Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Pam Goncalves - Senior Director of Investor and Corporate Communications

Elias Antoun - President and CEO

Analysts

Jay Srivatsa - Roth Capital Partners

Heidi Poon -Thomas Weisel Partners

Daniel Gelbtuch - CIBC

Mahesh Sanganeria - RBC Capital Markets

Quinn Bolton - Needham

Steve Park - Wedbush Morgan Securities

Tayyib Shah - Longbow Research

Adam Benjamin - Jefferies

Genesis Microchip Inc. (GNSS) F2Q08 (Qtr End 9/30/07) Earnings Call November 1, 2007 5:30 PM ET

Operator

Good afternoon. Welcome to Genesis Microchip's Second Quarter Earnings Call. Today's call is being recorded and is copyrighted property of Genesis Microchip. Any rebroadcast of this information in whole or in part without the prior written permission of Genesis Microchip is prohibited. We will be conducting a question-and-answer session at the end of today's Company's prepared remarks.

At this time I would like to turn the call over to Pam Goncalves, Senior Director of Investor and Corporate Communications. Please, go ahead, ma'am.

Pam Goncalves

Good afternoon, everyone and thank you for joining us. With me today are Elias Antoun, President and CEO, Hildy Shandell, Senior Vice President of Corporate Development, and Linda Millage, Principal Accounting Officer.

Today's discussion contains forward-looking statements, including, without limitations, forward-looking statements regarding the company's revenues, gross margins, operating expenses, ASPs, unit shipments, inventory levels, new products and design wins, production schedule, profitability, market share and new market. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Those risks and uncertainties include, our ability to gain and maintain design wins, and ramp new products into volume production on schedule, changes in expected product cost and manufacturing yields, changes in our expected operating expenses, seasonal consumer demand for flat-panel TV and Monitor products into which our products are incorporated, growth rates of the TV market and the market for DisplayPort products, our customers share those markets, and successive our customers products into which we’re designed. Changes in the mix and pricing of our products sold, and our inventory levels and customers inventory levels of our products.

Other risk factors are listed in today's press release and the company's SEC reports, including but not limited to the company's annual report on Form 10-KA for the fiscal year ended March 31st, 2007, and the 10-Q for the quarter ended June 30th, 2007. The forward-looking statements made today are the company's targets and not predictions of actual performance. In the past the company's performance has deviated from its target as of the beginning of a quarter.

Participants are cautioned not to place undue reliance on these forward-looking statements which speak only as of today's date. The company does not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this discussion will not be realized. Any statements made by persons outside the company speculating on the progress of the quarter or other aspects of the company's business will not be based on internal company information and should be assessed accordingly by investors.

During the call the company will refer to both GAAP and non-GAAP financial information. A reconciliation of GAAP and non-GAAP results in accordance with the SEC's Regulation G is included in today's press release which has been posted on the company's website.

Please note that an archived version of the broadcast will be available on the company‘s website at www.GNSS.com in the investor events and webcast section shortly after the conclusion of the call. Additionally a replay of this conference call will be available through November 8th, 2007 by dialing 706-645-9291. The replay access code is 20136617.

And now I'd like to turn the call over to Elias.

Elias Antoun

Thank you, Pam. Good afternoon everyone and thank you for joining us today. I will first discuss the financial results of the quarter, and then I will provide an update on our overall business, followed by our guidance for our third quarter of fiscal 2008.

Revenues for the second quarter were $57.5 million, representing an increase of 31% from the prior quarter and exceeding the far end of our guidance. Non-GAAP gross margins were 33.5%, a decrease from the previous quarter, which is largely attributable to write-off of mask sets which I will discuss in a moment.

Non- GAAP operating expenses were in line with our guidance at $25.2 million, and we recorded a non-GAAP loss of $0.12 per share.

Revenues from our TV controller business were $35.1 million, an increase of 55% from the prior quarter. Our TV controller business represented 61% of total revenues in the quarter. Shipments of flat panel TV controllers were 3.9 million units, an increase of 45% from the prior quarter. The increase in unit shipments was in line with expectations for strong seasonal demand across most of our geographic markets.

Our Torino solution ramps up at all four of our Tier-1 OEMs and at our lead customer in China. We also experienced particularly strong shipment for Cortez Plus and Cortez Lite. ASPs in our TV controller business increased 9% primarily attributable to a more favorable product mix.

