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

Intersil Corp. (NASDAQ:ISIL)

Q4 2007 Earnings Call

January 23 2008 4:45 pm ET

Executives

Dave Zinsner - VP and CFO

Rich Beyer - CEO

Dave Bell - President and COO

Analysts

Ross Seymore - Deutsche Bank

Craig Ellis - Citigroup

Romit Shah - Lehman Brothers

Tore Svanberg - Thomas Weisel Partners

Sumit Dhanda - Banc of America Securities

Uche Orji - UBS

Simona Jankowski - Goldman Sachs

Cody Acree - Stifel Nicolaus

David Wu - Global Crown Capital

Steve Smigie - Raymond James & Associates

Doug Freedman - AmTech Research

Kevin Rottinghaus - Cleveland Research

John Pitzer - Credit Suisse

Gus Richard - Piper Jaffray

Shawn Webster - JPMorgan

Operator

Good day ladies and gentlemen and welcome to the Fourth Quarter Intersil Corporation Earnings Call. My name is Audrey and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to one of your hosts for today's call, Mr. Dave Zinsner, Vice President and CFO. Please proceed.

Dave Zinsner

Thanks Audrey. Good afternoon and thank you for joining us today for Intersil's fourth quarter 2007 earnings conference call. Today with me are Rich Beyer, Intersil's Chief Executive Officer and Dave Bell, President and Chief Operating Officer. In a few moments, we will deliver remarks on the fourth quarter of 2007 and provide a summary of our business outlook. After our prepared comments, we will open the lines for questions.

We completed our fourth quarter on December 28th, 2007. A press release was issued today at approximately 1:05 p.m. Pacific Time. A copy of the press release is available on the Investor Relations section of our website at www.intersil.com.

In addition, this call is being webcast live over the Internet and may also be accessed via the Investor Relations section of our website. A replay of the conference call and webcast will be available for two weeks, through February 6th.

Please note that some comments made during this conference call may contain forward-looking statements. I would like to remind you that while these statements reflect our best current judgment, they are subject to risks and uncertainties that could cause our actual results to vary. These risk factors are discussed in detail in our filings with the Securities and Exchange Commission.

In addition, during this call we may refer to pro forma or other financial measures that are not prepared according to generally accepted accounting principles. We use these non-GAAP measures because we believe they provide useful information about the performance of our business and should be considered by investors in conjunction with GAAP measures that we also provide. You can find a reconciliation of non-GAAP to comparable GAAP measures on the investor relations section of our website.

For those of who interested in learning more about Intersil at an upcoming investor event, we will be participating in the CIBC Semiconductor Summit on February 22 in Vail, Colorado, and the Goldman Sachs Technology Investment Symposium on February 28 in Las Vegas.

Additionally our 7th annual Intersil Analyst Day is taking place on February 7 in Burlingame, California. A webcast of that Analyst Day presentation will be available on the Investor Relations section of our website.

I will now turn the call over to Rich.

Rich Beyer

Thanks Dave. Good afternoon and thank you for joining us today for Intersil's fourth quarter 2007 earnings conference call. 2007 was another truly fine year for Intersil. Despite an estimated revenue decline for the analog semiconductor sector, Intersil achieved record net revenues of $757 million for the year, an increase of 2%, and consistent with our model our non-GAAP earnings per share grew even faster than our revenues, 8% year-over-year. 2007 represented the third consecutive year that we have grown revenues at a stronger pace than our major analog competitors as a group, and the third consecutive year in which our earnings per share grew faster than our revenue growth. In our judgment our model clearly continues to work.

Like most of our high performance analog peers, we got off to a slow start at the beginning of 2007. However, as the year progressed, we saw momentum in several product areas, most notably notebook, handheld and display related products. And our General Purpose products also showed signs of recovery in the back half of the year. In fact revenue from General Purpose products grew 7% in the second half of the year versus the first half and that growth was very broad based.

Our cash generation model remains intact as we generated over $214 million in free cash flow for the year, which enabled us to reinvest in the business and to provide higher returns to our shareholders in the form of dividends and share repurchases. We repurchased more than $430 million worth of stock in 2007.

Now let's look at the results for the fourth quarter. In the fourth quarter, we achieved net revenues of $212.6 million, an increase of 17% from last year and an increase of 7% from the third quarter. Non-GAAP earnings were $0.39 per share this quarter, an increase of 15% from last year and 8% from the third quarter. Revenue in to the computing market experienced exceptional growth with particularly strong demand for our notebook products. Our high-end consumer business also experienced excellent growth this quarter, due to increased market acceptance of our products and a fourth quarter seasonal uptick. The industrial and communications revenues were essentially flat with Q3. Dave Bell will provide more detail on these in a few minutes.

At this time I would like to turn the call back to Dave Zinsner, who will provide a financial summary. After that, Dave Bell will discuss results from each of our four end markets and then I will provide some comments on our first quarter 2008 outlook. Dave?

Dave Zinsner

Thanks Rich. Let me begin with the income statement. As Rich stated we reported $212.6 million in net revenue for the fourth quarter of 2007, an increase of 17% from the same quarter last year, and an increase of 7% sequentially. We closed the fourth quarter with a book-to-bill below one as is usually the case at this time of the year due to seasonality. As a result, based on the profile of our backlog, we require an order turns percentage rate to be in the mid 30s.

On a GAAP basis, net income from continuing operations for the quarter was $42.4 million or $0.32 per diluted share up 11% from $38.3 million or $0.28 per share for the same quarter last year, and up 18% from net income of $36 million or $0.27 per share for the third quarter of 2007.

Our GAAP tax rate was 22.2% from continuing operations for the fourth quarter, up from 16.2% in the same quarter last year, which included a one time benefit from the retroactive reinstatement of the R&D tax credit.

Excluding one time tax reserve adjustments, we expect our first quarter tax rate to be approximately 24.6%. The increase in our first quarter tax rate from the fourth quarter is due to the exploration of the R&D tax credit on December 31st, 2007. We expect the R&D tax credit to be reinstated sometime during the year.

On a non-GAAP basis, primarily excluding the amortization of intangibles, stock-based compensation and in-process R&D expense, net income for the quarter was $51.9 million or $0.39 per diluted share, up 8% from $48.2 million or $0.34 per share for the same quarter last year and up 6% from net income of $49 million or $0.36 per share for the third quarter of 2007.

Our non-GAAP gross margins this quarter were 57.6% compared to 58.2% for the same quarter last year, this 60-basis point decline was due to product mix with a higher percentage of computing in consumer products. As a percent of revenue, fourth quarter R&D expenses excluding equity compensation were about 14.8%, a 70-basis point decrease from 15.5% in Q3.

In absolute dollars R&D expenses were up $800,000, primarily driven by the Planet ATE acquisition and new product development spending. For the year we increased our R&D expense by 8% in an effort to further accelerate our new product development engine. In fact, we increased our engineering headcount by 19% over last year's level.

