PMC-Sierra Inc. Q4 2007 Earnings Call Transcript

PMC-Sierra Inc. (PMCS)

Q4 2007 Earnings Call

January 24, 2008 5:30 pm ET

Executives

David Climie - VP of Marketing and Communications

Bob Bailey - Chairman and CEO

Mike Zellner - VP and CFO

Analysts

Jim Snyder - Goldman Sachs

Shawn Webster - JP Morgan

JJ Flores - Lehman Brothers

David Wu - Global Crown

Ruben Roy - Pacific Crest

Mark - Merrill Lynch

Sandy Harrison - Signal Hill

Cody Acree - Stifel Nicolaus

Eric Ghernati - Bank of America Securities

Presentation

Operator

Good day and welcome to PMC-Sierra's Fourth Quarter 2007 earnings release and conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Climie, VP Marketing and Communications. Please go ahead, sir.

David Climie

Thank you. Good afternoon, everyone, and thank you for attending our investor conference call. With us on the call today is Bob Bailey, Chairman and CEO and Mike Zellner, Vice President and CFO. Please note that our fourth quarter 2007 earnings release was disseminated today via business wire after market close, but a copy of the release can be downloaded from our website.

Before we begin, I would like to point out that during the course of this conference call, we'll be making forward-looking statements that involve a number of risks and uncertainties. These risks and uncertainties include but are not limited to product demand, inventory levels, pricing, exchange rates, taxation rates, and other risks detailed in the company's Securities and Exchange Commission filings. Actual results may differ materially from the company's projections.

For further information about these risks and uncertainties, please read the company's SEC filings including our Forms 10-K and 10-Q. If are asking a question during the Q&A session of today's call, we request that you limit yourself to one question and if would you like to ask a second question, simply re-queue with the operator.

Thank you and I'll now turn the call over to Mike Zellner.

Mike Zellner

Thanks Dave. I'll review our fourth quarter 2007 results and financial position, and then turn it over to Bob to discuss our business activity in detail. Q4 was another strong quarter for PMC-Sierra with revenues at a $123.6 million, representing an increase of $6.1 million or 5% versus Q3. This increase in revenue was primarily the result of improved activity in our storage and printer related businesses. Our “turns” business meaning: those orders booked and shipped within the same quarter was 21% of revenue in Q4 compared with 33% turns in Q3.

In Q4, our two largest customers, Cisco and EMC each exceeded 10% of overall revenue for the quarter. No other customer accounted for more than 10% of revenue. By region, Asia continued to generate the strongest results in the quarter with the geographic breakdown as follows: Asia 70%, North America 20%, Europe 10% and other geographies less than 1%.

On a non-GAAP basis, gross margins in Q4 were 65.3% versus 66.3% in Q3 due to product mix as sales of enterprise storage and printer related products were higher quarter-over-quarter. On a non-GAAP basis, operating expenses were up $2.2 million to $54.1 million in Q4 versus $51.9 million in Q3. Operating expenses increased primarily due to photomask and wafer costs with more tapeouts in the quarter. This is offset by the company's continued focus on controlling costs, including the restructuring announced in March and an additional smaller work force reduction that we began in December.

Breaking down operating expenses, non-GAAP R&D was $33.3 million in Q4 versus $31.8 million in Q3 and non-GAAP SG&A was $20.8 million in Q4 versus $20.1 million in Q3. Non-GAAP operating income, before other income and taxes in Q4 was $26.6 million, or 22% of sales which aligns with our targeted operating margin levels of 20% to 25%. Net-interest income of $2.9 million in Q4 was up slightly from Q3 due to our increased cash balance.

Our non-GAAP tax rate was 30% for the quarter as anticipated. Although it is difficult to predict the quarterly tax rate due to the impact of our FIN 48 position, we expect the tax rate will remain at approximately 30% for the first quarter. Non-GAAP profit after tax for Q4 was $20.1 million or $0.09 per share on a diluted basis. For detailed reconciliation between GAAP and non-GAAP results please see our press release issued today. Q4 GAAP loss per share was $0.02. The primary reconciling items for Q4 are as follows. Stock option expense or FAS 123R of $8.2 million, amortization of intangible assets of $9.8 million. Three FX movements in the quarter drove a net unrealized foreign exchange loss of $2.1 million relating to our foreign denominated FIN 48 liabilities and restructuring charges of $2.6 million.