Revenues from our monitor controller business were $22.4 million and increase of 5% from the prior quarter. Unit shipments of monitor controllers were 10.9 million units, which represented an increase of 10% from the prior quarter. LCD monitor controller ASPs decreased by 5% in this quarter, attributable to a lower price product mix.

GAAP gross margins were 33.1% in the September quarter, down from 38.5% for the June quarter. Non-GAAP gross margins, which exclude stock based compensation charges were 33.5% down from 38.9% in the last quarter.

During the September quarter we assessed our design win and engineering support activities for our Chaplin and Douglas products and decided to migrate all our HDTV customers to the Douglas platform. As a result we were off the class of the Chaplin mask sets and related inventory. The impact of the write-off on our gross margin for the September quarter was 3.5%, which brought us to the low end of our non-GAAP guidance of 37%.

GAAP operating expenses were $28.5 million in the September quarter. This includes approximately $3.3 million in stock based compensation charges and amortization of certain intangible assets. Non-GAAP operating expenses were $25.2 million in the September quarter.

Our GAAP net loss for the quarter was $16.8 million for a loss of $0.45 per share this includes an $8.7 million or $0.23 per share impact from the markdown on the value of the company's investment in Mobilygen. Our Non-GAAP net loss for the quarter was $4.6 million or a loss of $0.12 per share of which $0.05 per share relates to the write-off of the mask sets and related inventory.

On our balance sheet cash and short-term investments decreased by $3.6 million to $182.8 million. We ended the September quarter with inventories of $14.9 million, which represents an increase of $2.5 million from the June quarter. Our inventory levels equate to approximately 5.1 weeks of revenue. We expect inventory to increase at the end of the December quarter, as our new products ramp into production.

Trade accounts receivable increased to $30.2 million, reflecting the increase in revenue during the quarter. Day sales outstanding were 48 days for the quarter as compared to 47 days in the prior quarter.

I will now address other key parts of our business. Our HDTV design win activity has accelerated significantly since sampling our Douglas solution in August. The Douglas feature set positions Genesis very well for opportunities that value image quality and flexibility in platform design.

While Douglas is targeted at primarily at the European DVB-T and the emerging China DMB-T markets, we’re now also seeing increasing opportunities amongst Tier-1 TV OEMs in U.S. ATSC market

We are on schedule to take our two early access Tier-1 TV OEMs to production with Douglas. In addition, we've added a third Tier-1 design win for Douglas and expect to close on the fourth Tier-1 OEM in the near future.

Lastly, we have migrated several Chaplin design wins in China to Douglas. All of which are expected to ramp into volume production during the first half of our fiscal 2009.

Recently, we are seeing a stronger desire by Tier-1 TV OEMs to refocus on differentiating their systems on the basis of improved video and audio quality, as well as innovative industrial designs.

Several Tier-1 OEMs are looking for solutions that enable worldwide platform development that will allow them to optimize their development resources. Douglas is well positioned to meet these requirements. And integrates the latest Faroudja video processing technology and integrated audio decoder that provides support for worldwide standards and enables OEMs to port their own audio algorithms without increasing their bill of materials cost.

Finally, Douglas enables the most efficient platform development at a competitive bill of materials for the European, China and US markets for WXGA and 1080p resolutions.

We also recently demonstrated our newest analog TV controller called name Sequoia at the Ceatec Show in Japan. Sequoia is schedule to go to production with a leading TV OEM in the December Quarter. Sequoia is single chip analog TV controller that combines the same video and audio feature set as Douglas without the digital TV functionality.

At Ceatec, we also demonstrated the latest version of our MCTi solution. Customer reaction was extremely positive. We are on track to ship our MCTi product in the second half of calendar 2008.

It is worth noting that Genesis MCTi technology is a comprehensive solution designed to solve all aspects of motion estimation, motion compensation or MEMC. While current competitive solutions in the market deal primarily and some times exclusively with the frame rate conversion from 50Htz and 60Htz to 100Htz and 120Htz. Genesis MCTi solution not only support frame rate conversion, but also motion blurry reduction and film [each other] removal.

I would like to also update you on our DisplayPort progress. We are on schedule to bring our lead PC OEM initial platforms into production during the December quarter.

In September, we demonstrated our DisplayPort solution, with a prototype monitor from Dell, at the Intel developers' forum. The demonstration was powered by an Intel CPU with an integrated DisplayPort transmitter, communicating directly with the Dell monitor that has a Genesis DisplayPort receiver.

