Advanced Analogic Technologies Q3 2007 Earnings Call Transcript

Oct.29.07 | About: Advanced Analogic (AATI)

Advanced Analogic Technologies,Inc. (NASDAQ:AATI)

Q3 2007 Earnings Call

October 29, 2007 16:30 pm ET

Executives

Lisa Laukkanen - IR

Richard Williams - President, CEOand CTO

Brian McDonald - VP, Finance andCFO

Analysts

Tore Svanberg - Thomas WeiselPartners

John Lau - Jefferies &Company

Vernon Essi- Needham & Company

Anthony Stoss - Craig-Hallum

Robert Burleson - ThinkEquityPartners

KrishnaShankar - JMP Securities

Operator

Good afternoon, ladies andgentlemen. Thank you so much for standing by. And welcome to the AnalogicTechThird Quarter 2007 Earnings Call. During today's presentation all parties willbe in a listen-only mode. Following the presentation the conference will beopened for questions.

(Operator Instructions). And Iwould now like to turn the conference over to Ms. Lisa Laukkanen with theBlueshirt Group. Please go ahead.

Lisa Laukkanen

Good afternoon and thank you forjoining us on today's conference call to discuss AnalogicTech's third quarter2007 results. This call is being broadcast live over the web and can beaccessed for 90 days in the investor relation section of AnalogicTech's website at analogictech.com.

On today's call are Richard K.Williams, President, Chief Executive Officer and Chief Technical Officer andBrian McDonald, VP of Finance and Chief Financial Officer. After the marketclosed today, AnalogicTech issued a press release discussing the results forits third quarter, ended September 30th, 2007.

The press release is accessibleonline at the Company's Web site or you can call the Blueshirt group at415-217-4961 and we'll fax or e-mail you a copy.

We would like to remind you thatduring the course of this conference call, AnalogicTech's management team maymake projections or other forward-looking statements regarding future events orthe future financial performance of the Company. We wish to caution you thatsuch statements are simply predictions and actual events or results may differmaterially.

We refer you to the documentsthat the Company files from time to time with the Securities and ExchangeCommission, specifically the Company's most recent Form 10-Q and 10-K. Thesedocuments identify important factors that could cause actual results to differmaterially from those contained in our projections or forward-lookingstatements.

With that said, I'd like to nowturn the call over to AnalogicTech's President, CEO and CTO, Richard Williams.

Richard Williams

Thank you for joining us today asAnalogicTech reports its third quarter 2007 results. During the call, I willprovide a review of business highlights and trends for the quarter. I will thenturn the call over to Brian for a detailed financial review of the thirdquarter, which will be followed by Q&A.

Our third quarter performance exceededour expectations and was a record for revenue for the Company. During thequarter, we experienced robust end-market demand across a variety ofapplications and continued our strong pace of product development activities.

Highlights are as follows. Forthe third quarter of 2007, we reported revenue of $30.6 million, whichrepresents a year-over-year increase of 52%, and a 19% increase over therevenue reported in the second quarter of 2007.

On a GAAP basis, net income forthe third quarter was $2.6 million, or $0.05 per diluted share.

As for revenue by geography, Korearemained the largest revenue contributor, reflecting the strong shipment growthof our end customers during the quarter. Chinawas again the second-largest revenue contributor, as we continued to experiencestrong sales in the region.

We also experienced strongsequential growth in Taiwan,where revenue was driven by diverse end applications, including handsets, GPS,personal media players, multimedia cards and slim DVD drives.

During the third quarter, Samsungwas again our number one customer, accounting for 25% of total revenue. Wecontinue to supply Samsung with products to support a full spectrum of cellphones, including high-end smartphones, such as their Ultra Edition productline, and touch screen phones like Serenata, as well as low-cost phonestargeting emerging markets.

As Samsung increased shipments ofmass-market models, we experienced some adverse impact to our margins. Thismargin pressure is expected to continue until our new low-cost products beginto ramp.

During the third quarter, salesto LG remained strong and accounted for 22% of total revenue. Our design winactivity continues across a broad range of LG product portfolio, where wemaintain our leadership share position in ChargePumps. We also are excited tobe included in some of LG's new touch screen phones.