As a percent of revenue, fourth quarter SG&A expenses excluding equity compensation were 13.9%, a 60-basis point increase from 13.3% in the third quarter. In absolute dollars, SG&A expenses increased $3.2 million from the prior quarter. The increase is associated with hiring of additional sales personnel, higher commissions on higher sales and several onetime expenses.

As you know, getting leverage from SG&A expense is an important metric for us. For the year, we dropped SG&A expenses by 2% despite the 2% increase in our net revenue. For the first quarter, we expect non-GAAP operating expenses to remain roughly the same as the fourth quarter. We expect R&D expenses to increase by approximately $1 million as we continue to increase new product introductions. SG&A expenses should be down by approximately $1 million. There were a few onetime items in Q4, which we will not see in the first quarter.

Our non-GAAP tax rate was 23.9% for the fourth quarter, down from 24.5% in the third quarter as we adjusted our annual tax rate from 24.5% to 24.3% due to higher earnings and foreign jurisdictions. We expect our first quarter non-GAAP tax rate to be approximately 25.2%. Again the R&D tax credit expired which increases our tax rate, however we do believe this to be temporary as Congress is likely to reinstate the R&D credit sometime this year.

Equity compensation was $10.4 million or 5% of revenue down $1 million from last quarter. As you know one of our key areas of focus was to reduce the expense associated with equity compensation. I am pleased to report that our equity comp declined by 8% in 2007 versus 2006. For the first quarter, we expect equity comp to be down again by approximately $1 million.

As you know, we typically end our fiscal year on the closest Friday to the end of the calendar year using 52 weeks. Approximately every six years, we have to add an extra week to our fiscal year so that we can end as close to December 31st as possible. The time to make that adjustment has come again, so in 2008 we will be adding an extra week to our fiscal second quarter. Those of you who develop models on Intersil should adjust your calendars accordingly.

Now moving to the balance sheet. On an absolute dollar basis net inventory increased by $2.6 million from the third quarter and our days of inventory decreased four days to 96 days. Days sales outstanding was 49 days, up slightly from 47 days in the third quarter. Inventory at our distribution partner was up slightly from the prior quarter.

CapEx was $6.7 million and depreciation was $5.3 million for the fourth quarter. We expect depreciation to be approximately $5.3 million and CapEx to be approximately $15 million in the first quarter. Capital spending will be high in the first quarter, as we continue to expand wafer starts at one of our foundry partners.

For the fourth quarter, we generated $52.7 million in free cash flow and exited the quarter with approximately $503 million in cash and marketable investments and no debt. We used the free cash flow together with the portion of existing cash balance to repurchase approximately $115 million or 4.2 million shares of our stock. As a result of this share repurchase activity, our weighted average share count decreased by over 3 million shares in the fourth quarter versus the third quarter. For the upcoming quarter, we expect fully diluted total shares to decline by at least 1 million shares, as we continue to be active in repurchases of our stock.

As part of our commitment to providing value to our shareholders, we've effectively managed our cash and have reduced our cash balance by $200 million in the last year. We've returned more than $480 million in cash to our shareholders in the form of share repurchases and dividends. We've reduced our share count by an impressive 8.2 million or 6% year-over-year. We also used some of the cash for strategic and accretive acquisitions, resulting in higher return on investment for our shareholders.

Today we announced that our quarterly dividend has been increased to $0.12 per share, a 20% increase from last quarter's dividend. This increases our dividend yield to over 2%. Our Board has strong confidence in the company's model and our ability to generate significant free cash flow in the future.

Now I will turn the call to Dave Bell, who will provide highlights into each of our four end-markets. Dave?

Dave Bell

Thanks Dave. I'll address our business in each of our four end-market categories beginning with high-end consumer. Revenue into the high-end consumer market represented approximately 29% of fourth quarter revenue. On an absolute dollar revenues into the high-end consumer market increased 17% year-over-year, and increased 13% sequentially. We saw solid demand in each of our three major product areas, handhelds, LCD displays, and optical storage.

In the fourth quarter, we secured a significant design win for a highly integrated power IC that drives LCD monitors using the latest gate and panel row driver technology. This new part integrates power with a number of other analog functions in memory, offering significant cost savings and greater simplicity to LCD panel manufacturers.

In the LCD display market, we had double-digit sequential growth in both our power and analog mixed-signal product lines. We continue to work with all Tier I LCD TV makers, leading this market with our reference voltage generators, level shifters and ambient light sensors. Our programmable gamma buffers maintain strong design win momentum with the [reduction] in high end LCD TVs.

The display market was significant growth driver for Intersil in 2007. Our product proliferation, consistent stream of design wins, and increased customers penetration have contributed to the success in LCD displays. We are also well positioned in the emerging OLED display market with our boost regulators. These highly efficient boost regulators have been designed into several OLED displays, targeting medical devices and next generation cell phones.

We experienced single digit growth in handhelds in the fourth quarter. We won designs at two Tier I handset customers, with our newest generation of high voltage linear battery chargers. These novel dual input battery chargers include a bypass FET and linear regulator, allowing handsets to be powered directly from the USB input for providing superior over-voltage protection. We expect to see handheld revenue growth in 2008 driven by the success of our battery chargers and highly integrated power management ICs.

During the quarter, we achieved double-digit growth in the optical storage space. We maintained our leadership position in the laser diode driver market. Our new Triple-LED offers a great degree of configurability. We had a significant design win in the fourth quarter with this driver, and we expect production to ramp in the first half of 2008. Additionally, our new laser power monitor ICs lead the industry as the smallest and first programmable PMIC products that can be easily interfaced with most optical shortage ICs. We secured key design wins for this IC and expect to see significant future revenue from this new product.

In summary, 2007 was a solid year for Intersil in the high-end consumer market. Annual revenue in this market segment in 2007 increased 8% year-over-year. Looking ahead, Q1 is a seasonally down quarter in the high-end consumer market and we expect our sales to be down moderately. However, we expect this segment to grow nicely for the remainder of the year with increased market share and customer penetration.

Now let's look at our computing business. Revenue into the computing market represented approximately 30% of fourth quarter revenue. On an absolute dollar basis, revenue into the computing market increased 64% year-over-year and 13% sequentially.

We continue to have great success with Notebook Core Power. During the quarter, we released our Core Power solutions for Intel's Montevina notebook platform. We expect Montevina to begin ramping in the second quarter of 2008. We also began sampling of Core Power solutions for Intel's next generation platform, based on the Westmere core processor architecture. We leveraged our Intel success into several design wins with Core Power solutions for AMD's Griffin notebook platform, as well as numerous other system power design wins in notebooks.

In the desktop and server space, we sampled pilot quantities of our highly efficient core solutions to support Intel's VR11.1 platforms. We extended our very successful VR11 family of controllers, with the addition of innovative light load circuitry to deliver the most efficient and cost effective PC Power Solutions. In fact, we have been recognized by our customers as having the greenest power management ICs and the first solution that is fully compliant with Intel's VR11.1 specifications. Our family of VR11.1 controllers is scheduled to release in the first quarter to support Intel's ramp of the (inaudible) desktop platform in the second quarter of 2008.

