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Executives

Scott Howarth – President and CEO

John Cobb – Chief Financial Officer

Analysts

Richard Shannon – Craig-Hallum

Raji Gill – Needham and Company

Chris Sigala – B. Riley & Company

Integrated Silicon Solution Inc. (ISSI) F2Q2012 Results Earnings Call April 25, 2012 4:30 PM ET

Operator

Please standby, we are about to begin. Good day, everyone. And welcome to the ISSI Fiscal Q2 2012 Quarterly Earnings Conference Call. As a reminder, today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Scott Howarth, President and Chief Executive Officer. Please go ahead, sir.

Scott Howarth

Good afternoon. And welcome to ISSI’s conference call for the second fiscal quarter ended March 31, 2012. I’m Scott Howarth, President and Chief Executive Officer; and with me is John Cobb, our Chief Financial Officer.

Before we proceed, I’ve asked John to comment on the nature of this call and any forward-looking comments that may be made.

John Cobb

Thanks Scott, and good afternoon. During the course of this conference call, we will provide financial guidance, make projections, comments and other forward-looking statements regarding future market developments, the future financial performance of the company, new products or other matters.

We want to caution you that such statements are just predictions or opinions and that actual events or results may differ materially due to fluctuations in the marketplace, delays in developing new products, changes in demand or supply, availability of foundry capacity or adverse developments in the global economy.

We refer you to the documents ISSI files from time-to-time with the SEC, specifically our most recent Form 10-K filed in December 2011 and our Form 10-Q filed in February 2012.

These documents contain and identify important factors that could cause our actual future results to differ materially from those contained in our financial guidance, projections, comments or other forward-looking statements.

Scott Howarth

Thank you, John. Our second quarter results reflect normal seasonality in our business as we saw continued softness in consumer and communications markets. Our automotive and industrial, medical, military markets showed growth this quarter, and we once again achieved record automotive sales.

We also had increasing design win traction for memory products in our automotive, communications and industrial, medical, military markets. Our new memory product execution is on track as we continue to introduce new products, which we expect to benefit us in future quarters.

We’re also seeing increase opportunities to gain market share in some of the larger -- as some of the larger competitors reach end of life on certain DRAM and SRAM products.

For analog products revenue in the March quarter decline slightly. As we discussed last quarter, the transition in demand from feature phones to smartphones in China as adversely impacted our analog business.

We are working to broaden our analog market opportunities in China and other Asian countries, and believe our new product expansion will broaden our addressable market and grow our future revenue. We are seeing strong design activity and expect to resume growth in our analog revenue.

Let me -- now, let me discuss our results for the March quarter in more detail. Revenue was $62.5 million. GAAP net income was $3.6 million or $0.12 per share and non-GAAP net income was $6.1 million or $0.21 per share.

Non-GAAP results excluded stock compensation, amortization of acquisition related intangibles and non-cash tax expenses. We also achieved $7.4 million in cash flow from operations.

Combined SRAM and DRAM revenue in the March quarter was $60.3 million, a decrease of 5.4% sequentially and an increase of 1.9% over the prior year quarter. DRAM revenue decreased 10% sequentially as end market weakness in the consumer and communications market more than offset our sequential growth in automotive and industrial.

SRAM was a highlight this quarter as revenue increased 5% sequentially, primarily due to stronger demand in industrial markets in Europe. Analog revenue in the March quarter was $2.2 million, which represented a 9% decrease from December quarter.

Automotive revenue grew 1% from the December quarter and 45% from the year ago quarter. Automotive revenue was 38% of our total revenue in the March quarter, compared to 26% of our revenue in the same quarter a year ago.

Revenue from the industrial, medical and military markets increased 1% sequentially, and 12% from the prior year quarter. Revenue from the communications market decreased 4% sequentially and 12% on a year-over-year basis, due to continued weakness in infrastructure spending.

Revenue from the consumer market decreased 27% sequentially and 46% from the year ago quarter, due to overall weakness in a consumer electronics market and our continued transition away from lower margin business.

Now I will briefly review our key markets and products including DRAM, SRAM and Analog.