As reflected in our strong salesgrowth in China,we continued to see a significant revenue contribution from Chieftec during thequarter, with their business accounting for 14% of revenues. Sales to Chiefteccontinue to be driven by strong market share with local handset customers anddiverse applications like flash memory and personal media players.

We continue to see newopportunities for 802.11 and wireless LAN, including our Broadcom referencedesign-based business, which grew approximately 30% sequentially.

Sales to Sony Ericsson remainedsteady during the quarter. We continue to be encouraged by the long-termprospects for expanding our relationship with Sony Ericsson into newapplications. Overall, 58% of revenues were from lighting and display products,23% from voltage regulation and DC-to-DCconverter products and 19% from other power management products, including portprotection and battery management.

Also of note during the quarterwas the strong sequential revenue growth of our switching regulators, whichgrew by more than 50% quarter-over-quarter. We continued the strong pace ofproduct development activities, introducing a total of 28 new products duringthe quarter, including 11 new platforms and 17 derivatives from existingproducts.

Among those released,AnalogicTech introduced a new generation of low-noise switching regulators,dramatically reducing spectrum noise and output ripple. These low-noiseregulators benefit designers of high-speed and noise-sensitive communicationproducts.

We made substantial progress inour design activities in our Shanghaidesign center, including their migration onto the ModularBCD platform and thedevelopment of a complex second-generation power SOC for digital still cameras.

We continue to make progress onworldwide product development activities using our proprietary ModularBCDtechnology. We recently qualified our 30-volt process module and anticipate theimminent release of our first 30-volt products. We continue to be enthusiasticabout the market opportunities AnalogicTech will be able to address with thenew higher-voltage products.

To date, we have released 19ModularBCD-based products into production and have more than 24 new productscurrently in development. In September, in its final determination, the ITCupheld the favorable ruling for AnalogicTech for its ChargePump and switchingregulator product lines.

The ITC left unchanged its earlierdetermination that AnalogicTech's ChargePumps do not infringe the 531 patentand the 531 patent is invalid. The commission also upheld the opinion of theadministrative law judge that a majority of AnalogicTech's switching regulatordesigns do not infringe Linear's 258 patent. These non-infringing designsinclude AnalogicTech's newer generations of switching regulators targeting thehigh-performance and high-efficiency applications.

In one instance, the commissionfound an older-generation switching regulator design, representing a smallfraction of AnalogicTech's switching regulator offerings and revenue infringesthe 258 patent. Following normal ITC procedure, the commission issued a limitedexclusion order under 337 of the Tariff Act, prohibiting the direct importationof this particular design.

This exclusion order, however,does not prevent AnalogicTech's customers from importing their products intothe United States.Linear's request to bar downstream products from importation was denied.

We are pleased to have afavorable outcome and have moved forward with our plans to announce several newgenerations of switching regulators using novel designs completely unrelated tothe claims of the 258 patent. AnalogicTech's lawsuit against Linear in U.S. FederalCourt for business interference, trade libel, patent misuse and unfair businesspractices remains while the ITC appeals process proceeds.

In the third quarter,AnalogicTech filed 15 United Statespatent applications covering fundamental innovations in switching regulatorsand DC-to-DC converters.

In conclusion, AnalogicTechexperienced a very strong third quarter. We are currently seeing multiplegrowth drivers for our business, including market share gains by our Koreanhandset customers; the continued adoption of 802.11n; the rollout ofModularBCD, including 12-volt and 30-volt products; design wins and newcustomer penetration; new end market applications, such as GPS, PMP, MMC andslim DVD drives; and the introduction of two- and three-channel white LEDdrivers targeted toward the highly affordable handset market.

We are encouraged by our abilityto broaden and diversify our product portfolio. As noted, we have expanded ouroffering to include higher-voltage products that open new end-market applicationsto AnalogicTech.

At the same time, we've developedproducts to address the burgeoning handset opportunities in emerging marketslike India, China,Russia and Africa.We believe AnalogicTech is well positioned to address the growing powermanagement needs of consumer communications and computing applications, andgain market share.

I will now turn the call over toBrian for a detailed financial review.

Brian McDonald

Thank you, Richard, and thankyou, everyone for attending our conference call.

