of when you will sort of get those audio margins up more inline with corporate averages, I mean are we talking like a two year plan or isit a 12 months plan or is it, just any kind of idea?

Jason Rhode

Probably, maybe a different way to looking at it would be,as we grow that business at the rate that we aspire to do, we would like tokeep margins in the upper 50s.

Rick Schafer - CIBC

Okay. And then just one last question, just follow-on to anearly one, could you guys give us the turns number or book-to-bill number oranything like for the overall business?

Jason Rhode

Yeah. It's on the order of about four turns.

Rick Schafer - CIBC

Okay. Thanks a lot.

Operator

Thank you, sir. The next question comes from the line ofVernon Essi with Needham and Company. Please go ahead with your question

Vernon Essi - Needham and Company

Thank you. I was wondering if you could discuss the OpExside of the business going forward and sort of how that’s coming along in yourtargets overtime, post Apex. I was just wondering, if you can give us an ideaof what your longer term targets are going to be at the exit of '09, fiscal‘09?

Jason Rhode

I am sorry, target OpEx at the end of ’09?

Vernon Essi - Needham and Company

Yes

Jason Rhode

We've got a lot of room, we have invested in our businesspretty heavily, certainly we are running a level of OpEx currently that ishigher than one would imagine that one would see looking around the industry.We don't look to grow the OpEx in any specific -- in any significant way goingforward. We are managing that very closely. We are looking at, of course everyopportunity we can think of to try to keep that in check and do the job ofmanaging that. We think we've got a fairly good amount of growth [styled] incoming forward for the remainder of the year, for FY09 in particular so,certainly as a percentage of revenue, that should be going down over the -- aswe go forward.

Vernon Essi - Needham and Company

Okay and do you think just to go back to sort of when youhad these off margins that you were probably in the low maybe 10% to 15% range.When do you think you are going to get back into that spot again? Will it takeup three or four quarters or is this going to be more near-term or even beyondthat time range? I know you want to give long-term guidance but it just seemsthat you should be able to get there sooner rather than later?

Jason Rhode

Yeah that's exactly my -- that's exactly my feeling that weshould be able to get there within the next quarter or so and we need to makemeaningful progress towards our long-term goal, which is really more than 20%range. We need to be able to make meaningful progress towards that over thenext -- in the next year or so.

Vernon Essi - Needham and Company

Okay. And then just, can you just give some color on theactuals of the end markets themselves and specifically in digital televisionobviously a very strong market right now? Do you have any -- I may haverepeated this question but any color that you have going into the turn of theyear and how this seasonality might look out of that side of the businessrelative to the rest?

Thurman Case

As I said it's not a huge revenue driver for us at themoment. We've got some opportunities coming in there with some of the higherASP parts in the next 12 months or so. It's done a good business for us thisyear. We are shipping a lot of products, but it does tend to be the lower costaudio D/A Converters and D/A Converters. So it's not at the moment a primedriver for our revenues in FY '08, but we do think there is some significantopportunities there going forward.

Vernon Essi - Needham and Company

And just to be clear you are still shipping a nominal amountof Class-D into that market.

Then certainly all the other pieces are A/D and what not aredoing much stronger than Class-C and the television, correct?

Jason Rhode

Right. We are shipping now, we are now shipping our Class-Cproduct and DTVs but not in -- that's not the book or revenue by any stretch.There is significant growth opportunity there.

Vernon Essi - Needham and Company

Okay, all right. Thank you.

Jason Rhode

You bet.

Operator

Thank you. Next question comes from the line of Jay Srivatsawith Roth Capital Partners. Please go ahead with your question sir.

Jay Srivatsa - RothCapital Partners

Thanks for taking my question. In term of the Apex could youtell us what the contribution was in the September quarter?

Jason Rhode

Yes, we are not -- we have that broken it out. I will sayits exactly in line with our expectations, they are running into four to five aquarter range before the acquisition that's ballpark as same the pace there on,although, we only got a couple of months worth of the business in Q2.

Jay Srivatsa - RothCapital Partners

So, why was industrial flat if you had at least few $2million to $3 million contribution from that I mean that means its organicallyyour industrial business was sequentially lower could you speak to that?

Jason Rhode

Now that's exactly how that amount shakes out. At that pointthough this is the point which we feel like it's stabilized, we don't any seefurther decline at this point in the traditional Cirrus business.