During the March quarter, DRAM represented 65% of our total revenue. We had another strong quarter of design wins across all end markets, including several high volumes DDR2 design wins for automotive, communications and industrial applications. We also achieved a number of key design wins for both x 16 and x 32 configurations in the automotive, telecommunications and industrial.

Our industrial design is one -- one industrial example is our design wins for many smart meter applications worldwide that we believe will start ramping in volume in the second half of calendar 2012.

In addition, we had strong design activity for our new DRAM products, including our 256-megabit, 512-megabit, 1-gigabit and 2-gigabit DDR2, our mobile SDRAM and our 64-megabit and 128-megabit low power SDRAM KGD product. We expect these new devices to contribute to revenue growth in the coming quarters and further expand our market share.

We also have increased market opportunities with our SDRAM and DDR1 product as larger competitor reach end of life on their equivalent products. Both Samsung and Hynix have recently informed customers that they are exiting these markets at the end of 2012, which should provide share gains for ISSI as customers seek stable supply to meet continuing market demand for these products.

Additionally, we have made significant progress with a growing number of customers for RLDRAM memory. We have sampled our RLDRAM 2 memory to over 20 customers who are currently evaluating and designing in our part.

We achieved our first large design win for the major communications customers. We expect to begin ship revenue shipments in the second half of calendar 2012 then ramp in 2013.

During the March, we also started sampling our RLDRAM 3 memory. Today more than 10 customers have expressed interest and plan to design it in. Initial productions of RLDRAM 3 are anticipated in the latter half of calendar 2012 then gradually ramp into 2013 and ‘14, and continue for years.

Overall, the addition of RLDRAM to our memory portfolio positions ISSI to become a source of newer technologies and designs and we continue to see increasing opportunities to expand our market share and grow our DRAM revenue.

Turning to our SRAM revenue, SRAM represented 32% of our total revenue in the March quarter, increasing 5% sequentially and flat with the year ago quarter. Design win activity was again strong in our key markets for various densities of our products.

This included several large design wins for our 4-megabit, 8-megabit and 16-megabit asynchronous products, primarily for automotive, industrial, communication applications and with our synchronous products in communication applications.

We also have several large design wins for our current QUAD SRAMs and for our new high performance 36-megabit and 72-megabit QUADP SRAMs with leading communication’s company. In addition to these design wins, we signed a technology license agreement with IBM further strengthening our SRAM IP portfolio.

Looking ahead, Samsung’s planned exit of the synchronous SRAM market by the end of 2012 has created a significant share gain opportunity for ISSI. This is very timely as we’ve been sampling our new higher performance 65-nanometer, 36-megabit and 72-megabit QUADP synchronous SRAMs to target our customer’s new design and replace designs being vacated by Samsung.

As a direct result of Samsung’s exit plans, we currently have design activity and more than 50 customers, including some that will be for ISSI and will increase our account base and market share. We expect these design opportunities to result an additional revenue beginning two to three quarters from now.

In addition, we will be expanding our SRAM product line later this year with additional 65-nanometer devices and even higher performance 28-nanometer synchronous SRAM in the future that will provide us with leading edge SRAM memory to support our growth.

With our continued investment providing competitive SRAM solutions and long life cycle support, we are confident that we will continue our long-term revenue growth in the SRAM market.

And finally, our analog revenue from Si En was $2.2 million for the March quarter, which was within our expected range of $2 to $3 million. Since the majority of Si En’s legacy revenue is related to products in China -- Chinese feature phones, the shift towards smartphones in that market has negatively impacted revenue. We are working with our customers to secure both audio amplifier and LED driver designs in the new smartphones and are introducing several new products.

In addition, we are working to expand our market opportunities in other markets in China, such as consumer appliances and industrial applications, and have several design wins.

We are also targeting cell phone and other consumer and industrial applications in other Asian countries such as India, Korea and Taiwan, and have also have design wins in those markets.

As a result of these efforts we believe Si En’s revenue will rebound the earlier levels by the end of the calendar year. We remain optimistic about our opportunities for growth in the analog market.