I will review our results for thequarter and then briefly discuss our outlook for the fourth quarter. Pleasekeep in mind that the financial data mentioned within this call will be on aGAAP basis unless otherwise noted.

Now let me outline some of thedetails. Revenue for Q3 '07 was a record $30.6 million, compared to $20.1million in Q3 of '06 and $25.8 million in Q2 of '07. Our Q3 '07 revenueincreased by 52% from Q3 of '06 and increased 19% sequentially.

Sales in Koreawere $15.5 million; China $8.6 million;Taiwan, $5.2million; and all others at $1.3 million. For the prior quarter, sales in Koreawere $12.8 million; China, $8.4million; Taiwan,$3.5 million; and all others at $1.1 million.

Sequentially, the sales increasein Korea was driven by increased salesto Samsung and LG, reflecting the strength in handset sales in Korea.Growth in Taiwanwas driven by increased sales related to our Broadcom reference designs, rampin handsets and other non-handset applications such as GPS and notebooks.

Sales in Chinaremained strong as sales to Sony Ericsson and other local handset andnon-handset portable consumer applications continued to grow.

Direct sales to Samsung accountedfor approximately 8% of total revenue, as compared to 11% in Q3 of '06 and Q2 '07,respectively. Sales to Samsung, combined with its contract manufacturers,accounted for approximately 25% of total revenue, as compared to 20% in Q3 of'06 and 22% in Q2 of '07.

Sales to LG representedapproximately 22% of our total revenues, compared to 27% in Q3 of '06 and 21%in Q2 of '07. Sales to Chieftec, our largest Chinadistributor, was slightly up sequentially. GAAP gross margin was 53.6% for thequarter. This compares to 54.7% in Q3 of '06 and 55.1% in Q2 of '07.

The decrease in gross margin fromQ2 '07 was primarily attributable to unfavorable product mix as a result ofcontinued strong demand for low-end ChargePumps. The decrease was offset bylower excess and obsolete-related expenses, as sales of previously reservedmaterial increased during the quarter.

We continue to work with ourcustomers to transition them to lower-cost solutions, as well as oursubcontractors to improve product yields and reduce costs on high-volumeproducts. In the long run, we expect our margin to improve as we increase theprofile of our business toward higher margin products. We expect Q4 grossmargin to remain at current levels based on forecasted product mix and demandfor low-end ChargePumps.

R&D spending was $7.9million, or 26% of revenue for the quarter, an increase of $2.6 million from Q3of '06 and $0.4 million from Q2 of '07. The increase in R&D expense from Q3'06 was primarily the result of increased headcount associated with theacquisition of AP Semi. Included in the R&D spending was $0.8 million ofstock-based compensation expense.

SG&A spending wasapproximately $6.4 million, or 21% of revenue for the quarter. This representsan increase of $1.2 million from Q3 of '06 and a decrease of $0.2 million fromQ2 of '07. The increase from Q3 '06 was attributable to increased personnelrelated to the acquisition of AP Semi.

Included in the SG&A spendingwas $0.8 million of stock-based compensation expense. Litigation costs were$0.6 million for Q3 '07, as compared to $3.5 million in Q3 of '06 and $1.5 millionthe previous quarter.

Litigation expenses decreasedsignificantly from last quarter in anticipation of the ITC's finaldetermination. Operating expenses in total were $14.9 million. This compares to$14 million in Q3 of '06 and $15.7 million in Q2 of '07. The sequentialdecrease was primarily due to lower litigation expenses.

Stock-based compensation expensewas $1.6 million for Q3, '07, compared to $1.5 million in Q3 of '06 and $1.7million in Q2 of '07. Operating income was $1.5 million for the quarter, ascompared to an operating loss of $3 million in Q3 of '06 and $1.4 million lossin Q2 of '07.

Other income net was $1.4million, or 5% of revenue for the quarter. This compares to $1.6 million in Q3of '06 and $1.4 million in Q2 of '07. Tax expense was $0.3 million, as comparedto zero in Q3 of '06 and $0.8 million in Q2 of '07, in line with ourexpectations for the quarter.