We are aggressively expanding our DisplayPort product roadmap. We will soon sample to panel vendors our first product for the entry level direct drive monitor segment.

In addition, we are in development with new products for the notebook segment of the PC industry. That will address both the internal motherboard to panel connection, as well as the external connection from the notebook to the LCD monitor.

Further, we are making steady progress in introducing DisplayPort into flat-panel TV’s. We’re gaining traction with some leading TV OEM’s who are contemplating the development of two box TV platforms, where the display will deliver the highest image quality and most of the rest of the functionality is embedded in a separate box, with single DisplayPort cable connecting the display and the box. This strategy will give vertically integrated TV OEM’s increased flexibility in their system architecture.

We can already serve this market with our current DisplayPort transmitter/receiver solution. And we’re strategically embedding DisplayPort IP into our TV solutions going forward.

Finally, and in reference to my earlier comments with regards to innovative industrial design, the main theme of this years Ceatec show in Japan was the introduction of ultra-thin TV’s by most Japanese OEMs. DisplayPort technology is a great fit for the very high bandwidth and simplified connectivity requirements in these TV’s.

On the organizational front, I am very pleased to be adding two new members to the company's executive management team.

Robert Haefling joins us today as a Senior Vice President and General Manager of the DisplayPort Monitor Business. Recently, we merged our monitor product roadmap into the DisplayPort roadmap based on the advantages provided by DisplayPort to the LCD monitor space. All of Genesis future LCD monitor controllers will integrate DisplayPort technology and the company is no longer developing LCD monitor controllers without DisplayPort.

In addition our DisplayPort road map now encompasses the notebook PC market, as well as a wide range of other potential connectivity markets.

Robert who will be responsible for driving our DisplayPort strategy and its implementation, was more recently CEO of Meridian Audio, a strategic partner of Genesis.

Prior to joining Meridian, Robert spent a combine eight years at Genesis in various management roles and brings with him an in-depth understanding of the company and our end markets. I’m also very happy to announce that Rick Martig will join Genesis on November 5th as the company’s new Chief Financial Officer, and Senior Vice President of finance.

Rick posses more than 20 years of finance and financial management expertise, the last 12 of which were at Xilinx Corporation, one of the premier fables Semiconductor Company in Silicon Valley.

During it's tenure at Xilinx, Rick, progress through a variety of manageable roles in operations and business unit controller ship, financial planning and analysis, accounting, external and internal reporting, and SOX 404 compliance.

Most recently at Xilinx, he was Senior Director of Corporate Finance, in his role as Genesis CFO, Rick will resume responsibility for all of the company’s finance functions, as well as the IT and facilities groups.

The management team and I are excited about the additions of Robert and Rick, and look forward to working with them to execute on our goals of returning the company to profitability and a leadership position in all our markets.

I will now address our guidance for our third quarter of fiscal 2008. We expect revenues for the December quarter to be in the range of $49 to $54 million. We expect unit shipments of flat panel TV controllers to be down 10% from the September quarter, which is in line with the expected seasonality. Flat panel TV controller ASP’s are expected to decrease by approximately 10%. We expect unit shipments of LCD monitor controllers to be flat and ASP's for LCD monitors controllers to decrease by approximately 5%.

We expect GAAP and non-GAAP gross margins to be in the range of 34% to 36%. We expect our gross margins will be under pressure during this quarter and next quarter. The initial production ramp for some of our design wins is in WXGA display resolutions, where our average selling prices are lower.

We expect average selling prices to improve, as you customers ramp up their 1080p flat panel TV platforms. In addition, we expect to incur, some additional costs related to our new product design wins, in order to, adequately support our customer's volume production schedules.

As I mentioned earlier, we expect these factors to affect our margins for the third and fourth quarters of fiscal 2008. We estimate that our total GAAP based operating expenses will range from $28.5 million to $30 million. This estimate includes approximately $3.5 million of stock based compensation and the amortization of certain intangible assets.

Non-GAAP operating expenses are expected to be between $25 million and $26.5 million. We are accelerating some investments in HDTV and DisplayPort product development and customer support, in order to ensure a successful and timely execution to our customer schedules. While we still manage our operating expenses closely.

In summary, we are making significant progress with Douglas and expanding our HDTV design win and opportunities. As DisplayPort industry adoption and momentum are accelerating. We have seen greater than anticipated customer demand for multiple DisplayPort platforms that we expect will enables us to gain market share in the LCD monitor market and expand into new markets for Genesis.