Jay Srivatsa - RothCapital Partners

Okay. With the audio business becoming a more important partof your overall mix, how much of seasonality do you really expect in the Marchquarter to impact the revenues I you can speak the specific numbers, but do youexpect a more significant impact than past quarters?

Thurman Case

No, this is -- as I say we have not got specific guidanceout, but you know it's a good sideway for me to talk about something, it's justkind of a fundamental change. I think anybody that has been tracking us for thepast few years, has kind of grown accustomed to watching the same set of oldproducts ride up and down the seasonality curve year-on-year, and the realityis that at this point we have got multiple new products and we are targetingexisting growth markets and we are making progress there, and so it's a verysignificant difference. To be watching the seasonality right on top of thedeclining set of old products versus watching the seasonality right on top ofan increase instead of new products and new design win. So whereas theseasonality, normally would have us down in our fiscal Q4 significantly that'ssubstantially tempered relative to the normal case, in this case because wehave got we are expecting new things to be coming out.

Jay Srivatsa - RothCapital Partners

Pretty good, in terms of OpEx, if I take out the one timecharges that you had this quarter it looks like, if I take the middle of theguidance since you have given, it's looks like it's about a couple of millionmore in this December quarter, could you speak to that where is that comingfrom?

Jason Rhode

Yeah, I don't think we will be anywhere near the couple ofmillion more in the December quarter. We are managing that very closely andwe'll keep that in control.

Jay Srivatsa - RothCapital Partners

Okay, and then last question, in terms of the guidance youhave given us pretty wide range here in terms of the December quarter, is itcoming from industrial or audio or both, or how should we think about it?

Jason Rhode

Well the growth is again coming primarily from audio. Wehave also got an extra month versus the Apex stuff in there which is versus theprior quarter, which is nice to have, and their product line is doing very,very well. And I think we've really yet to even to see the benefit that we aregoing to get out of having our broader salesmen work in there. So that’s gotsome additional opportunities going forward. But, things are shaping up verynicely for the current quarter.

Jay Srivatsa - RothCapital Partners:

Okay. Thank you very much.

Operator

Thank you, sir. (Operator Instructions) Our next questioncomes from Tayyib Shah with Longbow Research. Please go ahead with yourquestion. Pardon me Tayyib Shah?

He must have stepped away. Our next question from the lineof (inaudible) with [Kein Capital Management]. Please go ahead with yourquestion

Unidentified Analyst

Yeah, how are you doing?

Jason Rhode

Hi, we are good.

Unidentified Analyst

I guess my first question is kind of a little bit I guessbigger picture, If you look at, if you go back in 2004 and you look atevaluation or the prices of this company, would have been anywhere from $8 ashare down to close to $3 a share back to $9 and here we are today $7.5 or$6.5, you got a balance sheet that is rock solid with $2.75 in dent cash it’s adifficult business. It’s difficult to be public in this business, because youcan’t really forecast, you can't help people with forecasting, because it wouldkind of be giving away competitive secrets

Jason Rhode

Yeah, good point.

Unidentified Analyst

It’s a difficult business to model, because you really fromthat standpoint. Because you can't disclose a great widget, that’s going to gointo the next consumer electronics that could really be a major revenue driverso it’s really frustrating

Jason Rhode

Yeah but I mean all that, I guess what you are saying isfrustrating for you. Our job is to manage the business, we are going to comeout with fantastic new products. We are going to build up a sales team thatabsolutely capitalizes on that and make sure we've got the structure in placewhere we are systematically successful at driving those new products into thenew design lines and generating profit. And that I guess sounds simple, butthere really were some pretty fundamental things that we had to address as acompany to put that stuff alright back on the right track.

And we are knocking that out, and that’s going to drive ourrevenue and drive our operating profit growth going forward. And sort of allthe other assets stuff are going to take care of itself from our perspective. Idefinitely appreciate the fact that it'sup to track that from the else perspective

Unidentified Analyst

Well, but my question is really what is from a revenuegrowth standpoint, as you look out over the next two years, I am trying to askthis, that would be implied, what is the kind of a game changing plan, couldyou go buy another company in order toget the ball rolling. Due you have, I mean you kind of being there a while, yougot a new changing of the guards. What is kind of game changers in terms ofrevenue growth? I mean if the audio and the home entertainment market is bigchunk of sales. And it's been very slow, I am just trying to understand, inorder from I think people have to believe that growth is coming and?