Net income for Q3 of '07 was $2.6million, or $0.05 per diluted share, compared to a net loss of $1.5 million, or$0.03 per share in Q3 of '06 and compared to a net loss of $0.9 million, or$0.02 per share, in Q2 of '07.

This quarter marks our return toprofitability, our first since the acceleration of litigation expenses in Q2 of'06. Moving on to the balance sheet, cash and cash equivalents and short-terminvestments totaled $110.7 million at the end of the quarter, up by $3 millionfrom Q4 of '06.

Net accounts receivable was $17.5million at the end of the quarter, up by $6.5 million from Q4 '06 due to highersales. The average day’s sales outstanding for the quarter were approximately52 days. Net inventories were $10.7 million at the end of the quarter, up $2.3million from Q4 of '06. This increase was necessary to support increasedcustomer demand.

Our inventory turns for thequarter were a record at 5.3, as compared to 4.5 in Q4 of '06. Inventory levelsin our distributor channel were below the low end of our target.

On to the business outlook. Letme comment on Q4 '07. We expect Q4 '07 revenues to be flat to up 6% to $32.5million, gross margin to be within 53% to 54%, based on forecasted product mixand demand for low-end ChargePumps.

R&D expenses are expected toincrease to the range of $7.5 million to $7.7 million, exclusive of stock-basedcompensation expense, reflective of projected new product tape-outs to occurduring the quarter. SG&A expenses, in the range of $5.4 million to $5.6million, exclusive of stock-based compensation expense. Stock comp will bewithin $0.9 million to $1.0 million on SG&A.

Litigation expense, in the rangeof $0.5 million to $0.7 million. Stock-based compensation expense in the rangeof $1.8 million to $2.0 million. Other income in the range of $1.3 million to$1.5 million. Amortization of intangible assets to be approximately $0.3 million.Tax expense in the range of $0.4 million to $0.6 million. GAAP EPS to bebetween $0.04 and $0.06.

Let me now summarize the Q3results. Our revenue for the quarter ended September 30, '07, was a record$30.6 million, a 19% increase sequentially and surpassed our previous guidanceof $26 million to $28 million. GAAP net income for the quarter was $2.6million, or $0.05 per share, a $0.07 improvement sequentially, and surpassedour previous guidance of breakeven to $0.02. This also marks the return to profitability.

Gross margins for the quarterwere approximately 54%. Litigation expense for the quarter was $0.6 million, ascompared to $1.5 million last quarter. Stock-based compensation was $1.6million for the quarter.

We maintained a strong cash and cashequivalent position of $110.7 million, up $0.8 million, sequentially. Inventorylevels remain low. Inventory turns were a record at 5.3, compared to 4.5 in thefourth quarter of '06.

That concludes my remarks. Now Iwould like to open the line for questions.

Operator?

Question-and-Answer Session

Operator

Thank you, sir. (OperatorInstructions). Our first question is coming from Tore Svanberg with ThomasWeisel Partners. Please go ahead.

Tore Svanberg - Thomas Weisel Partners

Yes, thank you, and greatquarter. A couple of questions. First of all, your inventory days are prettylow this quarter. Do you feel comfortable with this level, and if not, what areyou doing to get to more adequate levels?

Brian McDonald

Yes, I think we're comfortablewith the inventory level, Tore. We're watching the fabs closely and we'lladjust start rates based on demand, but we feel comfortable that the fabs canrespond in a timely fashion.

Tore Svanberg - Thomas Weisel Partners

Okay, and you mentioned that atyour distributors, your inventories are below the low end of what it usuallyis. Could you maybe add some color on that, please?

Brian McDonald

Yes, we target the distributorsto run two months worth of inventory. We did see that number drop to about 1.6months, 1.8 months, last quarter, and that was driven by high resales on theirpart. So we would expect to still target 2% turns in the fourth quarter of '07.

Tore Svanberg - Thomas Weisel Partners

And on the gross margin, is thereanything in the mix that you can forecast as to when margins will be back inthe 55% range? I'm just trying to understand if you have any forecastvisibility, any backlog to suggest the mix is going to get better.

Richard Williams

It's still a little early totell. I think what we're saying is that there still seems to be strong demandfor the models that include the low-end ChargePumps, and that the new models,the ones that have our cost reductions already designed in, have not started toramp.