Finally I am delighted that we have filled some critical executive management positions to help drive this execution. With that let me turn the call over to the operator for questions, operator.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Jay Srivatsa with Roth Capital Partners.

Jay Srivatsa - Roth Capital Partners

Thanks for taking my questions. Just a couple of questions. Elias, you look ahead beyond December quarter, what kind of run rate do you think you need hit to breakeven?

Elias Antoun

Jay, well first good afternoon, our goal is still to try to get to breakeven at the $65 million revenue run rate and we’re going to be a little bit behind in the December and the March quarter. But our goal is to try to get the $65 million revenue and breakeven at that level.

Jay Srivatsa - Roth Capital Partners

Okay, second thing has to do with the end markets, one of your competitors made a comment that there seems to be a shift in TV sales to kind of the mid to low end as supposed to the high end of the TV market. What are you hearing from your customers in terms of that trend?

Elias Antoun

Jay, what I don’t want to do is characterize the shift to low end versus high end. What we’re seeing--first we saw a bifurcation between WXGA and 1080p, probably 10 months ago, and in the process of upgrading Chaplin to Douglas we tried to take care of that, and we think that's part of the reason we're seeing increased opportunities for Douglas.

Having said that, we are sensing very possibly that the Tier-1 OEMs which, for all intents and purposes, are the key focus. The Tier-1 OEM have learned from one design cycle that they cannot compete purely on pricing and cost and they are cycling back to focusing on video quality and audio quality, and to the extent that we can bring that to them across there portfolio meaning WXGA and 1080p up and down we believe that actually the markets from a Tier-1 perspective its shifting in that direction.

Jay Srivatsa - Roth Capital Partners

Okay. Last question. In terms of your hiring, where are you in terms of filling some of the positions that have been opened up due to the departures are you done or do you foresee yourself hiring a few more key hires, where you added that?

Elias Antoun

So with the addition of Robert and Rick we have pretty much closed the requirements that we have at the executive ranks. We have a very solid and I am very happy to say low turnover rate in the ranks just below the executive staff. Other than that we don’t really have issues. We have normal turnovers, but in general we are doing very well and whenever we need to replace we are replacing, but with the addition of Robert and Rick, I think we are doing pretty well.

Jay Srivatsa - Roth Capital Partners

Thanks, Elias. Good luck.

Elias Antoun

Thanks, Jay.

Operator

Your next question will come from the line of Heidi Poon with Thomas Weisel Partners

Heidi Poon -Thomas Weisel Partners

Hi guys. I just would like to get a little more color on the display port ramp. You mentioned that you will start shipping in the December quarter. When do you expect to ramp with other customers assuming that you have wins with other major tier OEMs.

Elias Antoun

Hi, Heidi. So our first customers, first product will ramp in the later part of this quarter. March quarter will be probably our second customer and then we expect to see multiple platforms with more customers starting to ramp in the second half calendar '08, basically in the July timeframe. We are also seeing an expansion in platforms with the customers that we already have on Board.

Heidi Poon -Thomas Weisel Partners

What is the expected margin and ASP impact as you have more and more DisplayPort product for shipping?

Elias Antoun

We expect DisplayPort in general to help margins to I guess create a positive impact on margins. But we expect that to happen primarily in the second half of next year as the volume start to be meaningful.

Heidi Poon -Thomas Weisel Partners

So, does that mean going back up to may be above 40 and low 40s range next year?

Elias Antoun

I am not able to answer that much forward into the future Heidi but, again our expectations are to start creeping up and DisplayPort will be a contributor to that.

Heidi Poon -Thomas Weisel Partners

When you are looking at second half '08 shipments these are wins that you already have, right?

Elias Antoun

So, on the upper right hand corner platforms, the platforms that are kind of on the higher end, these are design wins that we either already have or are pretty much coming in fairly quickly as we speak. But we also expect to start ramping some volume with what we call the direct drive monitor, the entry level monitors. Those are design wins that we expect to close on in the beginning of calendar '08 and those tend to turn into production in the shorter cycle than the MFMs.

So, you will see a variety of platforms ramping into production in the second half of '08, some of which we have the design wins today, some of which the design wins will be probably closed in January, February, and March.