Looking at our guidance for the June quarter, we expect total revenue to be in the range of $63 million to $68 million, which represents a 1% to 9% sequential increase. We started this quarter with higher backlog compared to March quarter and higher book-to-bill ratio of 1.08 and have seen a strong order flow so far.

In summary, as we look to the second half of 2012, we see strong growth opportunities in our target markets with increased design wins and share gains as we continue to introduce new SRAM, DRAM and analog products.

We believe our focus on high quality specialty products reduces volatility and provides greater potential for growth in revenue and profit, as well as higher and more sustainable margins than can be achieved by other similar memory suppliers.

The advantages of our fabless business model, combined with stable end markets and support for our customers’ long product life cycles, further contributes to our opportunity to grow revenue and profits in the future. We’d also remain confident in the long-term revenue and profit growth for our analog business.

Now, let me turn it over to John to discuss the numbers, and I will then provide some closing remarks.

John Cobb

Thank you, Scott. As Scott mentioned, our revenue for the March quarter was $62.5 million, within our guidance range of $62 million to $68 million. SRAM and DRAM revenue was $60.3 million and analog was $2.2 million. The SRAM and DRAM revenue decreased 5.4% from $63.8 million in the December quarter and increased 1.9% from the year ago quarter.

We had a book-to-bill ratio of 1.08 in the March quarter. This was an improvement from the 0.9 ratio in the prior two quarters. Our revenue in the March quarter by market was 38% automotive, 26% communications, 22% industrial, medical and military, 10% consumer memory and 4% consumer analog.

Gross margin was 33.8% in the March quarter, which was also in our guidance range of 33% to 35%. This compares to 33.5% in the December quarter and 33.1% in the year ago quarter. We are pleased that our gross margin has continued to improve through our cost reduction efforts and continued focus on higher margin markets.

Operating expenses were $15.9 million in the March quarter, below our guidance range of $16.5 million to $17 million. This compares to $17.1 million in the December quarter and $15.4 million in the year ago quarter.

The reduction in March 2012 quarter expenses was primarily due to lower product mass cost than originally expected. As we have previously stated, our product mass expense will fluctuate from quarter-to-quarter based on our product development schedules.

GAAP operating income in the March quarter was $5.2 million, compared to $5.1 million in the December quarter and $5.5 million in the year-ago quarter. Non-GAAP operating income in the March quarter was $6.9 million, compared to $6.7 million in the December quarter and $7.2 million in the year ago quarter. Our non-GAAP figures excludes stock-based compensation and amortization of intangibles related to acquisition.

Interest and other income in the March quarter was a net expense of $200,000, compared to net other income of $200,000 in the December quarter and net other income of $300,000 in the year-ago quarter. The net expense in the March 2012 quarter reflects $500,000 of foreign currency transaction losses due to the rapid rise of the new Taiwan dollar compared to the U.S. dollar in January.

In the March quarter, we had GAAP income tax expense of $1.4 million, which represents an effective tax rate of 28%. In the December quarter, GAAP income tax expense was $1.5 million or 29%.

In the year-ago quarter, the company had $35,000 in income tax expense. On a non-GAAP basis, which excludes the non-cash tax expense related to the utilization of previously recorded deferred tax assets, the company had $600,000 in income tax expense in the March quarter or an effective tax rate of 9%. In the December quarter, the non-GAAP tax expense was $600,000. And in the year-ago quarter, the non-GAAP tax expense was $35,000.

GAAP net income for the quarter was $3.6 million or $0.12 per diluted share. This compares to GAAP net income of $3.8 million, or $0.13 per share in the December quarter and GAAP net income of $5.8 million or $0.20 per share in the year-ago quarter.

Non-GAAP net income was $6.1 million or $0.21 per share, compared to non-GAAP net income of $6.3 million or $0.22 per share in the December quarter and non-GAAP net income of $7.4 million or $0.26 per share in the year-ago quarter. Please refer to our press release and Form 8-K for a reconciliation of our GAAP to non-GAAP results.

On the balance sheet, we ended the quarter with $106.9 million in cash and short-term investments, an increase of $4.7 million from December. We generated $7.4 million in cash flow from operations in the March quarter.

Inventory decreased $3.3 million from December. Inventory turns were 3.5 in the March quarter. We expect that our inventory will decrease further in the June quarter.