Our dual PWM controllers for AMD's AM2 Plus desktop and server processors began production ramp in the fourth quarter. This highly integrated solution provides power for both the CPU and Northbridge. The CPU can be powered with up to four phases, while the Northbridge IC is powered by an independent fifth phase.

During the fourth quarter, we were able to leverage our success in the computing space into game consoles. Using a derivative other than existing core regulator, we secured a major power management design win, giving us a key entry into the exciting gaming market.

In summary, 2007 was a very strong year for Intersil in computing, driven by particularly strong gains in notebooks. Annual revenue increased 12% year-over-year, making this Intersil's fastest growing market segment. We expect to see continued growth in 2008, resulting from important additions to our broad product portfolio. Looking ahead to Q1, we expect our revenue in the computing market to be down moderately due to normal seasonality of the worldwide computing business.

Moving now to the industrial market. Revenue into the industrial market represented approximately 22% of fourth quarter revenue. On an absolute dollar basis, revenue into industrial market increased 2% year-over-year and increased 1% sequentially as expected.

In Q4, we experienced seasonal softness for several of our products in the industrial market. However, some product families, including Interface, bucked the seasonal trend and grew. We continue to add to our Interface product portfolio with the introduction of the 3.3 volt RS45 family of transmitters. This family of transmitters offers best in class ESD protection, a very important feature in harsh industrial applications. These transmitters also consume very little power supply current, another important feature in power critical applications.

In the fourth quarter, we released military and high reliability analog solutions that offer the latest technologies through a cost effective Vendor Item Drawing or VID program. These products include a high performance video distribution amplifier that targets the demand of field-deployed video equipment such as unmanned aircraft. Products released through the VID program, offer extended operating temperature ranges, enhance traceability and reliability and are used in a broad range of harsh environment and high reliability applications.

During Q4, we saw a double-digit sequential growth in our video ICs. We secured a high volume design win with our TMDS timing generator and multiplexer for HDMI and DVI video applications. This is currently the only single chip solution in the marketplace that performs both retaining and input switching functions. Our TMDS chips dramatically improve signal quality and significantly decrease output jitter. These chips are very competitive solutions for A/V receivers, set-top boxes, DVD players and recorders and many other consumer video applications.

During the quarter, we also debuted a new family of single supply video multiplexers, to deliver increased design flexibility and cost savings for high-end applications. These multiplexes eliminate the need for a negative power supply rail, allowing designers to simplify the design of consumer products such as projectors, broadcast TV equipment and HDTVs.

Also in the fourth quarter, we released the industry's first high-voltage linear regulators in a small DFM package. The tiny footprint of these chips saves [PCD] space, and reduces placement costs for telecom applications.

Another highlight of Q4 was our successful integration of Planet ATE. During the quarter, the business grew nicely and achieved record net revenues. We continued to expand our business in this market and we see excellent outside potential for our ATE business over the long-term.

Looking ahead to Q1, we expect the industrial market segment to be down moderately due to uneven timing of customer orders in the military market and due to decline in some legacy products.

And finally, moving to the communications market. Revenues in the communications market represented 19% of fourth quarter revenue. On an absolute dollar basis, revenues into the communications market decreased 8% year-over-year and 1% sequentially as expected due to seasonality. However we did experience solid growth in several product families, including DC/DC controllers, integrated FET switching regulators and high reliability ICs. Our new product introductions were strong during in Q4. We released Intersil's first family of quad-output controllers during the quarter. These ICs are highly integrated power solutions for a variety of communications applications, such as cable and satellite set-top boxes, cable modems and VoIP gateways. Additionally, a series of high performance triple-output PWM controllers were designed into next generation DSL modems at several major customers.

Intersil announced a development program early in 2007 that will allow us to further penetrate the space market. A radhard products for the space market, advanced power management solutions, several generations over currently available radhard products. The leading product in this program is a programmable dual-PWM controller with integrated FETs. This product has been met with very strong customer interest and first samples were delivered during the fourth quarter.

We continue our strong design win momentum for the family of integrated FET regulators. A recently released 2-amp step-down regulator supports a wide range input range of 4.5 volts to 25 volts. This growing family of regulators is ideal for many general purpose applications, such as point-of-load regulators, telecom power supplies and battery powered systems.

We are pleased with our growing design win momentum in both the industrial and communications infrastructure markets. Several major design wins were secured in Q4 and we expect to see significant revenue gains resulting from these and prior design wins in 2008.

During the last year, we invested heavily into existing and several new product families in an effort to grow the size of our general purpose products business. Because of these investments, we expect 2008 will be a year of solid growth in both the communications and industrial markets.

Looking ahead to Q1, we expect the communications market to be up moderately. I'd now like to turn the call back over to Rich.

Rich Beyer

Thanks Dave. Now let's turn to our outlook for the first quarter of 2008. In Q1, we expect to experience seasonal impact on our computing and consumer businesses. As a result, we anticipate Intersil's revenues to be down 3% to 6% sequentially from the fourth quarter. We expect GAAP earnings per diluted share of approximately $0.29 to $0.30 and non-GAAP earnings per share of approximately $0.35 to $0.36. I'd like to point out that this revenue guidance represents an approximate 20% increase in Q1 of 2008 versus Q1 of 2007.

Before we open it up for questions, I would like to summarize with these key points. Our long term growth story remains very solid. We are optimistic about the long-term growth opportunities and expect solid growth across numerous product families; in handhelds, displays, optical storage, notebooks, video, industrial systems and communications infrastructure. Despite a challenging market environment in 2007 for Intersil and the industry, we saw a record 2007 sales of $757 million, a 2% increase from 2006, and non-GAAP earnings per diluted share grew 8% over 2006.

In addition to our financial achievements, Intersil has been recognized by many as an elite high-performance analog company. We have created a high performance culture and a great place to work. Over the past several months, we have been recognized by numerous community organizations and publications as the top employer of choice. Additionally, Forbes Magazine named Intersil to its list of 200 best small companies, confirming that Intersil is one of the most successful organizations in our industry.

We also achieved significant operational milestones during the year. We expanded Intersil's portfolio of high performance analog product lines, both with the acquisition of Planet ATE, a fabless semiconductor supplier to the automated test equipment market and through our internal development efforts. We also opened a new design center in Hyderabad, India. The new design center will help us to accelerate our new products into the market and support expansion of our footprint in the Asia-Pacific region.

In summary, we have remained focused on developing and introducing industry leading products, growing revenues faster than the analog sector and growing earnings faster than our revenues. We continue to balance our product portfolio with high growth, highly differentiated application specific products, and high quality, high margin general purpose products.

With that Dave Bell, Dave Zinsner and I will be happy to answer questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Ross Seymore with Deutsche Bank. Please proceed.

Ross Seymore - Deutsche Bank

Thanks guys. Nice quarter. Two questions, the first one is on gross margin. It was up despite the mix being bit of a headwind in the fourth quarter, so if you could just comment a little bit on what was going on there and then maybe I missed Dave what you expect the first quarter gross margin to be?