On December 5th, of 2007 we began a minor restructuring that is expected to result in an additional workforce reduction of approximately 44 people or approximately 4% of the workforce.

The company estimates the total cost and charges associated with this restructuring will be approximately $3.7 million to $3.8 million, of which $3 million was expensed in Q4. These costs and charges include severance costs and asset impairments.

As you recall in March of 2007, we announced a corporate restructuring of approximately 175 people or 14% of a workforce. These costs and charges associated with this restructuring were estimated to be from $12 million to $14 million of which $12.3 million has been expense to date.

Turning to the balance sheet, we ended the quarter with $364.9 million of cash and cash equivalents. Free cash in cash equivalents, net of our $225 million convertible debt increased $36.9 to $139.9 million up from a $103 million in the prior quarter.

The primary reason for the increase in the company's net cash positions were as follows. Positive non-GAAP cash flow from operations in the fourth quarter of $30.8 million, which is the net of the $2.5 million for the semi-annual interest payment on our convertible debt and cash received from ESPP and stock option exercises of $11.8 million.

This is offset by $5.7 million associated with expenditures on capital and intellectual property. Accounts receivable decreased by $2.3 million to $39.1 million, which equates to 29 days sales outstanding based on quarterly sales volumes. Our net inventory at the end of Q4 was $34.2 million, an increase of $3.7 million from prior quarters. Net inventory turns on an annualized basis were 5, down slightly from the prior quarter's 5.2 turns.

I'll now turn the call over to Bob for his briefing.

Bob Bailey

Thanks Mike, PMC had a strong performance last quarter both financially and strategically. PMC's revenues improved 5% sequentially in the fourth quarter of 2007 following revenue increases of 8% in the third quarter, a 5% increase in the second quarter. Our book-to-bill was over one and our cash flow was the best it has been since the 2000 and design wins are very good, especially in storage and optical transport. We saw our bookings improve each month throughout the quarter. At this time we are not seeing any supply chain inventory issues. Inventory turns appear to be at model levels. There has a bit of inventory burn off occurring with OEMs in China but this is indicative of their ordering patterns, not in consumption.

This situation will dissipate by next quarter. During Q4 the company generated non-GAAP operating income before taxes of $28.9 million, this compares to only $10.1 million in the fourth quarter one year ago. Our year-over-year improvement is based on market share gains in the enterprise, storage, and telecom market segments, stable gross margins and expense reductions across the company.

The fourth quarter of this year, our non-GAAP operation margin was 23% of revenue. In addition our corporate diversification strategy served us well over the last year when we established our goals three and half years ago, we wanted to reach a 50-50 balance in terms of our enterprise and telecom related revenues by the end of 2007.

In the fourth quarter 2007, we achieved that balance based on both organic growth and our acquisitions. In the fourth quarter of 2007, our enterprise storage business picked up rapidly based on increasing Fibre Channel Controller and disk interconnect shipments as well as our SAS interconnect business beginning to ramp. We experienced strong bookings in enterprise storage in the quarter. During Q4 our telecom business was down slightly after a very strong Q3. Our microprocessor business experienced a solid pickup in activity in Q4 shipments into the mid-to-high end, laser printer customers increased during the period.

During Q4 we introduced several new key products including our Tachyon QE8 Fibre Channel Controller which enables a new class of network storage systems. Enterprise storage networks are transitioning the 8Gig per second to improve data access times made more challenging by data consolidation through virtualization and fixed content storage. Our Tachyon QE8 doubles the performance of existing solutions and adds numerous features such as PCI-Express Gen II, multiple outbound read requests and advanced serial link monitoring. The QE8 is firmware backwards compatible with PMC's 4 gigabit per second fibre channel products, allowing our storage customers to preserve years of software investments.