Accounts receivable increased sequentially by $1.5 million. Day sales outstanding were 34 days in the March quarter compared to 49 days in December.

During the last four quarters, we have generated an aggregate of more than $42 million in cash flow from operations. At the end of March, we had $3.92 per share in cash and short-term investments.

Our book value per share has increased 57% in the last two years, from $5.82 in March 2010 to $9.14 at the end of March 2012.

Now, let me turn to the guidance for the June quarter. As Scott mentioned, we have seen an overall strengthening of demand that is evidence by the improved book-to-bill ratio and a stronger backlog at the beginning of the June quarter. However, we remain cautious about the continued weakness in the communications and consumer markets. As such, we expect total revenue to range between $63 million and $68 million.

This guidance reflects expectation of SRAM and DRAM revenue between $60.5 million and $65 million and analog revenue between $2.5 million and $3 million.

Gross margin for the June quarter is expected to range between 33% and 35%. We expect DRAM and SRAM pricing to be flat, but slightly down sequentially.

Operating expenses are expected to range between $16.5 million and $17.1 million. We also expect about $200,000 from interest and other income.

We expect that our GAAP effective income tax rate would be approximately 30% including non-cash deferred tax expense from the utilization and deferred tax assets, excluding the non-cash deferred tax expense, our non-GAAP effective tax rate was expected to be 10%.

Taking these factors for the June quarter into account, the company expects GAAP net income to be between $0.12 and $0.19 per diluted share and non-GAAP net income to be between $0.21 and $0.28 per diluted share.

Now, back to Scott for final comment.

Scott Howarth

Thanks John. Overall, our record automotive revenue during the quarter, strong gross margin and cash flow and a strengthened balance sheet further demonstrated the financial benefits of our high-quality specialty memory focus. We believe our success in our target market was a direct result of our expanded product offerings, design win traction and long-term support.

While we see some short-term weakness in certain markets as a result of the ongoing macro instability, we believe we are poised for future revenue growth in future quarters. As the macro economy and our end markets improve, we believe our results will benefit from those added growth opportunities.

Overall, our results continue to show the value of our specialty products strategy, as we outperform many of our industry peers. As we continue to successfully execute on our objectives, we believe we will continue to gain market share and build an even stronger business. We remain committed to achieving that goal.

We’ll take your questions now.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) We will take your first question from Richard Shannon with Craig-Hallum.

Richard Shannon – Craig-Hallum

Hey Scott, John, how are you guys doing?

Scott Howarth

Good. Richard, how are you?

Richard Shannon – Craig-Hallum

Not too bad. Thanks. I guess a few quick questions from me. First of all on your outlook for the June quarter, relative to your overall revenue levels, gross implied in that, kind of want to get a sense of the end market drivers there, I think Scott in your final remarks you mentioned consumer communication might be a little bit weaker than the other two end markets. Kind of wonder if you can help quantify those a little a bit? Do you expect comps and consumer to grow sequentially or could either of them actually be flat or down?

Scott Howarth

I’ll start the other way. We do expect industrial and automotive segments to be growing this quarter. Communications is the one market that’s still is a little bit of puzzle, in terms of whether they will see any growth there at all. As you saw this last quarter again we saw some decline.

The consumer market again is a little bit more [cyclical] and at this point it’s difficult for us to call. But overall, we are little bit cautious on those two markets, we do expect growth in industrial and automotive.

Richard Shannon – Craig-Hallum

Okay. Fair enough. I guess, this is a follow-up on the comps. You said it’s -- mentioned I think you said a little [cyclical]. So, any pockets of strengths at all or is it kind of across the board here in any sense to when that business might return to more typical patterns you’ve seen -- let’s say last year and before?

Scott Howarth

Yeah. We have -- I can give you some feedback from customers that just visited us a week ago, one of our large telecom customer. And their feedback means they’re basically seeing U.S. market now is starting to pick up from their growth perspective, yet they still see Europe being almost no investment right now.