Now, traditionally, you know thatthat transition occurs in the first quarter, but we can never be sure how longthey will run one of the older models. So, we'll have to wait and see.

Certainly all of the design winactivity on switching regulators tends to be indicative of some counter opposingeffects that would drive our margins up, but, again, those products are waitingto ramp. So it clearly is a Q1 or Q2 event and it is not a Q4 event.

From what we can see, we don'tsee any major changes in the mix happening this quarter unless some big ordersfor some high margin comes in at the last minute.

Tore Svanberg - Thomas Weisel Partners

Great. And, Richard, youmentioned that second generation power SOC for cameras, when should we expectto see some revenues from that product?

Richard Williams

Well, our plan to launch thatproduct is around Chinese New Year's time frame, so we would expect that to bestarting in Q4 revenue and then building on in to next year. Of course, we arealready servicing some of that market with discrete analog components, so hereit's our attempt to just snatch up more of the sockets and more of thefunctions.

Tore Svanberg - Thomas Weisel Partners

Great and finally, for Brian,Brian, your R&D is growing, however, your SG&A seems to be flat todown. Can you elaborate a little bit on why would you continue to model that tobe down, sequentially?

Brian McDonald

I don't know if I would model itdown, sequentially, Tore. I would probably moderate the growth on SG&A tomaybe a couple hundred K a quarter. We've pretty much hit -- we've got theinfrastructure built out pretty much on the SG&A side, so we don't see alot of headcount additions in that area.

The only thing you'll see arelocal increases, annual increases and commissions are variable with sales. Butyou won't see big increases on infrastructure.

Tore Svanberg - Thomas Weisel Partners

Great, thanks. And, again, greatquarter.

Brian McDonald

Thanks.

Richard Williams

Thanks.

Operator

All right, thank you. Our nextquestion is from the line of John Lau with Jefferies & Company. Please goahead.

John Lau - Jefferies & Company

Great, thanks, Richard. I knowyou mentioned this in your prior comments, but regardless of the transition inQ1 or Q2, I think if you can give us a couple of milestones on the transitionto the lower-cost product, you mentioned that they're already designed into keyhandsets.

And when that goes intotransition, Richard, are the costs significantly improved in those newproducts? Thank you.

Richard Williams

Yes, the costs are significantlylower on the new products for the ChargePumps. Let me just clarify for peoplewho may not have been following the story closely. When the market took off onthe low-end handsets, especially for Chinaand India, Africa, South America, those products often only need two or three LEDs in thebacklight. And we were selling them ChargePumps that were actually designed forfour and six channels, so the chips were much larger -- I won't say a factor oftwo, but significant difference in size.

And so by moving to the newgeneration, then we're able to go to a smaller chip and to a lower-cost packageso we get a double benefit and that will significantly improve the margins.

I would say that instead ofmargins in the 30% and 40% range, you'll see them in the 50 percentile range onthat high-volume portion of the business. I think the thing that has been achallenge for us is that the incremental upside opportunities that keep comingin are all of this lower-margin business.

So if we're beating our numbers,we're often beating our numbers with extra revenue that is comprising that andrepresenting that low-margin business. And so that's why it's been a littlehard for us to pin it down.

Of course, as the switchingregulators ramp coming into next year, that will relieve some of the pressureoff of the margins overall in the blended aggregate and then, when thecustomers transition to the new models, we will naturally migrate away from thehigher-cost to lower-margin products. We do not control that transition.

John Lau - Jefferies & Company

And, Richard, just as afollow-up, are you comfortable that the new products are now designed into keyproducts so that this is just a short-term issue?

Richard Williams

Yes, we already have design wins.We have a number of design wins and we have even more products coming that aredesigned in to take advantage of that market. But, at the same time, when amarket opens up you have to jump on it and seize those opportunities when theyfirst emerge. Otherwise, if you get designed out, the cost to get designed backin is much, much higher.

John Lau - Jefferies & Company

Great, thank you

Richard Williams

Okay.

Brian McDonald

Thanks, John.

Operator

All right, thank you. Vernon Essiwith Needham & Company, please go ahead.