In Q4 we also announced the availability of a new multi-service fiber access gateway solution which has an integrated G.984 GPON interface. This new solution enables carriers to expand high def videos offerings to consumer through mass deployment of higher bandwidth applications, such as video picture sharing, peer-to-peer, and data storage. Our product the MSP-7160 integrates the functionality required for a GPON residential gateway with proven win in our operability. We had another good quarter of design wins in Q4 with significant wins across all the products areas.

In enterprise storage, we had another quarter of solid design wins with leading tier one storage customers. We locked down several key design wins with our QE8 Fibre Channel Controller and our Tachyon SPC 8x6G SAS Controller in winning new customers as it enables the first generation of SAS 2.0 enterprise-class tiered storage architectures.

Our storage team also achieved design wins with our SXP and SPS storage devices for the blade sever market. We also announced that Dot Hill had selected our SAS/SATA chipset solution for their mid-range and entry level modular enterprise storage platforms. Dot Hill platforms integrate PMC's SXP 24x3G SAS expander switch, our 36-port expander switch and our SPS intelligent SATA active/active multiplexer. Dot Hill also has won several key OEM deals with these platforms. Overall PMC has won the lion's share of the next generation SAS 2.0 Controller sockets from the past two quarters.

This will result in more market share gains and revenue growth from the future. Industry studies are indicating a positive trend and storage IT spending for Q1 '08 with sequential growth expected for our controllers as well as our disk interconnect and expander products.

Following industry wide adoption of SAS and SATA technology, tier one storage OEM's are introducing their enterprise-class storage platforms based on 3G SAS/SATA architecture using our embedded SAS expander disc interconnect switches.

We have a very strong and growing position in the enterprise storage market and we are working on completing a number of new products to be announced this year. That will expand our addressable market.

We expect the storage business to continue to grow for PMC this year. In the wireline communications market we saw activity pickup with our North American customers in Q4, while some of our China business slowed down after a very robust Q3 shipment levels. We are seeing network conversions and build-outs driving service provider requirements, and large contracts for metro optical transport and access equipment. We are seeing growth and demand for our access products as service providers expand their wireless networks around the world.

Our wireline team secured key designs wins in Asia in Q4 with our ARROW 2488 device as well as in Europe and Asia with our TEMUX 336 primarily to 3G wireless back haul platforms. We also achieved customer wins in India in Q4. We see this market as a growth opportunity over the next few years.

We are gaining market share in the wireline business and further strengthening our already enviable market position. PMC is closely aligning itself with leading OEMs who are well positioned with carriers who aggressively investing in their networks to enable the delivery of residential video services. Carriers, especially those in North America are finalizing RFPs for video ready network architectures leveraging upon in the access layer, and packet, and WDM [aware] transport and routing equipment in the metro. PMC-Sierra is well positioned for these network upgrade opportunities with leading edge solutions that have higher data throughput and lower power for our customers.

With regards to our highly integrated WiMAX RFIC, which we refer to as the WiZIRD chip, we have won several designs with new OEMs and have over a dozen evaluations in progress that will lead to more wins. WiZIRD is targeted at WiMAX based Femtocell base stations, Customer Premise Equipment, Mobile Base Station designs and laptop air cards, and its multi-band capability covers all licensed radio spectra worldwide. With the leading edge WiMAX RFIC solution, we are being approached by other suppliers to partner with them, to provide integrated solutions for this emerging market opportunity. We expect to ship several millions of dollars of this product in 2008.

In fiber-to-the-home we saw business in Q4 slightly down as some of our Japanese customers requested delivery in the Q1 timeframe to meet their one-year fiscal build-out targets at the end of March '08. As a result, our fiber-to-the-home backlog is very strong in Q1, we are expecting strong sequential growth in this area in the first quarter. Part of this growth is also being driven by the return of OLT orders in Japan. In Korea, we saw an improvement in the fourth quarter following a slow Q3. The Korean government is expected to complete its regulatory policy for IPTV for the middle of 2008 and the select IPTV service providers. So we are expecting the EPON FTT deployments in Korea to resume in the second half of the year.