Jason Rhode

Right. Well, Okay, so I don’t know again as I'll say thispretty broadly at this point. Exactly how good we can get from here remains tobe seen, but I can tell you that with some of the fundamental issues we haveaddressed, we will for sure be the much better company going forward. As asupplier and as an investment I expect.

The game changer for us that is a 100% in our control, asour own execution. And we've historically not done as good of job as we could,we have addressed a lot of that and the result has been a steady stream in newproducts. Now we got a good leader, we got a new leader for our sales team.This is absolutely utilizing that effort.

I really can even begin to highlight the significance or theimpact that we can have there. The fair amount of slowing, I will get to yourbigger picture question. So, there is a fair amount that's under our owncontrol. Now as far as acquisitions are concerned, we'd love to find more stufflike Apex that'll be super. But the reality is it's hard to find things thatworkout quite that well. And we've had a history many years ago requiring somestuff that didn’t worked out as well as it could have. And that's somethingthat the current management team is well aware of and absolutely committed tonot make mistakes on that front.

So, we evaluate opportunities the way it comes in. We havemapped up our own strategy for our existing product lines. We are going todrive that and absolutely make certain that our existing product lines and thenew investments that we are making now are going to be successful. We findopportunities to supplement that by making acquisitions like for example whatApex is done for the industrial product line then we'll do that when theopportunity becomes available, but it's not something you can really force.

Unidentified Analyst

Are there I guess there has been a note from someone on the[cell] side of business that it talked some about, some potential for you aretaking some share from a competitor or?

Jason Rhode

Yes that's what we are trying do very broadly. That's as tothe name of the game and now we are coming out with new products so there'sactually a good chance of doing that. When you are peddling the same old stuffover and over again it makes it a little difficult to get market share, but nowwe have picked some real key target markets, we are coming out with lots of newproducts, and we will absolutely take share off a bit.

Unidentified Analyst

Just one last question I'll jump off, when you look at thegrowth of the new products that has happened we get, as you mentioned, you havepretty good growth and from new customers, can you take a market light todigital TV market. You guys get $182 million in revenues next year, last year.What is some of the sizes of these new markets, now is the analog market ordigital television market, I mean is it $200 million, $300 million, or $400million or $1 billion market, I mean, can you tell us for a million in thosetypes of terms, when the business has been a little soft from a revenuesstandpoint. Obviously its part of the story here is to get some new productsinto market that can grow. And that sure and you got and you seem excited aboutthe new design wins and they may not show up next week, they may begin to showup in '08, they may begin to show in '09. But what are some of the marketssizes of some of these new design wins. Is the market for?

Jason Rhode

[Taken] -- there I am are losing track of all of yourquestions really. The markets are having relative to the audio converter kindof stuff and the some of the more analog type functions that we serveamplifiers and what not. It's on the order of $50 million opportunity for DTV.There is some additional processor opportunity in there that we believe we cancapitalize on. But you got to recognize that in DTV, DTV in my view is a littlemore of an opportunistic market for us. We are not the big square chip in thecenter of the board. We are not the DLP guy. And it's going to be a heavy waveof integrations similar to what was in DVD player. And in DVD player particularactually, the only thing worse to winning rather than losing was winning frommy perspective.

It's tough to build a big -- it's tough to build aprofitable business around the video base business in the long run from ourposition. So we'll be opportunistic, we'll capitalize on the opportunities inthe DTV market as they become available and as we get out new products that wecan sell there. And there is absolutely some growth to be had in that space.But it is going to be an area where we have to be fairly mindful ofintegration.

Portable is a bigger market for the type of products that weserve. We have got pretty significant traction there and that's going to besomething that portends a picture of the currently -- kind of growth that wecan really obtain.

We've got really a good product line that has positioned uswell coming into the next year to really do something that we are proud of.

Unidentified Analyst

Thank you

Jason Rhode

All right. You bet.

Operator

Thank you, sir. The next question comes from again from theline of Tayyib Shah with Longbow Research. Tayyib please go ahead with yourquestion.

Tayyib Shah - LongbowResearch

Hi guys can you hear me?