Heidi Poon -Thomas Weisel Partners

Great. And also I would like to know in term of your TV controllers are you pricing fairly aggressively to achieve the design wins that you've been able to achieve in WXGA or what do you expect to do in the next few quarters, such that our gross margin will not be impacted further?

Elias Antoun

Well, pricing to market Heidi. So, we’re clearly not -- what I believe, we’re clearly not more aggressive than what the market is out there. The two quarter ahead that we’re talking about on the gross margins right now are quite associated with some additional cost were incurring in order to make sure we support our customers time to market, and that’s kind of the best I can say right now. I think as we ramp up more and more DTV platforms in the second half of the year, our ASPs should improve, gross margin we should start seeing a recovery. But it is really hard to forecast that far into the future. But again I would reiterate, we’re pricing to market.

Heidi Poon -Thomas Weisel Partners

Okay great and follow on may be just on OpEx so should we expect the OpEx to go back to maybe $24 million to $25 million non-GAAP level after these two quarters. But do the additional expenditures for supporting this customer’s ramp?

Elias Antoun

The best guidance I can give you in OpEx right now is what we have in the December quarter.

Heidi Poon -Thomas Weisel Partners

Okay, great. Thank you.

Elias Antoun

Thank you

Operator

Your next question will come from the line of Daniel Gelbtuch with CIBC.

Daniel Gelbtuch - CIBC

Just wanted to get some informations and color about your TV roadmap, I guess with Douglas and beyond. Is there any plans to demand and number two, does integration of HDMI would be and there is new products like HR264 et cetera is that in your road map right now?

Elias Antoun

Yes, Daniel. Let me answer it systematically. So, we already have launched the development of our next generation single chip HDTV solution. And it is targeted again to be as flexible as possible for our customers design capabilities, I can say that we’ll be integrating HD H.264 we’re considering demand integration that’s not yet final it's still early for us, we still have some time to make that decision. And also I would like to circle back and say that we already have a HDMI1.3 integrated in our Sequoia and Douglas solution. So, for us that would be just the second generation of HDMI1.3.

Daniel Gelbtuch - CIBC

Okay. And as far as you mentioned that you already have two Tier-1 OEMs and then you are about to add two others, when you say two others you’re adding does that include ODM based wins or is that direct OEM?

Elias Antoun

Two others we are talking about our direct OEM additions.

Daniel Gelbtuch - CIBC

Thank you.

Daniel Gelbtuch - CIBC

Thank you.

Operator

Your next question will come from the line of Mahesh Sanganeria with RBC Capital Markets.

Mahesh Sanganeria - RBC Capital Markets

Thank you. Elias, just to continue on that, can you give a little bit more color on your Douglas, did you say that you have four design wins at four Tier-1 customers?

Elias Antoun

No, let me reiterate, Mahesh. We have two design wins at Tier-1 customers. We have one more design win, so we have two design wins at Tier-1 customers that will ramp in to production in the short-term. We have a new design win a third one at a Tier-1 customer and then we expect to close on a fourth design win at a Tier-1 customer, direct engagements in the near future. And then we have migrated three design wins in China from Chaplin to Douglas.

Mahesh Sanganeria - RBC Capital Markets

So, total Douglas you have potential going into '08 may be at least seven or eight customers ramping?

Elias Antoun

May be, up to seven at the...

Mahesh Sanganeria - RBC Capital Markets

Okay, right. So and these are can you give us an idea of four Tier-1, is that all targeted to Europe market or they are going in multiple markets. I think you made some comment can you go over that one?

Elias Antoun

Yes, our first two Tier-1 OEM's are targeted for the European market. The next two Tier-1 OEM's the one that we've already locked up if targeted for the U.S. ATSC market and then the fourth one which is again stealing discussion. Hopefully, we can close on that in the near future. From what we can tell right now is targeted for the U.S. ATSC market.

Mahesh Sanganeria - RBC Capital Markets

So, that is a part, which is very interesting because I think last discussions. We have had or you have talked about, you had kind of given up on U.S. market completely saying that it's a market for low video quality, high screen size but low cost. But is there a change in the sentiment from TV OEM's that TV quality is becoming more important in U.S.?

Elias Antoun

Yeah, so that’s what I tried to allude to in the script that we’re sensing from the Tier-1's that their opportunity to differentiate really lies with video quality and audio quality and display technology. And we’re sensing that the Tier-1's are coming back across the board and want to put solutions that are competitive from a bond perspective, but deliver quality above all. So in the last I would say six to eight weeks we have experienced interest in Douglas for the U.S. ATSC market that we did not anticipate 10 to the 14 weeks ago.