And then some of the other markets where you look at China et cetera are little bit of give and take. So, overall we’re seeing, growth is resuming in U.S. Europe still seems to be quite limited then from a bay station build out, infrastructure build out. And so, I think combined right now they are just not seeing the growth in the industry yet and I couldn’t get a good feel from them and I haven’t seen a catalyst yet that tells me if the overall market is going to start picking up.

Richard Shannon – Craig-Hallum

Okay. It’s fair enough. I appreciate those thoughts Scott. Next question from me on your comments about bookings and backlog? Can you tell us what’s your backlog coverage just starting this quarter relative to what it was last quarter? I mean how that compares the normal patterns?

Scott Howarth

Typically, we entered the quarter about 50% booked. I think this time we’re looking a little bit higher than that. That’s why we’re starting to see a little bit higher turns rate at -- I mean, book-to-bill rate above 1.08.

Richard Shannon – Craig-Hallum

Okay. All right. And then last question for me, and I guess I’ll jump out of line. I’m not sure if I caught your comments in prepared remarks, Scott. So please correct me if I did get this wrong. But I think you mentioned relative to a Samsung’s plan, the end of life from -- with certain sync SRAM products. I think you’d mentioned as many as 50 different customers you’re talking with, some of which are new to the company.

Can you give us any sense of that scale? I mean is that a big number, are there any large opportunities within that? Any sense of further quantifying how big of a deal these customers in this overall end of life situation with sync SRAM could be for you?

Scott Howarth

Well, overall we see the SRAM opportunity is probably about $150 million, it’s what we estimate. Most of that is in the higher performance QUAD SRAMs that we can see. So that market is going to take some time to penetrate. As I mentioned there, we do have new devices now. So we are new to that market, but we are seeing design win opportunities. We’re also seeing significant design win opportunities across the very broad sync SRAM portfolio as well.

So it’s a -- right now, I don’t have a good quantification for that. I think it’s certainly a large opportunity as we look going forward. The fact we do have so many customers right now that are sampling our SRAM I think is very positive, but as we know design-win cycle inside a lot of telecommunication solutions and applications typically run six to nine to 12 months. And with the planned exit toward the end of the year, we’re really not anticipating much actual revenue gain entirely end of this year.

Richard Shannon – Craig-Hallum

Okay. That’s fair enough. I will jump out of the line, guys. Thank you.

Scott Howarth

Great. Thanks Richard.

Operator

From Needham and Company, we have Raji Gill.

Raji Gill – Needham and Company

Yeah. Thanks for taking my questions. Just some color on the consumer business which was down about 26% sequentially, what percentage of consumer is in the DRAM segment, what you say?

Scott Howarth

All of our consumer is DRAM.

Raji Gill – Needham and Company

Okay. So consumer was about 10%?

Scott Howarth

Almost, almost all. Now I think about there is a little bit of SRAM is still -- will go in some of the consumer segment.

Raji Gill – Needham and Company

Okay. So the consumer -- the big drop-off of a consumer was more or less related to what overall weak demand environment in TV set top boxes or -- how do you characterize that?

Scott Howarth

Yes. We’ve seen set top boxes, printers, cell phones, TV’s et cetera. We saw a drop off there and feedback we ought is just in consumer demand slowing down. So it was actually surprisingly larger than we expected this quarter. But again this is normally weaker quarter. Unfortunately for us we don’t have as much revenue now in the consumer electronics area. So that -- the impact to our business was smaller.

Raji Gill – Needham and Company

Smaller. On the communication segment which is about 26% of sales. That dropped 4% sequentially. And you talked about maybe at being potentially down this quarter, what the -- anything on the competitive landscape you can talk about or is it just -- there is a slower uptick in comp equipment spending in the second quarter than kind of normally, and along those lines, any kind of thoughts I guess into the second half on the comp space?

Scott Howarth

Sure. So our markets in some of these areas are always competitive. So the competitive environment really hasn’t change. As we mention, Samsung and Hynix are now exiting some of the SDRAM, DDR markets. A lot of the base stations that we ship into there have migrated into DDR2 type of devices and that’s where we’ve been performing actually quite well with 1-gig, 2-gig DDR2.