Vernon Essi - Needham & Company

Thank you, nice quarter. I wantedto just ask, I don't know if you discussed this in the prepared comments, butthe content of ModularBCD in the overall revenue mix, where was it running atthis quarter?

Brian McDonald

We didn't comment about it, but Ican give you a number. It was roughly 2% of sales in the third quarter, andwe're expecting it to run roughly 5% to 6% of sales or close to $2 million inthe fourth quarter.

Vernon Essi - Needham & Company

And then just looking into yourguidance a little bit here on a sequential basis, are we to assume that thebulk of the growth is going to come -- I mean, it's a pretty obvious question,but from the handset business? I mean, are you expecting some of these othermarkets because of seasonality to be somewhat flat and that's how you'regetting this incremental delta? Or should we be thinking along different linesthere?

Brian McDonald

I think that it's going to be uppretty much across the board.

Richard Williams

Yes, notebook will remain strongin quarter four and the handset number should be strong in October and Novemberand then roll off in December.

Vernon Essi - Needham & Company

Okay, I mean, just looking at theChieftec number, it's up just a little bit there. I'm wondering if they'rerunning into sort of a seasonal pattern there with like PMP players.

Richard Williams

I think there they had such a bigpop of growth that by maintaining and slightly increasing their number fromtheir last one, that is still well up from Q2. So it's just showing you thatwe're still in a model where we have kind of a first half run rate and a secondhalf run rate and the second half run rate is definitely up from the firsthalf. And I would say that momentum in Taiwanis building, where Chinakind of picked up the momentum early. Taiwanis still building momentum.

Vernon Essi - Needham & Company

Okay. And is that a function ofgoing up the voltage side and addressing higher, is that where your interest iscoming from? Or is there just from the straight parts you've always had on thelegacy side?

Richard Williams

This has nothing to do with thehigh-voltage product. That's all next year's revenue. So this is just thenature of the designs that we're in today in the markets that typically show adifferent seasonality than the handsets.

Vernon Essi - Needham & Company

Okay, all right, thank you verymuch.

Operator

All right, thank you. AnthonyStoss with Craig-Hallum, please go ahead with your question.

Anthony Stoss - Craig-Hallum

Hi, guys. Great quarter and goodvisibility, I guess, into Q4. Could you talk about the first half of '08, ifyou're seeing any kind of seasonality in Q1, if you'd care to share, with that?Also, if you can help detail a bit more on the ramp that you would expect withSony Ericsson last but not least, kind of outline timing of when you expect the12 and 30-volt products to ramp?

Richard Williams

Okay, so the first question waswhat?

Anthony Stoss - Craig-Hallum

The first half seasonality. Q1seasonality.

Richard Williams

Because when you go from Q4 toQ1, the handset market often goes through a transition of models. So the newmodels that were designed in, which include touch screen-type phones are veryexciting new phones, but we're not sure exactly how they're going to managethat transition from Q4 into Q1. So it's still a little bit early for us totell Q1. I think there's a lot of positive factors right now.

We don't see a negative momentumwhich would give us any signs of storm clouds on the horizon for Q1, but on theother hand, we're not at a point where we could start to get any realindications of what the coverage would be, yet.

Anthony Stoss - Craig-Hallum

Okay, then ramp at Sony Ericsson?

Richard Williams

The Sony Ericsson ramprepresented a particular model or a model and its cousins. And that model haskind of reached its peak. And then, where we are now is we're working on newdesign wins and that's in all regions, in Asia, as well as out of Europe.

And those are going ahead rightnow, so it will take those new models to ramp for us to drive that revenue upmore. We don't see that this other model will necessarily be the platform thatwould automatically drive a number double that or something that would grow justsimply by one design win becoming two, becoming 10.

I think we're still working ongetting those basic designs. I might say that we are opening up -- we'retalking to them about new applications that relate to more than just the linearregulators or the ChargePumps that we've done business with them thus far. Andthat's an encouraging sign because those new products also are higher-marginopportunities for us. Okay?

Anthony Stoss - Craig-Hallum

Okay, and then last but notleast, the 12 and 30-volt kind of timing on when those products will ramp?Thanks.