Mahesh Sanganeria - RBC Capital Markets

Okay that makes a very clear that’s very interesting. And can you give us which region this OEMs are Japan or Korea or…

Elias Antoun

It's really difficult for me to answer this question right now Mahesh, until we feel a lot more comfortable about how close we're to closing the deals.

Mahesh Sanganeria - RBC Capital Markets

Okay and then other thing you made comment on that your inventories are going to go up in December quarter to support the ramp of at least some of these products. Can you elaborate a little bit on that?

Elias Antoun

Yes again inventories will go up although we don’t except inventories in terms of numbers of week of inventory that will go up dramatically. We’re moving into high value products if you will we’re moving into 300 millimeters wafers, 110 nanometers that will be ramping Douglas and Sequoia. So the value of these things will be higher because we’re prepping for ramps up for Douglas and Sequoia and so you will see some inventory ramp by the end of the December quarter.

Mahesh Sanganeria - RBC Capital Markets

Does this Douglas ramp does that alter your seasonality a little bit for the first half of '08?

Elias Antoun

Yes. So the simple answer is yes. What we are hoping is that the drop of from December quarter to March quarter will be slightly modulated mitigated. At this moment in time we don’t expect--we don’t know enough yet -- but we don’t expect that there will be a surge in revenue from December to March, but we expect that there will some modulation due to the ramp up of Douglas and Sequoia.

Mahesh Sanganeria - RBC Capital Markets

Ok, thank you very much, that’s very helpful.

Elias Antoun

Thanks Mahesh.

Operator

Your next question will come from the line of Quinn Bolton with Needham.

Quinn Bolton - Needham

Hi Elias, I apologize because I missed the first part of the call, but was wondering if you could just, you'd mentioned in prepared comments just before wrapping up that you guys have prepared the Douglas DisplayPort WXGA and 1080p just kind of wondering if you could expand on that point. Obviously you got different price points I think going into those two TV segments?

Elias Antoun

That’s correct. So the capabilities of Douglas, Quinn are a super set. Basically the capabilities Douglas can deliver 1080p at a very, very competitive bond cost to the OEM's. As such the 1080p capabilities are super set of WXGA. We are at a slight bond disadvantage for a WXGA platform. However because of the image quality and the enhancements we have made to Douglas in that area and the audio capabilities that it brings, because customers can save on the audio functionality. We are seeing that customers are willing to undertake the slight bond disadvantage that's related to Douglas in return for enhanced image quality, enhanced audio quality, and a common platform.

Quinn Bolton - Needham & Company

So, you have Douglas and both WXGA and 1080p sets you have a common platform and in the WXGA you might have a slight bond disadvantage, what do you think the OEMs will pay because of the superior video quality?

Elias Antoun

That's right. And then also we are pricing then to Douglas obviously well slightly differently. We tend to take a little less for WXGA and little more for 1080p and we try to balance it out.

Quinn Bolton - Needham & Company

Okay, great. And then you made some comments about the DisplayPort, any sense you might give us where you think it could be in terms of percent of monitor revenues by the end of 2008, is that 10% to 20% I don’t know if you --?

Elias Antoun

(inaudible) in monitor revenues.

Quinn Bolton - Needham & Company

Yeah.

Elias Antoun

It's really difficult to answer at this point Quinn, but let me just say it will be a substantial proportion of our monitor revenues. I am not able to quantify that accurately right now.

Quinn Bolton - Needham & Company

So, substantial greater than 10% but little less than 50 or substantial meaning like the majority?

Elias Antoun

Don't corner me, but I will say greater than 10%.

Quinn Bolton - Needham & Company

Okay, great. And then just lastly sounds like you've got with the ramp up of new products, you talked about the gross margin sort of trending little bit lower than you would like here in the next couple of quarters but sounds like the DisplayPort ramping that should start to drive margins higher, the monitor business as you come into the second half, and I imagine if you get Douglas ramped to higher volume do you think that also perhaps bring some margin recovery is that a good way to look at it beyond the March quarter?

Elias Antoun

And the ramp of 1080p platforms with Sequoia, and so on. Yes.

Quinn Bolton - Needham & Company

Okay, great. Thank you.

Elias Antoun

Thank you.

Operator

Your next question will come from the line of Steve Park with Wedbush.