With regards to the fiber-to-the-home in China, EPON has emerged as the technology of choice over GPON because of the stability, and proven inter operability of the EPON technology. We are well positioned with the two EPON leaders in the China market namely, Huawei and ZTE. At this time we are expecting strong revenue growth due to field trial deployments in China compared to last year. Fiber-to-the-home revenues in China could reach double digit millions in 2008.

In North America and Europe, we are engaged with several OEMs on GPON solutions. We have secured an important GPON design for the Korean customer this past quarter that will be deployed in Europe as well as Korea. We will be announcing additional GPON products in the first half of this year. We expect our fiber-to-the-home business to grow in 2008.

In our microprocessor business we experienced an increase in revenues during Q4 as several of our system on chip design wins in the laser printer market went into production. We also achieved new designs in the laser [NMFP] market with a number of our Japanese customers in the fourth quarter. We expect this business also to grow in 2008.

Now for the outlook, based on our backlog and bookings to-date as well as, expected levels of capital spending in the end markets that we serve, we expect PMC Sierra's revenues in the first quarter of 2008 to be flattish in the range of $120 million to $125million.

In terms of anticipated business activities. We are expecting our fiber-to-the-home EPON business to increase in Q1 as NTT completes it's fiscal year end and China EPON field trails continue to ramp. Our microprocessors are going into laser printers and enterprise networks and platforms are expected to increase in the first quarter compared to the fourth.

And enterprise storage is expected to grow as well. We expect our wireline communications to be lower in Q1 than in Q4, due primarily to our Chinese OEM's dissipating some inventory they ordered in the second half of 2007 and some softness in telecom in the rest of the world. But they are expected to resume ordering some time in Q2 based on consumption rates.

Overall we feel good about our progress. Market share gains, in new initiatives and profitability. We also see no evidence of a cutback in end consumption due to the possibility of a recession looming. PMC-Sierra is a globalized company.

In fact, the demand for PMC technologies to enable the upgrade of the global internet is strengthening. As the need of bandwidth and storage are increasing. As a result, we expect to grow our top line revenues in 2008 versus last year with comparable margins and expense levels.

We are in the best shape we have been in for years both financially and strategically. Thank you. I will now hand the call back over to Mike for more details on our outlook for the first quarter of this year.

Mike Zellner

Thanks, Bob. I will now provide more information about our Q1 2008 outlook.

[Judge judged] shipped and shippable backlog at the beginning of Q1 was approximately $95.5 million compared to $98 million at the beginning of Q4. As of today, judged backlog including shipped plus shippable is approximately $110 million. Based on this information, considering current levels of demand and general uncertainty to the booking rates throughout the quarter, we estimate that again potential revenue for PMC-Sierra for Q1 is in the range of $120 to $125 million. On a non-GAAP operating basis, we expect our overall gross margin percentage in Q1 to remain consistent with Q4. We expect non-GAAP Q1 operating expenses to be approximately $2 million to $3 million higher than Q4 levels, due primarily to higher costs from the reset of employee benefits at the beginning of the calendar year along with the impact of the weakening US dollar. These impacts are somewhat offset by reduced payroll costs, as a result of our restructuring in Q4 2007.

On a go forward basis, we are substantially hedged on our Canadian dollar expenses at roughly par out to Q4 2008. We expect non-GAAP net other income which is primarily net interest from our cash position to be approximately $2 million. As previously noted, we expect the tax rate will remain at approximately 30% due to our FIN 48 liability. As a reminder, effective tax rate can be impacted by a number of variables associated with our FIN 48 liabilities, including but not limited to a change in product mix and potential fault or partial resolution of the underlying tax matters.

Finally, we ended Q4 with a basic share count of 219 million and a diluted share count of 221 million. Our basis share count is expected to be between 219 million and 221 million in Q1, and our diluted share account is expected to be between 220 million and 222 million. For the first quarter 2008 we planned for the following significant GAAP to non-GAAP reconciling items. First amortization of purchased accounting costs associated with past business acquisitions and two, stock option expense as required under FAS 123R and three, CapEx gains over losses and interest on our FIN 48 liability. Additional [non-reoccurring] items associated with restructuring or other costs positive or negative are always possible. We can now open up the call to your questions.