Richard Williams

Okay, so the 12-volt -- the first12-volt products were released. I would expect we'll start to see some businessfrom those in Q2, Q3 of next year. The 30-volt products will likely start withover-voltage protection-type battery chargers and then later we will follow onwith switching regulators.

And so those products are to bereleased imminently and that means that it would be a back end of Q3 or Q4before we would start to see significant revenue from them. And, then again, itwould depend on the end market.

Remember, some of the highervoltage markets ramp slower, but once you ramp they're more stable and showless seasonality than the handset markets, which are mostly five volt and down.

Anthony Stoss - Craig-Hallum

Okay, great. Great job, guys,thanks.

Richard Williams

Thank you.

Operator

All right, thank you. Our nextquestion is from the line of Robert Burleson with ThinkEquity Partners. Pleasego ahead.

Robert Burleson - ThinkEquity Partners

Good afternoon. Congratulationson a great quarter.

Brian McDonald

Thank you.

Richard Williams

Thanks

Robert Burleson - ThinkEquity Partners

Just a couple of kind oflonger-term, big-picture questions. As we look at 2008, can you give us a senseof end markets outside of cell phones that you think are going to become a moremeaningful share of your overall mix? And then the second follow-up questionis, within cell phones, are there any customers or any regions that you guys aretargeting right now that you think will be meaningful to you over the next yearor so in terms of top customers?

Richard Williams

Okay, let's start. So, first ofall, 802.11n is still a growing market. We would like to continue to grow thereand to penetrate new accounts and get new design -- reference design platforms.

Our penetration in the notebookhas been largely limited by the fact that we haven't had 12-volt and 30-voltproducts, so that should open up some new opportunities. And then the higher-voltageboost converter LED drivers not ChargePumps, but boost converter-based LEDdrivers open up the prospects for monitors, personal media players and intoHDTV.

I think that while those designwins will be happening next year, they probably won't represent that large of aportion of '08 revenue. So that would be more of an '09 event. The over-voltageprotected battery chargers, however, we do believe can have a meaningfulcontribution in the second half of '08. And that's because the migration awayfrom a traditional low-voltage input battery charger into one that can preventdamage to the battery, in the case that the wrong adapter is plugged into theunit.

And we think the early adopterswill be the cell phones, but then undoubtedly that criteria or safety will rollinto the other consumer products as well.

Handset-wise, I think there's atremendous number of new drivers happening. One, that’s being discussed, ishigh-brightness LED flash. And it remains to be seen whether or not theyactually in the handsets go that way, but what happens is that to do that youhave to supply over two amperes for a brief duration to the LED.

And when you do that, thebrightness of an LED can be as bright as a xenon flash. So we're talking aboutreal camera flash capability. But to do that you cannot draw that currentdirectly out of the battery. You'll cause the system to glitch.

So, instead you have to havesomewhere to store that energy and one storage element that's being consideredis the supercapacitor. So if the supercap becomes successful, we already havethe products there and ready.

We have the high-current cameraflash driver for the LEDs already developed and released, and we also have acharger that charges the supercap without causing too much current spikes whenyou first start to charge the capacitor.

So we're ready on both of those.Another area in cell phones that's very exciting is to regulate the RF poweramplifier. We're working on a number of different design wins right now, bothwith RF PA manufacturers, as well as handset designers. And I think that willbecome a new standard in the industry in the future.

And then there's also new displaytechnologies that we're looking at that could contribute into '08 and '09 forhandsets, including the active matrix organic LED, AMOLED, displays, which havevery, very good color saturation.

Robert Burleson - ThinkEquity Partners

Great, thanks for taking myquestions, and congratulations once again.

Richard Williams

Well, thank you.

Brian McDonald

Thank you.

Operator

(Operator Instructions). The nextquestion is coming from the line of Krishna Shankar with JMP Securities. Pleasego ahead.

Krishna Shankar- JMP Securities

Yes, congratulations on a goodquarter. Can you give us some sense of what percent of your revenues were sortof handsets in the quarter and then other portable electronic systems?