Steve Park - Wedbush Morgan Securities

Hi. Just have a quick question regarding the gross margins, I know it’s right now right around kind of the 35% or is this something that cam get to 37% or 38% in the next quarters or so or is that more than it be by around 35-36%.

Elias Antoun

I will not categorically say yes, Steve. But our goal is to achieve breakeven at $65 million in revenue which translates to 37% to 38% gross margin, of course, we would like to get better than that but our goal is to get there beyond the March quarter.

Steve Park - Wedbush Morgan Securities

Okay. Guarding kind of the revenue goal there is that something that you guys can hit over the next fiscal year there or is that something out possibly?

Elias Antoun

I am not able to answer that at this point.

Steve Park - Wedbush Morgan Securities

Just one last question, with DisplayPort ramping. Do you think there is going to be some OpEx increase after December with the DisplayPort there by an when did you--?

Elias Antoun

The best guidance again I can give is our December quarter OpEx that we have today, we continue to manage OpEx very closely, though we also need to make sure we invest in ensuring that our customer succeeds, so that ultimately we succeed also.

Steve Park - Wedbush Morgan Securities

Okay. Great, thank you.

Elias Antoun

Thank you.

Operator

Your next question will come from the Tayyib Shah, with Longbow Research.

Tayyib Shah - Longbow Research

Hi guys.

Elias Antoun

Hi Tayyib

Tayyib Shah - Longbow Research

I would like to get some more color on the Douglas design win activity for 2008 production. The traction with three Tier-1 customers, how many of those are top four TV OEM's globally?

Elias Antoun

Yeah. Definitely, Tier-1's and they are in the top six or seven.

Tayyib Shah - Longbow Research

Okay. So, is there any one of them who is in the top four?

Elias Antoun

Absolutely.

Tayyib Shah - Longbow Research

Okay. And then most of the designs that you won are they mostly below 40 inch designs or are they above that range?

Elias Antoun

Our engagements with our top two OEMs Tayyib are multi-platform engagements, which is why we support them across the Board WXGA up to 1080p and our typical direct Tier-1 OEM engagement involves 32-inches all the way up to whatever size they want.

Tayyib Shah - Longbow Research

Okay. And how fragmented is the market for Douglas right now at the top OEM? Do you expect most of them to use multiple DTV chip vendors next year? And then, aggressive price competition between those competitors or is it going to be just one dominant supplier for each top OEM?

Elias Antoun

That strategy varies customer-to-customer. We engage with customer that want to select one strategic partner and do all their work with them and that’s actually, a significant part of our business, and then we deal with customers who want to put two or three suppliers up against each other and then see who comes out and typically we try not to engage at that level.

Tayyib Shah - Longbow Research

Okay

Elias Antoun

But it varies, that strategy varies customer-to-customer.

Tayyib Shah - Longbow Research

And finally, if you do a get the four top tier design wins that you’re targeting, any thoughts on where your share of the DTV market can be next year?

Elias Antoun

I cannot answer that question directly, it will still be relatively small, first of all it will be increasing dramatically, but hopefully by calendar '09 we will be one of the top three or four suppliers in the DTV market, that our goal is to be one of the top three or four suppliers in that market.

Mahesh Sanganeria - RBC Capital Markets

Okay, so basically we have to rely on the next years design cycle to get more share in that phase?

Elias Antoun

That's correct.

Mahesh Sanganeria - RBC Capital Markets

Okay thank you

Elias Antoun

Then I would like to emphasize that ramping up our customers with Douglas at this time of the year positions Douglas quite well for next years design cycle.

Mahesh Sanganeria - RBC Capital Markets

Thank you

Elias Antoun

Thank you

Operator

Your next question will come from the line Adam Benjamin with Jefferies

Adam Benjamin - Jefferies

Thanks guys, first just to drill down a little bit more Ely, on these wins that you have with Douglas. Are those wins with existing TV customers that you are shipping to today or are they new customers?

Elias Antoun

Two wins are with existing customers, which we talked about last earning call. One win, is with a customer that we have done some TV business with but we have never done DTV business with and then the last one would be with a totally new customer. That one is not closed yet.

Adam Benjamin - Jefferies

Okay.

Elias Antoun

We still have work to do.

Adam Benjamin - Jefferies

Thanks. With respect to Chaplin, can you just go through what was the change there in terms of moving to Douglas from Chaplin and why it appears that some of your customers weren't taking Chaplin and now they are moving more aggressively or you are moving them toward Douglas?