David Climie

Operator please proceed with the questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from Mr. Jim Snyder from Goldman Sachs. Please go ahead.

Jim Snyder - Goldman Sachs

Hi, thanks very much. First of all on the wireline business in China specifically can you comment on the weakness that was seen there. Is it simply an inventory reduction or are there any kind of changes in the deployments organically that are happening over there?

Bob Bailey

Though it's our understating that they ordered a lot of product in the second half and we think in the conference call back in October described it that it would probably go down because that's just the way they do their order pattern, so we don't sign of any slow down in the end demand or deployment since it's mainly just how they do their ordering patterns.

Jim Snyder - Goldman Sachs

Perfect, and then on the PON market can you comment on the state of play of design wins that might be going on in for North America?

Mike Zellner

Yeah we are involved in a lot of evaluations. We have some GPON products that are basically coming out in the next few months. And so we are working with customers on those that are -- it's primarily for the Verizon network and so hopefully we will have some good news to tell you guys later in the year. Once we have the parts out and that's when we can hopefully get some design wins.

Jim Snyder - Goldman Sachs

Great and finally what do we expect in terms OpEx profile as it moves throughout the year?

Mike Zellner

Well again, we don't guide beyond the first quarter. But, I guess, the way I will answer your question is we are very, focused on maintaining our cost structure and it's our intent to leverage the structure that we have in place. But beyond that as I said, we don't guide beyond the Q1.

Jim Snyder - Goldman Sachs

Thanks very much.

Operator

Our next question comes from Shawn Webster and he is from JP Morgan. Please go ahead.

Shawn Webster - JP Morgan

Good afternoon. Thanks for taking my question. Can you talk about what your lead times did were they stable up, down in the quarter?

Bob Bailey

I think they are about the normal type lead times depending on the technology and the package type and the products. We tend to be any where between 8 and 14 weeks and so we on average, we are probably I am guessing 10 to 12 weeks.

Shawn Webster - JP Morgan

Okay because they had got in tied I think for a little bit there and they started pulling in last quarter. I just wasn't sure if there were at the same level or not. In terms of your segments can you tell us what the and I apologize if you said this earlier. What was your percent call for the communication segment of sales?

Bob Bailey

Well ,we didn't really break it out in with numerically.

Mike Zellner

We look at that geographically.

Shawn Webster - JP Morgan

Geographically.

Mike Zellner

Geographically yes, Asia was 70, North America was 20, Europe was 10 and rest of others were less than 1.

Shawn Webster - JP Morgan

Okay and any updates on the CEO search.

Operator

They said one question per person.

Shawn Webster - JP Morgan

Sorry about that.

Bob Bailey

Well, I'll answer that anyway. We have several good candidates there is a search ongoing and we are working diligently on that, but search committee I am speaking of which I am a part of, and have no news to announce beyond that.

Shawn Webster - JP Morgan

Okay, thank you.

Operator

Very much. And our next question comes from Romit Shah, and he is from Lehman Brothers. Please go ahead.

JJ Flores - Lehman Brothers

Hi, it's actually JJ Flores calling for Romit. Question about seasonality, Bob. Can you just talk about seasonality in your business segments and how your current outlook for the next three to six months measures up relative to what you consider to be normal seasonality?

Bob Bailey

You know, we are not really -- I would describe it as a muted seasonality, some people say well, telecom sometimes can be stronger in Q1 or enterprise. It's really not that. The only time that we typically see a weakness and we did not see it in 2007 is in the summer period. But nothing that you can reliably compare year-after-year because it's different depending on where we are economically.

JJ Flores - Lehman Brothers

And I have a follow-up, I think you mentioned that you expect the enterprise storage to be up again in Q1, but my understanding is enterprise storage is usually at least down seasonally in Q1 for the industry. Can you talk about what is affecting that? Are there any product cycles or anything else that we should be aware of?