Thurman Case

Hi how is it going Tayyib

Tayyib Shah - LongbowResearch

Hi guys, sorry about that. I am sorry if you've covered thisbefore I jumped on the call late. How do you expect the ramp of new audioproducts to go in the next few quarters? Should we expect to continue to seequarter-over-quarter growth in the next couple of quarters but modest revenuein fact on the back of currently shipping sockets and then some new design winsleading to revenue in the second half of 08 or is it going to be a differenttiming?

Jason Rhode

As, we didn't exactly -- I don't think we exactly coveredthat. Our expectations for the current quarter Q3, the overall revenue we putout is based on an additional modest increase in the array of products, whichis again very good given the timing here. We haven't speculated exactly aboutQ4 so we'll not go there but we absolute have new design wins that are in thepipe and it's a different business the way you guys have been tracking for thelast few years. Because it's tracking seasonality on top of a growing wave ofnew product introductions and growing revenue designs, rather than a shrinkingone and it's just a fundamentally different game we are playing.

Tayyib Shah - LongbowResearch

And then maybe if you can just light some insight into whatthe design win cycle looks in that business. The designs which are going to beshipping next year already decided or do you still have to execute in thatspace just leverage your product's superior architecture and you still have towin more designs for next year?

Jason Rhode

Yes it's little of both. It's pretty amazing that thevariety of timing and development cycles that customers in the market have andthat they are all yet, and that even given that they are all still fairlycompetitive with one another. We have everything, we can introduce a newproduct, and customers design it and they go to production two quarters later.Some folks are just ultra conservative, as in Japan market for example, tendsto be, you are doing meaningful design end work in the February through Apriltimeframe, that turns into revenue the following January.

So, it just varies a lot. We have got a lot of what webelieve is next year's plan, we've got a lot of design wins that we will becontributing to that. They are already under our belt. But we certainly expectto be able to move the needle for FY '09, we certainly expect to still to beable to have a significant positive impact on that at this point as well.

But it does raise a good point that's kind of important tobe mindful, which is just that, within a particular quarter even certainlywithin a quarter, and may be within in two quarters, for a propriety heavilyanalog based semiconductor company there is not a lot of positive action onecan take to increase or lower the business. It's really more than an element offorecasting at that point. Alright so, and that's something that we are workingon tightening up as well and that's something that Tim Turk is really bringingto bear and driving through the sales team.

It's something that’s sounds pretty fundamental, but thatreally represents a big improvement for us. We have got process now of drivingaccountability for the revenue numbers in to each territory. We have signed upwith the new a CRM tools, so we can really actively manage the design win[funnel], which is a big difference going forward. And all of that stuff isgoing to be pretty significant going forward. It's going to be a bigimprovement.

Tayyib Shah - Longbow Research

You just said that in the Japanese market there is probablya one year lag between the new [win the designs] and when you actually ship forrevenue, is that kind of same for the US market as well? And if so, whendo you think you will know if you are going to get substantial business for theUSmarket for next year?

Jason Rhode

The USvaries again that’s everything from fairly short cycles to a year. The industrialmarket can be even longer, automotive can be very surprisingly long. Although,I think they are pressured to bring more, current entertainment electronicsinto the market is shortening up the design cycle on that side some.

Automotive is something we are in particular existed about.Just segment into that from the design wins cycle. As the amount ofentertainment options pushes down into the product offering in automotive, thatactually offers some growth opportunities that are maybe a little more near-termthen what people would expect.

Tayyib Shah - Longbow Research

My question was specifically about the portable audio space?

Jason Rhode

Oh, I see.

Tayyib Shah - Longbow Research

Do you already have the design wins for the USmarket for next year or do you still have to work on it and get those designsfor next year?

Jason Rhode

It varies. We’ve got additional designs wins that we believewill be significant for our portable product line across the board. We’ve gotother stuff that we are continuing to work on. But the only things that isdefinitely something that we are counting on is that the portable product lineis going to continue to grow.

Tayyib Shah - LongbowResearch

Thank you

Operator

Thank you, sir. Gentlemen, this concludes ourquestion-and-answer session. Please go ahead with your concluding statements.

Jason Rhode

Yes. I think we had one more caller. Thanks for yourquestions. We appreciate your interest in Cirrus Logic. I am excited about ourprospects and our strategy to drive growth. I appreciate your interest in thecompany.

Operator

Thank you, ladies and gentlemen, this thus concludes theCirrus Logic second quarter fiscal year 2008 conference call. Thank you forparticipating. You may now disconnect. Have a great day.

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