Rich Beyer

Okay Ross, this is Rich. We expanded gross margin in the fourth quarter on the back of several things. One, we have got continued improvement in the amount of gross of general purpose products. Secondly, we are continuing to drive operational performance through improved things like yields and our costs. And thirdly, we are benefitting from some shifts even within some application specific markets. VDSL supplanting, ADSL at higher margins, RS-45 taking on a greater share of interface products, DVD, Blu and HD taking on more of the share of our revenue from DVD Rad. So those three things helped us to improve in Q4.

Dave Zinsner

And then for the first quarter Ross, this is Dave. I'd really expect it to be a similar story, we are expecting margin expansion again in the first quarter from the reasons that Rich has stated.

Ross Seymore - Deutsche Bank

Okay. And then one follow-up on more on the revenue lines? Could you guys just talk about what you are seeing in the current environment, seasonal versus any sort of macro change and maybe by segment? Which are your segments of the four, do you expect to be the fastest growing and the slowest growing for 2008 as a whole?

Dave Bell

Well. This is Dave Bell. We are not making any projections for 2008 as a whole at this point. But obviously as we mentioned, our business tends to be seasonal in the second half of the year, strength in computing and consumer. Those are not going to be strong in the first half of the year. But we do expect to see some resumption and some strength in the communications business in the first quarter as I mentioned in my prepared remarks.

Ross Seymore - Deutsche Bank

Okay. Thank you.

Dave Bell

You're welcome.

Operator

Your next question comes from the line of Craig Ellis with Citigroup. Please proceed,

Craig Ellis - Citigroup

I'll start with a follow-up on gross margins. Richard or Dave Zinsner, can you talk about how much company specific help you have left to drive gross margins higher as we think about the full year, and that will be the first question?

Rich Beyer

Craig, clearly we've got these product transitions that are going to help expand gross margins and we do expect that our general purpose products will continue to grow steadily throughout the course of the year and obviously the general purpose products, as we know from some of our peers who have heavy concentration in those areas are higher gross margin. So we think that gives us confidence that we can get back up into our model, which as you know is 58% to 62% and continue to operate at or above that model as we progress through the year.

Craig Ellis - Citigroup

Do you think there is enough momentum that gross margins can improve as you go through the year sequentially?

Rich Beyer

The margins are of course influenced by the mix of the four markets that we have. So we are hesitant to say categorically quarter-on-quarter we are going to get absolutely steady equal kind of growth in gross margins. But we do believe that we will be able to grow the gross margins this quarter, and we do believe that we're going to continue to operate above the model throughout the course of the year.

Craig Ellis - Citigroup

Okay. That's helpful. And then the second question is on operating expense intensity, obviously the company is really adding talent, so that they can grow the business towards longer term goals. How should we think about the intensity with which you'd like to add to your R&D resources this year and any additional sales staff this year?

Dave Zinsner

I think our goal is to keep R&D as a percent of sales at or above the 60% level that we've been striving towards and it did obviously dip down in the back half of the year, mainly because sales grew so effectively. But we expect to get kind of back into that range in the first quarter. Well I said we would increase R&D by about $1 million in the first quarter and that should get us pretty close to the 60% level, and that our goal is really to kind of maintain that level so as sales move, so should R&D and we will obviously be proactive in how we manage that based on the way we think sales are going to grow.

On the SG&A side I think it will be down in the first quarter, so it should be down about $1 million, that should be some leverage for us. And our goal for SG&A is to continue to gain leverage throughout the year. Rich talked about operating margins and it might be a challenge to really predict whether it will expand every quarter, but I think we can say that we feel pretty confident that through the year we should be able to see some operating margin expansion all the way through the year sequentially. So, that's a good story for us.

Craig Ellis - Citigroup

Okay. And then lastly two product questions. The first is can you talk about where you think your share will shake out with Montevina vis-à-vis Santa Rosa and then secondly can you give us any contacts for how much dollar content you think you picked up on the gaming platform that you mentioned?

Dave Bell

Sure. This is Dave Bell. Well, lot of our strength in computing, as I mentioned, was due to our market share gains in the notebook space during 2007. We currently have what we believe is a market leading position in Core Power, in the current notebook solutions, in the Santa Rosa solutions, and we expect that that market share is going to be similar in Montevina solution. So we feel very comfortable with our position there and at least at this point, we think we are going to have a similar market leading position in power in the Montevina Solutions.

Craig Ellis - Citigroup

And then dollar content in the gaming platform you mentioned.

Dave Bell

We are not prepared to make any specific comments about it. One of the good things is that the requirements for processor power and things in gaming consoles looks a whole lot like a high performance desktop computer today. So not surprisingly we think there are opportunities for us to leverage some of the DC/DC converter expertise that we've developed for desktop and even notebook PCs and apply that to the gaming market. And we're just beginning to do that.

As I mentioned we do have one, what we consider, a very significant design win, not prepared to give any specifics on the dollars there. But we think it is going to be quite significant during 2008. And equally important, I think there is going to be other opportunities with some of the other major gaming companies as we exploit our expertise in power.

Craig Ellis - Citigroup

Thanks for the help guys.

Operator

The next question comes from the line of Romit Shah with Lehman Brothers. Please proceed.

Romit Shah - Lehman Brothers

Great. Thanks for taking my question. Just on the guidance. Yeah, I guess similar to some of our larger peers, TI and many of your guys are conducting, more or less a seasonal Q1. But I did notice that you are assuming higher turn rates for Q1, can you just go through that for us. Is that typical for Q1, given it's not as front-end loaded of a quarter, or is there something unique with lead times going on that specific to the share?

Dave Zinsner

Well Romit, to be clear, my guidance was mid-30% turns rate for the third quarter. That is up from the fourth quarter, but actually low relative to our history. Normally, our turns percentage is somewhere in the 40% to 45% range. So it's actually below what we historically do. And the reason is that backlog was been placed really in the third quarter to start with and then again in the fourth quarter with a little bit more lead time particularly in the computing and consumer area. So that's the phenomena going on.

Romit Shah - Lehman Brothers

Okay. And then could you just help us think about your visibility beyond Chinese New Year?

Rich Beyer

Romit, this is Rich. We have got, as you can tell from the discussion of the turns required, we have got pretty healthy backlog that carries us through February and into March and that backlog as well as the forecast that we have got, we have build up our internal projections based upon very granular information from our customers across all the markets. And so I'd say we have reasonable insight into what's going to transpire over the next couple of months.

Romit Shah - Lehman Brothers

Okay. Great. And if I could just lastly, would you mind just elaborating more on what you are seeing in the industrial space, it's typically a business that's fairly strong in Q1, but it sounds like there is an issue in the military segment for Q1? Are you seeing reasonable growth outside of that segment?

Rich Beyer

We are. Military tends for us to be lumpy, it's a very healthy business, very profitable business, but lumpy. And so we expect some of that military business to be down. The other parts of industrial look like they are in good shape and should be up.