Elias Antoun

Just to put things in context, Douglas sampled in August and we had already committed it to two customers. At that point in time, we felt that's about the limit of our bandwidth to support early access Tier-1 OEM's. In the meantime, we had garnered some Chaplin design wins that required a different kind of support. But as our progress with Douglas really accelerated -- this is again we're talking about less than three months, the quality of Douglas, the execution on Douglas, and ramping up our capabilities there started to out pace Chaplin, and the increasing opportunities for Douglas we had to face a decision of do you want to support two products or are we better off supporting one product and biting the bullet on the other one and that’s a decision we made.

Adam Benjamin - Jefferies

Okay and just a follow up question. Ely, you used some terminology regarding the March quarter modulation and I wasn't quite sure what you meant. Were you talking about more moderate seasonal decline in the March quarter than in past, is that what you were referring to?

Elias Antoun

That's right.

Adam Benjamin - Jefferies

Okay and was that for the total business or was that just referring to specifically the TV business?

Elias Antoun

Well it's for the total business Adam, but the TV business is the one that causes the biggest impact, because the September quarter is heavily dominated by Christmas shipments. The December quarter has still some impact before the Christmas shipments and then some impact for China because typically the New Year is in February. But by the March quarter all of that is gone and seasonal it's quite down from that perspective. Now the modulation comes from the fact that we'll be ramping up DTV platforms that until now the company has not had, so that would help a little bit.

Adam Benjamin - Jefferies

Okay so in March, just to define modulation you’ve historically last couple of years has been down about 25%, some seasonality for consumers down 10%. Is it somewhere in the middle there or close to towards the 10?

Elias Antoun

I am not able to give you guidance that forward in the future, Adam at this point to that specificity.

Adam Benjamin - Jefferies

Okay. But I am in right ball part?

Elias Antoun

Still to not answer that, I think you are thinking correctly, but I cannot answer that to that specificity.

Adam Benjamin - Jefferies

All right. And then just one last question, you talked about the break even point is 65 million, 37% to 38% gross margin, in terms of timing there, is that something that you are not willing commit on but is that something that your goal is to achieve in calendar year '08?

Elias Antoun

Our goal is to achieve this as quickly as possible that’s the best I can say, right now.

Adam Benjamin - Jefferies

Good answer, Elias

Elias Antoun

Thanks.

Adam Benjamin - Jefferies

Thanks. That’s all I have.

Operator

(Operator Instructions). We have a follow-up question from the line Mahesh Sanganeria with RBC Capital Markets

Mahesh Sanganeria - RBC Capital Markets

Elias, just some more clarification on that modulation term. If I look at historically from your perspective, I can come up with any consistent answer but I would say 10% down is a more seasonal I would think the average seasonal 10% down is that correct?

Elias Antoun

Mahesh, it's actually my in pre-March quarters here, I have seen it vary. So, it's very hard for me answer that question.

Mahesh Sanganeria - RBC Capital Markets

Okay.

Elias Antoun

This is quite different in the three data points that I have.

Mahesh Sanganeria - RBC Capital Markets

Well, but the last time was this March was unusual because you were ramping down Philips is that fair to say?

Elias Antoun

Certainly Philips had an impact on module 7 results, yes.

Mahesh Sanganeria - RBC Capital Markets

Okay. All right. I will give up.

Elias Antoun

Thanks Mahesh. What I've just learned is I should never use the world modulation again.

Operator

(Operator Instructions). And at this time there are no further questions, I will turn the call back over to Ms. Goncalves for closing comments.

Pam Goncalves

Thanks again for joining us today. Please note that in November Genesis will be participating in road shows with RBC in New York and Longbow in San Francisco and Southern California.

At CES 2008 in Las Vegas, we will be hosting an investor event on January 8th, as well as participating in Visa's DisplayPort pavilion event from January 7th through January 10th.

As a reminder, a replay of the conference call will be available through November 8th. In addition, a copy of today's earnings release is available on the Company's website at www.gnss.com. This concludes today's conference call. Thank you.

Operator

Thank you. Ladies and gentleman this does conclude the Genesis Microchip's second quarter earnings conference call. You may now disconnect.

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

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

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

Source: Genesis Microchip F2Q08 (Qtr End 9/30/07) Earnings Call Transcript
This Transcript
All Transcripts