But what we’re seeing is just overall base station demand is not strong. It’s not really picking up and we’re not seeing stiffening growth. As I mentioned, one telecom customer explain that they are really seeing Europe is very weak right now. U.S. is starting to see a pick up. I think a lot of that is based on future LTE expansion and then Asia, India et cetera, they are starting to see kind of a mixture of growth there.

So I believe right now in the current period, we are still seeing softness in base station and some of the infrastructure built out. But I do believe it will start picking up in the second half. I don’t have any strong indicators to give you that and I believe that just the overall build out is going to have to continue.

Raji Gill – Needham and Company

That mean, most of the -- your revenue from comp coming from base station infrastructure or is it kind of split among wireline and wireless?

Scott Howarth

Its split, but we get quite a bit of revenue out of base stations as well. But we have a number of different wireless and as well as wireline solutions.

Raji Gill – Needham and Company

And last question, the science, I’m trying to get back more into the -- on the China phone side some of these lower end phones may be start to upgrade. Can you talk about maybe some ear bud potential design wins, talk about potential getting in some of the higher end phones, any thoughts on that analog part of the business in the second half?

Scott Howarth

Sure. So we actually have secured some smartphone design wins both for ear bud as well as some audio amplifier fairly limited and also backlighting. So LED backlighting, both the actual screen backlight, as well as some what we call FX LED, which is more decorative lighting. So we’ve seen quite a few different design wins now. What we haven’t seen yet is really a volume pick up with some of those designs.

Two -- one other effect is occurring in China right now, as the smartphones are picking up, ZTE and Huawei have really jumped out with the early smartphones and they have really grabbed big chunk of the share of smartphones today. We haven’t gotten design into those particular cell phones, instead we’ve been working with some of the smaller players in the past who are our key customers and that’s where we’re getting design win.

So we keep trying to work with the ZTE and Huawei and our goal is to eventually penetrate into those phones as well. But that’s one of the dynamic that’s occurring within -- in the China cell phone market.

Raji Gill – Needham and Company

Was ZTE and Huawei, I mean are they integrating the audio amplifier or they would need a discrete?

Scott Howarth

Well, virtually all of the chips that’s now have integrated audio amplifier. The same as we saw even in the featured phones, but the quality of the audio wasn’t as good. So that’s where we had success of selling a much higher quality audio experience. And if every time you come out with a new solution, the first solution and integrates then after that they start to differentiate.

That’s where we’re working on to start getting those differentiated designs where we can bring in audio chips to provide a better audio solution as well as targeting with ear bud drivers, lighting solutions et cetera.

John Cobb

And just to reiterate some of the comments in the prepared remarks, we were working in Taiwan, Korea, India other markets in both cell phone, consumer electronics and industrial applications have quite a few design wins, lots of design activity and it’s our objective and we believe it’s a reasonable objective to get the revenue back to where it was by the end of this calendar year.

Raji Gill – Needham and Company

Which is kind of 4 million to 5 million?

John Cobb

Yeah. Yeah.

Raji Gill – Needham and Company

Okay. Okay. Good, good, good. Thank you very much.

Operator

(Operator Instructions) We’ll move next to Chris Sigala from B. Riley & Company.

Chris Sigala – B. Riley & Company

Yeah. Thanks. Just going along in that same Si En topic with revenues down a little bit. Is there any impact negatively or positively to gross margins in the quarter?

Scott Howarth

No. It didn’t really move very much from the prior quarter. So it was not much reflected on our gross margin. Obviously, if that business grows like I mentioned previously, towards the end of the year, then it should help our gross margins.

Chris Sigala – B. Riley & Company

Okay. Great. Thanks. And then just curious on the IBM license for SRAM technology, just what sort of technology are you guys getting and does -- where does it sort of strengthen your position. Is it more in the upper sync space or exactly some more color that would be helpful?

Scott Howarth

Sure. We had ongoing work with IBM and we saw an opportunity here to license some of their technologies to use in some of the synchronous devices that we’re designing. So, with our license -- technology agreement that we have with them now, it really gives us additional intellectual property that we can use at 65 nanometer and below and that’s targeting sync as well as high performance QUAD SRAM as well.