Dave Zinsner

Yeah Romit, this is Dave. One thing I would like to emphasize again as we continue to invest very heavily in our general purpose products business. Many of those products are in with the industrial and communications infrastructure markets. [And only] downside others markets is that it takes a long time to secure design wins or for design wins to actually go into production. But a lot of investments that we have been making in recent years and will continue to make are going to bear themselves out in really nice steady, strong growth in the industrial business.

Romit Shah - Lehman Brothers

Great. Thanks a lot.

Dave Zinsner

Welcome.

Operator

Your next question comes from the line of Tore Svanberg with Thomas Weisel Partners. Please proceed.

Tore Svanberg - Thomas Weisel Partners

Yeah thank you. Good afternoon. First of all there was a lot of dynamics in the notebook market in Q4. There were talks about shortages and then maybe demanding better in Q1. Could you just give us your story of what happened in the notebook market these last couple of months?

Rich Beyer

Well, simple answer is there were an awful lot of notebooks that were produced and shipped in the quarter. Notebooks are becoming the most important segment of the computing space. As we had indicated, have developed a very strong position with Santa Rosa. We did see a sizeable up-tick in demand for our products. We have more content in Santa Rosa platforms than we did in the previous Napa platform and we also saw, as Dave indicated earlier, what appears to be a healthy increase in our market share. And so our lead times stretched out. We did have to work very diligently with our customers to ensure that we provided them with the necessary parts to keep them under production. But as you can tell from the results that we have had in our computing space, the quarter was a very, very healthy business for us and we believe that the notebook business is going to continue to be a very healthy growth engine from the standpoint of notebook systems in 2008 and we also think it is going to be a very healthy driver for Intersil as we continue to be successful at Santa Rosa and all indications are that we're going to continue to be quite successful with the Montevina platform as well.

Tore Svanberg - Thomas Weisel Partners

And on the notebook again, obviously last year you took some pretty substantial share. Should we expect Intersil to continue to gain some share this year?

Rich Beyer

Well, all we can say is that we continue to be well positioned in the Santa Rosa platform for the remainder events [life] and the design wins that we've had would suggest that we're going continue to be quite successful in Montevina as well. Dave said we believe we have become the leading supplier of power management in to the notebook space. We think this year certainly looks like it's shaping up for us to continue that leadership position.

Tore Svanberg - Thomas Weisel Partners

Okay very well then. And not to pick on anything, but the communications business was the only one that was down in '07. Was there some end-of-life type products there and that's why you feel much better about that business going forward?

Rich Beyer

Our DSL was a little weaker through this year than it's typical, but we think that we saw encouraging signs for the first quarter, so we think that's going to be up in the first quarter and we think it will be a solid year for DSL with a ramping of DDSL. And then we were a little lumpy this year in our radiation-hardened products. There was little bit of fall-off I think it was in the third quarter related to our switch relay satellite products and that's catching back up again and so we are expecting a healthy 2008 for that as well. So all in all we believe communications will be very solid the next year.

Tore Svanberg - Thomas Weisel Partners

Great. Thank you very much.

Operator

Your next question comes from the line of Sumit Dhanda with Banc of America Securities.

Sumit Dhanda - Banc of America Securities

Hi guys, a couple of quick questions. First, you noted that your share position is stronger with Montevina versus Santa Rosa. Anything on the dollar content on the new Montevina platform versus Santa Rosa that's notable in terms of silicon dollars you can address like a big jump you saw from Napa to Santa Rosa?

Dave Bell

Yeah Sumit. This is Dave Bell. We think that the dollar content is going to be roughly the same from Santa Rosa to Montevina. As you may recall on some of the discussions we've had in prior quarters, there was an uptick in dollar content from the Napa platform to Santa Rosa, which is what's been driving our second half growth. But I think its going to be roughly similar dollar content in the Montevina platform. But I think one good thing overall that continues to happen and that is as notebooks become more and more powerful, I think in general there is going to be a gradual increase in the number of high performance analog opportunities long-term. But again pretty much the same I think between Santa Rosa and Montevina.

Sumit Dhanda - Banc of America Securities

Okay. And then Dave I don't know if you address this directly or no, can you give us a sense of where your transition is within the optical storage segment from Rad to Blue-Ray in terms of the dollars you are pulling from the later category?

Dave Bell

Well we certainly have a lot more dollars in a Blue Drives, and in fact one thing that looks like probably all [ADAS] as well is that the battle between HD-DVD and Blue-Ray looks like its been won by Blue-Ray. And although we are kind of agnostic our parts can go into either. Our customer relationships tend to be a little bit stronger on the Blue-Ray side. So I think that, that looks like that's going to benefit us there, and probably will help accelerate some of the growth in our blue laser diode drive products and some other ICs that go into those drives. Clearly if look at the ASP on a red laser diode driver, a sub dollar today, kind of been commoditized over time. The blue LDD products today are north of $2. So a big, big difference in the amount of dollar content there. On top of that we have our power monitor IC that I mentioned earlier as well and there are opportunities for one or two of those in Blue-Ray and all the blue drives in fact. So, significantly higher dollar content possibilities that we have in the blue products.

Unidentified Analyst

I guess my question also was, can you us a sense of what your revenue from Blue-Ray is at this point, is it still sub $5 million on a quarterly basis or are you approaching that point yet?

Dave Zinsner

We are not prepared to give you specifics, but what I will say is, that during the last quarter or two of 2007 at least what I would call significant level, is just to trickle before that. I think it will be a fairly significant number as the ramp continues to go in 2008. It's obviously millions of dollar, but I am not prepared to give you the specific number.

Unidentified Analyst

Okay. Thank you very much.

Operator

And your next comes from the line of Uche Orji with UBS New York.

Uche Orji - UBS

Can you hear me?

Dave Zinsner

Yes.

Uche Orji - UBS

Right. Just pulling on the Blue-Ray question that Sumit was asking. Can you just help me understand your competitive positioning within the blue laser market, in terms of how much of the design wins so far you have and possibly how you see yourself against further competitors and what you supply?

Rich Beyer

This is Rich. We have had a very strong position in optical storage since the earliest days of this media, and we had 60% to 70% share of the laser diode driver markets in DVD Red and we believe that very strong position continues. There are competitors obviously who continue to operate in this market place, but Intersil has very, very deep relationships with all the customers in this marketplace and we work very closely with them to help the evolution which has been very speedy moving from 1x drives, 2x drives, 4x drives and so forth. So, we think that in Blue and HD combined, we will continue to have a strong leading market share position that we have had in CD burners years ago and throughout the life of DVD Red drives.

Uche Orji - UBS

Right. In your guidance, can you just tell me how much terms business you are assuming in that guidance and also if you can just comment on how much times you have historically had at this time of the year? That will just helpful to understand what's going on within the guidance. Because listening to you, the $0.03 to $0.06 sounds like, the way kind of its meant to be described, it's a wider range. So can you just talk about terms business.