Bob Bailey

Yeah, I think we have got all these design wins I have been talking about, for the last couple of years. Our ramping in the production and so we are gaining market share I believe. I am not sure whether or not the equipment market is growing or not in Q1, I mean, we read studies and things and talk to customers and we don't see any slow down by any chance. But we don't see that. But we are seeing a very strong backlog, it was our strongest book-to-bill last quarter of any product area.

JJ Flores - Lehman Brothers

Okay. Thank you.

Operator

Thank you. And our next question comes from Allan Mishan and he is from Oppenheimer & Co. Please go ahead.

Sam Dubinsky - Oppenheimer & Co

Hi, this is Sam Dubinsky, I am speaking for Allan Mishan. Just a couple of quick questions. Number one, what type of linearity do you expect from the Japanese market in the PON business and also what do you see, how is the comparative landscape shaping up next year for that market? And then I have a follow up.

Bob Bailey

Okay, the easy one first. Linearity for the Japanese PON which is, you win the award for the most specific question of the day, is I don't know. But they tend to be a little shorter in time than the rest of our business and we try to work with them on that, but I just don't know what the linearity is. And the other question I forgot.

Sam Dubinsky - Oppenheimer & Co

How does your competitiveness increase competition in Japan and just as a follow up to that one, you expect the Japanese market to grow this year for PON and I know it sort of had a very spotty track record?

Mike Zellner

Yeah, I think it will be flat to up and we have got these other markets that are growing faster on a smaller base. So, the overall of the market, the PON business, the fiber-to-the-home business is going to grow for us we believe. As far as competitive, we are in a very strong position. You never have, “no competition”, so we have always got somebody nipping at our heels but we are doing very well.

Sam Dubinsky - Oppenheimer & Co

Okay and then on the storage business. Could you maybe give some color on terms of how much SAS and 8Gig Fiber Channel is today? What you think you can grow to exiting the year and how big that business can be?

Bob Bailey

Well 8Gig is zero, because we just taped the chip out and but we have lots of design wins already based on the speck of the chip because people know we are deterministic in our deliveries and so that's good. SAS is growing as a percentage. It's still a small percentage overall but we are starting to see the first announcements from some of our customers in 3G SAS Generation. We expect to see some good growth and we are still seeing 4Gig Fiber Channel growing.

Sam Dubinsky - Oppenheimer & Co

Okay. Thank you.

Operator

Thank you. Our next question will come from David Wu and he is from Global Crown. Sorry.

David Wu - Global Crown

Hi good afternoon. Bob, how are you? Happy New Year.

Bob Bailey

Hi, David.

David Wu - Global Crown

And I am sorry I am too late. I had a previous conference call to listen to. I was wondering whether you given any guidance on the outlook for the fiber-to-the-home business, in the early part of the year? And the other thing I was thinking about is if everybody knows that there is some concern on the general economy, so far nobody seems to have seen it yet, and I was wondering since you sold into the printers and the enterprise market as well as to the storage market, if it should occur when do you normally see the sort of slow downs?

Bob Bailey

Okay, well, first thing on fiber-to-the-home, we are expecting very good growth in Q1 based on strong backlog. And we said earlier, China is now starting to ramp. China could triple for us in size and fiber-to-the-home year-over-year and be in double digit millions potentially. So, that's a good story there. As far as, I mean, I agree with everybody else. IOEs have known that are -- many recessions or recessions in the semiconductor industry are almost always inventory driven. So, we watch inventory like a hawk, not just for ourselves but importantly through our supply chain. We talk to our suppliers.

They have this different segments but for the most part they are in pretty good shape. Our inventory turns through the subcontractors, through the trading partners, through the distributors, are all of model levels. Whenever we had a big depth that was two, three quarter prolonged depth call it a mini industry recession, the inventory turns are horrible. So, we don't see any evidence for that. We don't see any evidence of network deployments being pushed out or slowed down for economic reasons. So, right now we are not seeing anything in the short-term and don't see any reason why it should present itself in the current year.

David Wu - Global Crown

Okay, well good, I hope its true but anyway thank you very much.

Bob Bailey

Great, thank you.

Operator

Thank you. Our next question comes from Ruben Roy and Ruben Roy comes from Pacific Crest. Please go ahead. Ruben your line is open.