Chris Sigala – B. Riley & Company

Okay. And then you’re expecting to move down to 28 nanometers at some point. About what timeframe can we expect to see that? How does that really bolster your position in the upper end of those markets?

Scott Howarth

Well, our expectation is we will probably start targeting 28 nanometer designs at the end of 2012. So we’d start -- we’d probably see tape-out within my -- middle of 2013. So it’s not going to be immediate, but we are starting to work there with one of our foundry partners to make certainly understand the technology. And then as it may solidify their technology as well, we can work with them in being lead vehicle for their process.

Chris Sigala – B. Riley & Company

Okay. Great. And then finally, nice to hear that you guys are seeing some design activity regarding the Samsung exit, just curious the expectation is Samsung to stop supporting at the end of the year. Would you expect the activity to increase even more above what you’re already seeing at that point, or would you say that the activity you’re seeing now is about where you would expect it today going forward.

Scott Howarth

So I think we’ll continue to see more opportunities, as we go toward the end of the year. I think some customers are very proactive. They will basically go out and start securing alternative sources very early. Others maybe planning to do more of a last time buy to extend them into 2013.

Overall, we think what our customers are seeing today the interest is very high. So we expect to continue to work with them on getting these products, designed in, meeting their qualifications and then preparing ourselves to be able to support the volume that they need. So right now though, I think looking at the timing this is about the right time though, to have samples so that they can get the qualifications done by the end of year.

Chris Sigala – B. Riley & Company

Okay. Thanks a lot guys.

Scott Howarth

Great. Thank you, Chris.

Operator

Daniel Berenbaum from MKM Partners has your next question.

Unidentified Analyst

Hey guys, this is (inaudible) for Dan. A question for you, you said at the outset of the call that you saw lot of some strength in industrial markets near for SRAM, given the macro situation do you view that as sustainable?

Scott Howarth

Yes. We think that we’ll be sustainable in Europe. The industrial segment and even automotive in Europe right now is looking stronger as we go forward. As we said we -- our industrial picked up about 1%. So it wasn’t significant growth, but the fact we’re seeing significant SRAM design there and growth as well. We just believe that we’ll start -- we’ll continue to see fairly good growth in terms of industrial market, opportunities in the European market.

Unidentified Analyst

Thank you. And can you give a little more detail on the RLDRAM RAM?

Scott Howarth

Sure. There is two pieces to it. There is RLDRAM 2, RLDRAM 3. RLDRAM 2, we have a qualified socket now, it’s one of our large telecom customers. So we expect we see -- and that taking over gaining share in existing sockets. So that market is in place today and as we start to gain share, we expect that will start ramping in the September quarter and even and into December quarter.

RLDRAM 3 is and also we continue to sample RLDRAM 2 with the number of other customers and we expect we’ll see additional design wins and opportunity for growth there and again that’s replacing existing sockets. With RLDRAM 3 that’s a completely new technology, it’s growing into new high performance boxes, routers et cetera that will be aggregating much higher performance.

So those will have a slower ramp to them and we’ll see initial shipment towards the end of 2012. Those have gradually ramping at 2013, ‘14 and then continue, we think it’s far out as 2020. So that’s a great opportunity for us as I obviously, we weren’t enabling two suppliers of RLDRAM 3, so as that market grows. We think -- we were quite comfortable continue to get at least 20% share of that market opportunity.

Unidentified Analyst

Great. And just one more question. In terms of foundry capacity, we’ve heard other companies talking about some issues there. What are you seeing?

Scott Howarth

When you say issues, issues in the context?

Unidentified Analyst

So some other companies suddenly able to get enough 28-nanometer product, are you seeing any capacity shortages on any of our product lines?

Scott Howarth

Okay. Got it. So we are hearing some foundry capacity shortages, but we haven’t seen it -- anything in DRAM. We still believe there is adequate DRAM foundry capacity that’s available, and even with our SRAM and the logic processes, we’re at 65-nanometer today. We are not down to 28. So we’re not seeing some of the shortages that are being reported today.

So at this point, we don’t see any capacity impacts to our business and we believe we have adequate capacity to support our business going forward.

Unidentified Analyst

Great. Thank you.