Rich Beyer

I have to guess, so it's roughly turns requirements roughly in the mid 30% range to achieve the midpoint of the guidance. And that's historically at lower levels, we typically do about 40% to 45% turns, but lead times are stretched a little bit in the computing space. So, we are coming in with a little bit more backlog in those areas, and so that's what's driving the turn’s requirement [if you will].

Uche Orji - UBS

Let me just put on the computing space, I think this is one area where there was so much speculation as to how much double altering or not there was in that market. Now based on what you know now and looking at both the inventory comments you made earlier, what is your sense as to the level of ordering within this, whether there's double ordering or not, and how much of this is real?

Rich Beyer

We saw the orders jump up because real demand jumped up for our products, for a whole series of reasons that we've talked about. Increased market share in the notebook space, a very strong position in handhelds, and LCD displays etcetera. So that was the first stimulus and the second stimulus is, that we did in fact move lead times out, and those lead times have stabilized, they are still out in the 11, 12 week timeframe for selected products in computing and consumer. But we have not seen any disproportionate or unusual cancellations or push-outs from our customers and so we don't believe that there was anything abnormal going on in terms of the ordering pattern of customers out in the marketplace. The increase in orders perhaps were for the reasons that I just explained.

Uche Orji - UBS

Okay. And then just finally can you just tell me how much of your mix this quarter was a high performance or this was education specific quarter for general purpose?

Dave Zinsner

General purpose. Yeah general purpose was roughly 36% and [uptick] that is obviously about 64%.

Uche Orji - UBS

Great. Thank you very much.

Operator

Your next question comes from the line of Simona Jankowski with Goldman Sachs. Please proceed.

Simona Jankowski - Goldman Sachs

Yes hi. Just a couple of more questions on the notebook side. The first one is whether that business has now crossed over your motherboard business, and if not do you think its going to happen sometime in the firs half of this year. And then secondly, as you compete in the notebook market, are you noticing any meaningful difference in the pricing dynamics or new entrants relative to any guys who are competing for the [federal] or design wins about a year or a year and half ago?

Dave Bell

Simona, this is Dave Bell. We get asked that question quite frequently, what our comparison is between motherboard and notebooks, and so far we haven't given any real specific guidance there. What I will say and not surprisingly is that our notebook business has been growing rapidly than our desktop business, that's one of the one the key drivers of our business during the last year. So it's certainly gaining in the strength, but we haven't really offered any commentary on exactly how the two compare at this point.

As far as competition in the notebook space, one of the good things about the notebook space is that performance really does matter. So, I think that's an area where we continue to differentiate our products through their efficiency, and certainly battery life is really key in notebook computers, size is critical in notebooks as well. So I think that's an area, although obviously it attracts more and more competitors the bigger that market gets. We believe that we've been able to maintain our dominant market share position in the notebook power; because we are offering the best performing products and I don't see that aspect of that market really changing going forward.

Simona Jankowski - Goldman Sachs

As far as pricing goes, is that something that is noticeably different now versus a year ago?

Dave Bell

No, not really. There is always some ASP erosion and that happens with products that have been out there in the market place. But with every successive generation, you come out with new products and you kind of reset the current ones again. So the fact that Intel seems to be on a track of introducing new products roughly ones per year, most of those products new ICs and you get to kind of reset the ASP bar each time.

Simona Jankowski - Goldman Sachs

Okay. And then just clearly the notebook side of the business is very strong as is the end market. On the desktop side, the end market does seem to have slowed down I think partly because of the cannibalization by notebooks and some data points were pointing to some excess inventories of motherboards and particularly in Asia. Is that something you are seeing at all or do you think that's not happening?

Dave Bell

Well, to be honest, I really can't comment much on the supply chain beyond the manufacturers, whether or not there is any inventory. I think what we can say with confidence is that from our standpoint our, the inventory of our products, ask Intersil within our distribution channel and yet our customers we think is that they are actually quite at lean levels, so we don’t have any concerns over inventory at least over the part of the supply chain that we have visibility for.

Simona Jankowski - Goldman Sachs

Okay. So the comment you made about not seeing any kind of unusual level of push-outs or cancellations in PCs that applies specifically to motherboards as well, not just to notebooks.

Dave Bell

No, we'd say that applies in general to our PC business, notebooks and motherboards, yes.

Simona Jankowski - Goldman Sachs

Okay. And then just lastly. I know that your are spending a little bit more in CapEx this quarter to expand your wafer [search] at your foundry partner. Do you expect that you're going to be catching up with demand in the first quarter and alleviating some of your supply constraints or do you think this may lead in to the second quarter?

Rich Beyer

We have in fact caught up to demand in a part of the product family that's lead time pushed out on and we do anticipate that we should catch up on the remaining parts by the end of this quarter.

Simona Jankowski - Goldman Sachs

Okay, thanks very much.

Rich Beyer

Thank you Simona.

Operator

Your next question comes from the line of Cody Acree with Stifel Nicolaus. Please proceed.

Cody Acree - Stifel Nicolaus

Hey guys. A mere follow-up to a few of those prior questions on, on the order trends. Rich, given the economic view and seasonally where we said, would you outside of just an unusually strong period of demand, would you've normally seen those cancellations by this point in the quarter if we were going to see any?

Rich Beyer

Yes. We would have seen cancellations. If there was not anything unusual happening, it would have started probably the second, certainly the thirdly can in January and we haven’t seen anything unusual.

Cody Acree - Stifel Nicolaus

Okay. Great and --

Rich Beyer

We might have even seen some in normal; yes we might have even seen some at the end of December towards the end of December. And again the comment about no unusual pushups or cancellation is a commented that encompasses the fourth quarter as well as the January quarter to-date.

Cody Acree - Stifel Nicolaus

Great, great. It's very helpful. Your prepared remarks, your broader kind of macro economic uncertainty, to what extent did that have that color to your first quarter guidance?

Rich Beyer

We obviously are not oblivious to the fact that there are concerns in the marketplace about the overall growth in the US economy and the implications that might have on commercial capital investments as well as on consumer confidents and consumer buying. So we don't see any evidence besides normal seasonality, but obviously we have taken that into account as we've built up our all internal forecast and developed the guidance that we provided today.

Cody Acree - Stifel Nicolaus

Great. And then maybe Rich on some of the new products that you were talking during your prepared remarks especially in the high reliability product, seems to be a large focus in some of the new designs. Is that the area that you'd expect to begin generating significantly larger revenue in '08 and maybe you can talk maybe about what the market opportunity is there in '08 and '09.

Dave Bell

Yeah Cody, this is Dave Bell. Are you referring in particular to the high reliability, the Rad-Hard product area?

Cody Acree - Stifel Nicolaus

Yeah, you just talked more about the high reliability I think in your prepared markets and may be we've seen in the past. So, are you looking more for an opportunity in those markets?

Dave Bell

Well absolutely. And that’s an area that we are investing in, and as we've mentioned it is kind of a lumpy business and that did affect a little bit of our Q4 in the communications area. That said though, it's an area that is very profitable, it's been a very good business of Intersil for many, many years, and we are actually increasing our investment in to that area.