Brian McDonald

Yes, just to give you an idea, Krishna,we talked -- the handset revenues -- excuse me -- let me give it to you in adifferent way. We talked a little bit about display in lighting solutions wasroughly 67% of revenue, interface power management was at 26% of revenue, andthen DC-to-DC, switching regulators, roughly 7% of revenue in the quarter. Iwould say the handset piece of that -- so probably about 70%, rough.

Krishna Shankar- JMP Securities

Okay. And how fast do you expectnotebook, given your high-voltage products, 12-volt and 30-volt ramping? Howfast do you expect your notebook backlight display drivers to start rampinghere?

Richard Williams

Well, notebook isn't necessarilydisplay drive, because, still a lot of notebooks still use a CCFL and the LEDbacklight is still a small percent of the notebook market today. I thinkthere's voltage regulator opportunities and other power managementopportunities in the 12-volt and 30-volt area that would come up faster thanthe backlight drive would for notebook.

So, it's generally our feelingthat notebooks will probably transition slower to the white LED than some ofthe other consumer products. Probably the first one to come up there might bethe larger-screen personal media players, which are DVD-based portabletelevision-like type applications. You might see them in airplanes, forexample, people watching movies on them.

Krishna Shankar- JMP Securities

Great. And then do you have anyother products under development which potentially could have higher marginstargeted towards sort of the industrial, telecom and embedded powermanagement-type applications?

Richard Williams

Well, I think you'll see that the12-volt switching regulators and then later the 30-volt switching regulatorsnaturally do that. They open up into more markets and those markets areslower-growing but very stale. We do need to add, though, that as you addressthose markets, you do have to go through distribution more than doing it allthrough what you would call a field applications, engineering-based design-ins.

So it's a little bit of adifferent business model. You go to market a little bit differently and you needmore central application support, more applications notes, how-to guides, sothat the customer can design in your product without personal involvement ofthe Company.

Of course, today, on ourhigh-volume applications, whenever we're finding new opportunities, we send ourFAEs right into the customer to work with their design engineers. But in someof the industrial markets, they're simply too many and too small to do that,and then you have to rely more on central applications and distribution to getthose design wins.

Krishna Shankar- JMP Securities

Great. My final question, you mayhave mentioned this before, but who are your foundries, again, both for yourstandard and also your high-voltage BCD process?

Richard Williams

We do not rely on conventionalfoundries. We partner with DRAM fabs or XDRAM fabs and as a RAM fabs migrate --as DRAM companies migrate to their new generation DRAMs, they vacate their lastfab and then they backfill it with camera, image sensors and LCD line drivers.We then partner with them, bring our own technologies into those fabs and thenhave kind of a unique relationship to bring this proprietary technology and theproducts into the marketplace.

The two major partners that wework with is MagnaChip, which was a spin-off of Hynix. So MagnaChip is one in Korea.And that's both in Chungju and Gumi, Korea.And then also Vanguard, VIS, Vanguard InternationalSemiconductor. So VIS, Vanguard, was a spin-off out ofTSMC, and they recently also acquired a number of fabs, I believe from[Windvon].

So we're running both analog CMOSin the 0.5 micron node out of both companies and ModularBCD out of bothcompanies. The ModularBCD has already qualified in a production in MagnaChip.It's imminently qualified in Vanguard.

And we basically believe inmulti-sourcing and balancing the lines, but at the same time making sure thatwe have high volume for all of our partners so their economy of scale issatisfied.

Krishna Shankar- JMP Securities

Perfect. Thank you andcongratulations on a good quarter again.

Richard Williams

Thank you.

Brian McDonald

Thank you.

Operator

Thank you. Management, there areno further questions at this time. Please continue with any closing comments.

Brian McDonald

I think that's it. We'd like tothank everybody for joining us on the conference call.

Richard Williams

Thank you very much.

Operator

All right, thank you. Ladies andgentlemen, this does conclude AnalogicTech third quarter 2007 earningsconference call. If you would like to listen to a replay of today's conferencein its entirety, you can do so by dialing 1-800-405-2236 or 303-590-3000, inputthe access code 11099306. Once again, to listen to a replay, please dial1-800-405-2236 or 303-590-3000, input the access code 11099306.

ACT Conferencing would like tothank you very much for your participation today. You may now disconnect. Havea very pleasant rest of your day.

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