Scott Howarth

Thank you.

Operator

(Operator Instructions) We’ll now move to our follow-up from Richard Shannon with Craig-Hallum.

Richard Shannon – Craig-Hallum

Hi, guys. Couple of quick follow-ups on RLDRAM, if I got your commentary correctly, it sounds like you got in the order of 20 customers, the potential customers in RLDRAM 2, any, so you have 10 interested in RLDRAM 3, is there any reason why we shouldn’t see same guys who are -- engaged on the second gen to be also working in a third gen eventually?

Scott Howarth

It’s difficult to say yet whether customers will -- that are using RLDRAM 2 today will also migrate over RL3. That depends on individual application. RL3 again, is a brand new memory to the industry. Some customers are lot more aggressive and wanting to provide leading edge technology, so that’s we were seeing the 10 interest and those are what I would describe as the bigger suppliers in the networking and telecommunications business. At the 20, we get into a number of smaller suppliers there another opportunities outside of just some of the big guys who are using it today.

Richard Shannon – Craig-Hallum

Okay. And then the second question on that general topic, Scott, do you seeing any reason why the $300 million TAM that’s you and Micron have talked about for RLDRAM, do you see any reason why that’s not still an applicable number today?

Scott Howarth

No. No. I still think that is the correct number. And that’s -- we see that’s total RL2 then also RL3. So we see RL2 will start to decline as RL3 ramps and then RL3, both we think are going to have a very long tail and then RL3 will really ramp as the higher performance boxes really start to ramp as well and then again those will continue for quite some time.

Richard Shannon – Craig-Hallum

Okay. Perfect. Next question from me Scott regarding some of your higher density QUAD sync SRAM products, last quarter you talked about the situation with Cyprus and GSI legal tussle going on there, opening some opportunities, you are still seeing those available and even opening up wider? And when could we see any revenue benefit from which any progress that you had to date so far?

Scott Howarth

Well, we have done continue to cross a number of different products there. Nothing that is really significantly different as last quarter but where customers continue to look for stable supply I mean there -- everybody is anticipating, kind of the first outcome of their lawsuit, I think in the July timeframe or so, and preparing for it in case it’s negative in way or the other to their supply.

So I think we’ll see design win activity. In some cases we’ll have customers which will start to order, start to ensure that we can supply them in other cases, we’ll have some that I think may sit and wait for a while. So that one still is a little difficult to call, we continue to supply our technology, so that our customers have clear alternatives and clear choices.

Richard Shannon – Craig-Hallum

Okay. All right. Fair enough. And then my final question Scott, following up on one of the previous questions regarding Si En, talking about addressing Huawei and ZTE where it looks like you are being quite aggressive. Is there anything preventing you from working with them, is that’s just something that takes a little bit longer to develop a relationship there and do you think that can happen sometime this year?

Scott Howarth

We have a very good relationship with Huawei and ZTE both in SRAM and DRAM. So, we don’t see a relationship issue but we are new on the analog side and they are quite large competitors. They are used to working with our quite large customers. In the analog base, they are used to working with more -- considerably largest supplier.

Now, as a smaller memory supplier though they have used us and they continue to use us and see the value that we can bring. So, I think it’s a matter of time before we can convince them that we have enough value LED for them to start using some of our analog product. And we just haven’t reached that point yet. So, for us it’s a matter of keep working with them until we can finally get some opportunities and show that we have some good technology. But we think that will take a little bit of time for us to achieve.

Richard Shannon – Craig-Hallum

Okay. Okay. Perfect, that’s all for me guys. Thanks a lot.

Scott Howarth

Great. Thanks, Richard.

Operator

And at this time, there are no further questions in the queue. Mr. Howarth, I’d like to turn the conference back over to for any closing remarks.

Scott Howarth

Thank you for participating in this call. We plan to participate in two upcoming investor conferences. We will present at the 13th Annual B. Riley & Company Investor Conference in Santa Monica on May 23 and present at the Craig-Hallum Institutional Investor Conference in Minneapolis on May 30th. We hope to see you at these events. Have a good evening.

Operator

That does conclude today’s teleconference. We thank you all for your participation.

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