One product that I mentioned in my prepared remarks was a new Dual DC to DC controller product that actually is something that we've leveraged from some of our computing power business, and have develop a process that is radiation hardened and actually allows us to offer fairly modern products in to Rad-Hard market place. And I don’t know how familiar you are with that but typically, products like satellites are made with integrated circuits that are decades old. They are very old generation products and are not very dense and not very high performance. So, the fact that we are able to offer, basically latest generation products that are radiation hardened in the market; we are really excited about that prospect and we think that that’s going to drive some really significant sales force in the years to come.

Cody Acree - Stifel Nicolaus

Dave, [they] not only expect share there shifts there pretty slowly though, design wins come in frequently, so what does the curve I guess look like?

Dave Bell

Well, you are right. The design wins take a long time to go into production, but if you look at the forecast, I don’t have it in front of me, but I know that we keep track of what the world wide satellite bills look like and it tends to kind of come in cycles. And, as I recall, not surprising, we've got another cycle that’s going to be coming along. And we think we are very well positioned to sell our increasing portfolio Rad-Hard products into those new waves of satellites that are going to be going up.

Cody Acree - Stifel Nicolaus

Great. Alright guys. Very helpful, thank you.

Dave Bell

You're welcome.

Operator

Your next question comes from the line of David Wu with Global Crown Capital. Please proceed.

David Wu - Global Crown Capital

Well, good afternoon. I just want some clarification please. On your notebook momentum, at this point I remember the old days the desktop was significantly bigger than the notebooks. Are we now neck-to-neck in terms of the revenue split between these two segments? And regarding the high performance consumer, as I recall the optical storage was a very, very high margin business, and I was wondering as you transition, how fast is this transition from the Red to Blue Laser Diode Driver going to happen and is the break on the revenue contribution between handheld, LCD and optical roughly one-third each?

Rich Beyer

David, you've certainly given enough questions to answer in one breath. So the notebook-desktop split is something we don’t share, as all of our listeners know, we do not break down the individual product families. We have well in excess of 40 product families and we don't break them down. So we only talk at the level of the four markets. I'd only reiterate the desktop business is healthy, but not growing that fast, the notebook business is healthy and growing quite rapidly, but we don't breakdown.

David Wu - Global Crown Capital

How about relative to industry mix between desktop and notebooks?

Rich Beyer

Come again. I am sorry?

David Wu - Global Crown Capital

You know the industry I think at this point; the PC there is still more desktop being sold every year than notebooks. So I was thinking whether your mix in that management side reflects the total global industry.

Rich Beyer

David if I answer that question, I'd be telling you what the mist is between our two. So that's a question we don't want to answer. So I'll move on to the next. Optical storage. The optical storage business is transitioning from the DVD Red to Blue. It began about a year ago with what Dave referred to, I think as a trickle of revenue. It has become more substantial in Q3 and it grew again in Q4, and we expect nice healthy growth in that business. This business from a margin perspective follows a pretty normal pattern. At the early stages of the technology, the margins are very healthy and overtime the prices erode, we bring our cost down, but overtime the margins do erode, and so DVD Red is not as high margin and DVD Blue and so as DVD Blue takes off, its one of the point that helps us with our gross margin expansion picture. And then the question of whether our consumer is - what's the split of between major markets? Again that's a subject that we don't touch on; we don't specifically give insight in to each of the major pieces of those four major end markets.

David Wu - Global Crown Capital

That's fine. If the transition continues we could lift overall gross margin of the high performance consumer area in calendar '08?

Rich Beyer

Well there are certain elements to what we are doing in that area that absolutely will help expand gross margins in the consumer business, and the notebook business as it becomes an increasing part of, as it has been coming on increasing part of the overall computing business of Intersil is also helping gross margin expansion and it will continue to do so.

David Wu - Global Crown Capital

Thank you.

Operator

Ladies and gentlemen at this time due to time constraints, please limit your question to one per person. Your next question comes from the line of Steve Smigie with Raymond James & Associates. Please proceed.

Steve Smigie - Raymond James & Associates

Great, thank you. Just wondering on the gaming side with a significant win you mentioned, just hoping you could talk a little bit about how that win came about, was it an issue of product transition at the game maker that allowed to get on or was the technology just good and you went in and displayed so many.

Dave Bell

Well this is Dave Bell. Obviously there are windows that open when new models are being designed at these gaming manufacturers, so we certainly took advantage of our new product design window opening there, but it also was as you implied leveraging some technology that we have in a computing space. I think we are recognized in the computing space both in the desktop and notebook area as being technology leaders, when it comes to DC-to-DC converters. And as I alluded to earlier, if you would tear open one of the modern gaming controllers, they look a whole lot like a high-end PC. In fact some of the complexity that chips in there and some of the some of the power and thermal problems are even more daunting then they are in a PC. So I think it makes it a natural for us. Frankly, we really haven't focused as much energy on the gaming customers in the past, but now we are recognizing that they really need the technology just as much as the PC guys and we are the guys that have the technology, we are starting to put some more energy into that area and this our first major design win, but I am pretty confident it won't be the last one either.

Steve Smigie - Raymond James & Associates

Thanks a lot.

Dave Bell

Welcome.

Operator

Your next question comes from the line Doug Freedman with AmTech Research. Please proceed.

Doug Freedman - AmTech Research

Hi guys thanks for taking my question. First off, you mentioned that you are going to have the extra week in Q2. Can you talk a little bit about how we should be planning for that, and if there is anyway that you plan to manage around that?

Dave Zinsner

It just represents an extra week of shipments. The weeks aren't linear so it doesn't necessarily mean you divide it by 13 and multiply by 14. But clearly we'll have more revenue in Q2 than we would normally have just based on having one extra week of shipment. On the flipside, we will actually have a little bit more operating expenses obviously because we will have to pay employees for an extra week, pay facility costs, few more development activity in that quarter. So you are going to have to use your own judgment on it Doug.

Doug Freedman - AmTech Research

All right. It's just that it is falling in summer quarter. A lot of guys take this around December. So we get that holiday thing going on. So I just wanted to do a little bit --

Dave Zinsner

Yeah, the reason we did it in the second quarter is we just mapped out with the Board of Directors calendar particularly well. So that's why we chose it.

Doug Freedman - AmTech Research

Okay. And then just really quickly distribution percentage of sales versus OEM, and also percentage of foundry wafers that you're buying?

Dave Zinsner

Okay. Distribution revenue represented 46% of sales in the fourth quarter and I am sorry, what was the second question, Doug?

Doug Freedman - AmTech Research

Percentage of foundry wafers?

Dave Zinsner

The percentage of revenue that came from external sources was 70% wafers.

Doug Freedman - AmTech Research

And then just one last one. If was to look at seasonality for the December quarter. I mean, we know you were supply constraint, started the quarter that way, even ended the quarter a little bit that way. How much business do you think you might have left on the table if I was to try to get a read on what your fourth quarter could have been, had you not been supply constraint?

Dave Bell

Doug, we're not even go to speculate on that question.

Doug Freedman - AmTech Research

All right. With that I will leave it there. Thanks, guys.

Dave Bell

Thanks.

Operator

Your next question comes from the line of Kevin Rottinghaus with Cleveland Research.

Kevin Rottinghaus - Cleveland Research

Have you worked with AMD previously in notebooks and could you give us an idea when you expect those design wins to ramp?

Rich Beyer

Kevin, this is Rich. Yeah, we have worked with AMD since the beginning of time. We have a strong position with Intel, but we have also had a very strong position with AMD. I will also say, we have a strong relationship with NVIDIA and we have a strong relationship with ATI and that ATI relationship has carried on quite well since it has become part of AMD. So, the relationship is not new at all, it’s a healthy relationship and we've had significant partnership with AMD now for quite a number of years. And the second part of your question is --

Kevin Rottinghaus - Cleveland Research

The new design wins that you talked about in the Griffin platform and are there any content differences there?

Dave Bell

I don’t think you overall makes it a whole lot different, Kevin. Obviously, the one particular socket that is specific to AMD would be the core power solution for the Griffin processor. But overall system power requirements and LCD backlight battery charge and so forth are indistinguishable from an Intel platform. But as I mentioned in my prepared remarks, we do have several key design wins in Griffin platform based notebook computer. So, we feel very confident with our position there as well.

Kevin Rottinghaus - Cleveland Research

Okay. And maybe I missed this, but did you say when you expect the gaming wins to ramp?

Dave Bell

They will be ramping during 2008. So in fact I think possibly even in the second quarter if I recall correctly.

Kevin Rottinghaus - Cleveland Research

Thank you.

Operator

Your next question comes from the line John Pitzer with Credit Suisse. Please proceed.

John Pitzer - Credit Suisse

Yes guys, thanks for taking my question. Two quick follow-ups. First can you just talk qualitatively about distribution inventory and what you're seeing there and then I have quick one after there?

Rich Beyer

The inventory John, as you know for us at our distribution channel has come down very, very steadily through the third quarter, and in the fourth quarter it went up minuscule. I mean very little. Alright. So it's still from our advantage point at a very lean level. And so that’s a data point which gives us the confidence that we did not see for Intersil parts, any kind of backup of inventories, either at our customers, ODMs, OEM or at our distribution channel. So, we think the supply chain is in healthy shape at the moment.

John Pitzer - Credit Suisse

And then a quick follow for Dave Bell. Dave, what happened from Napa to Santa Rosa to allow dollar content to go up and why isn’t that repeating at Montevina? Is there implication on competition, pricing or gross margin that dollar content is not going up?

Rich Beyer

Yes John, this is Rich. In the Napa platform, we had only three of the power parts that are used in a notebook, and in the Santa Rosa, we developed those parts for Santa Rosa as well as additional parts. So, there is the core regulator, there is a system regulator, there is a regulator for memory, with a battery charger. There is regulator for other peripheral devices on the motherboard and so forth. We could only serve three of those sockets in Napa, but the development efforts; we increased the development effort and investment in notebooks such that we then covered the motherboard of notebooks, if you will.

John Pitzer - Credit Suisse

Should we expect Montevina to be a higher gross margin platform for you guys?

Rich Beyer

Say again.

John Pitzer - Credit Suisse

Should we expect Montevina to be a higher gross margin platform for you guys?

Rich Beyer

I wouldn’t say that, no. We would have all the sockets again as we do in Santa Rosa. But it’s a competitive market, we don’t expect it even though the processor is more powerful, the notebooks are powerful; we will command significantly higher selling prices and gross margins.

Dave Bell

And one thing that I would point out, this Dave Bell again, is as time goes on, I think they just become more and more high performance analog sockets that open up within a notebook computer. So kind of independent of the exact generation. For instance, you're now starting to see notebooks emerge that have white LED power displays, one of the more recent ones announced by Apple for instance is a nice example of that. So I think you are going to see more opportunities there just kind of expanding our SAM. So long term, I think there is some possibility that we could continue to increase the number of parts within notebooks.

John Pitzer - Credit Suisse

Great, thanks guys.

Dave Bell

Welcome.

Operator

As a reminder ladies and gentlemen, please limit your questions to one per participant. Your next question comes from the line of Gus Richard with Piper Jaffray. Please proceed.

Gus Richard - Piper Jaffray

Good afternoon. Thanks for taking my question. I will try to get one in. In your strong growth in the PC market last year, how much of that was an increase in unit penetration and how much of that was an increase of dollars per box if you will?

Rich Beyer

Right, Gus. We know that we increased dollar content in the notebooks. I would say we didn't increase dollar content significantly in desktops. So we had strong growth as you can see from out prepared remarks, but I don't think we have it at our fingertips how much came from unit volume increase, how much came from content. But suffice it to say, in the notebooks, part of the growth came from share increase, part of it came from market growth, part of it came from increased content in a given notebook. In the desktop it was largely a function of continuing strong position in that market and continuing to grow with the market.

Gus Richard - Piper Jaffray

Okay. Thanks.

Operator

Your next question and the final question comes from the line of Shawn Webster with JPMorgan. Please proceed.

Shawn Webster - JPMorgan

Wow, thanks for squeezing me in. Can you tell us exactly what your lead times were? I think they have been in the 7 to 8 weeks range on average for the last couple of quarters, where are they standing now?

Dave Zinsner

Lead times on average are 6 to 8 weeks. So generally in line with what they were in the fourth quarter.

Shawn Webster - JPMorgan

Okay. And you expect them to comedown to like a normal 4 to 6 week lead time?

Dave Zinsner

Normally not about 6 weeks, so averages around 6 weeks in the second quarter.

Shawn Webster - JPMorgan

And also you expect that average by the time you get to the (inaudible)?

Dave Zinsner

Yeah.

Shawn Webster - JPMorgan

Okay. And then, when was the last time you had a 14-week quarter?

Dave Zinsner

Five or six years ago. Somewhere in that range.

Shawn Webster - JPMorgan

I guess, I was just wondering which quarter?

Dave Zinsner

You know what, I couldn't tell you. I think it was the second quarter, but I'm not sure.

Shawn Webster - JPMorgan

Okay. All right. Thank you very much.

Operator

At this time there are no further questions I will now turn the presentation back over to management for any closing remarks.

Rich Beyer

Okay. Thanks very much. I just want to close by saying that as a management team, we are very pleased with how our organization has been performing. For the third year in a row I would reiterate that we appear to have outgrown our major analog peer group. For the third year in a row we've achieved earnings per share a growth in excess of our revenue and we really do believe we are operating very, very successfully and I think we are going weather these macroeconomic uncertainties very, very effectively and we are looking forward to a very, very solid 2008. So thanks everybody and we'll see you at one of the future conferences. Good night.

Operator

Thank you for your participation in today's conference. This concludes this presentation. You may now disconnect. Everyone have a great day.

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: Intersil Corp Q4 2007 Earnings Call Transcript
This Transcript
All Transcripts