Ruben Roy - Pacific Crest

Hi, sorry about that Bob, based on that last bit of commentary I was wondering if you kind of just further talk about the statements about uncertainty with bookings as you look out into Q1?

Bob Bailey

I am sorry, which comment is that?

Ruben Roy - Pacific Crest

When you are talking about the backlog I guess Mike was talking about the backlog being at $95.5 million and today at $110 million but there is some uncertainty with bookings I guess which lead you to the guidance of $120 million to $125 million just any specific areas that you are uncertain about, the way the bookings are going to work out in Q1?

Mike Zellner

Well I think it's just a standard comment in terms of there is no guarantee we are going to get these bookings so there is no specific event or phenomena that we're reciting. It's just until we get them you don't know if you are going to get them so that's really all that was -- trying to just remind people of that.

Ruben Roy - Pacific Crest

All right. Well, thank you. I might be reading a little too much into this is as well, but you talked about fiber-to-the-home in China and some trials happening and you mentioned today potentially getting to double digit millions in revenues for 2008 and I think previously you've talked about just potentially millions in revenues, anything changed there, to give you -- to make you a little more positive on the way the trials might end up rolling out into live roll outs in China?

Bob Bailey

Yes because we are seeing real. We shipped a millions of dollars to China in PON last year. We are seeing now very real demand, orders, negotiations, forecasts, et cetera that are -- it's just becoming more real.

Ruben Roy - Pacific Crest

Good enough. Thanks Bob.

Operator

Thank you. Our next question comes from Srini Pajjuri from Merrill Lynch. Please go ahead.

Mark - Merrill Lynch

Hi guys. This is actually Mark covering for Srini. I was just wondering if you could give a little bit more clarity on the lay offs, where, what group or what departments were those lay offs and how much in dollars do you expect to save?

Mike Zellner

There is not enough lot of details here on that today that I think we should go into. It's really more to give you a sense. We constantly are looking at our cost structure and as we talked before there are some pressures. They were some pressure in '08 versus '07 associated with things like the exchange rate and all of that. So it's just really trying to make sure that we maintain the profile of being able to leverage this cost structure that we did obtain early on the year in '07. So, it's really just staying close to the costs and looking at areas where we can, where we think, we can trim where that makes sense and doing that right. I don't think I will read more into it than that. It's just if you will making sure that we maintain that structure.

Bob Bailey

Yes, we have exited no product areas or anything like that.

Mark - Merrill Lynch

Okay, thanks.

Operator

Thank you. And our next question comes from Sandy Harrison from Signal Hill. Please go ahead.

Sandy Harrison - Signal Hill

Thanks. Good afternoon guys.

Mike Zellner

Good afternoon.

Sandy Harrison - Signal Hill

So Bob you have done a nice job kind of laying out where growth prospects are coming from, talking about some of the market opportunities that you have come out with some of your some new storage products as well as sort of laid out a picture from a PON perspective. So, without that information, if you could just help me a little bit by, may be ranking the things that are going to drive the revenues this year, with so much out there on your plate, may be the number one through number three, and then after that would it be fair to say that not only is pieces of pie growing but a lot of the customers that you are now working with, they are taking market share and that's helping you guys as well?

Bob Bailey

There may be some of that, but when you say ranking, I mean, there is market size and then there is growth rate, and I think in absolute dollars growth, it's probably going to be storage. Okay, as far as a percentage growth, that's easy, its is going to be WiMAX because it is starting from a base of zero. But the key point I am trying to make here is we've got multiple growth engines working for us simultaneously. Now they are all very sensitive to the timing of product ramps and deployments and capital budgets of customers and carriers, and enterprises. But the fact that we've got multiple of them working simultaneously, we feel pretty good about having delivering top line growth for the year.

Sandy Harrison - Signal Hill

And then just to make sure my calculator is working, and if you guys are walking in today with a $110 million in backlog with $120 million to $125 million target for the March quarter, is that fair to assume that you are really only looking for 10% or 11% turns business over the next two-and-a-half months in order to hit your numbers?

Bob Bailey

I think your calculator is functioning, yes.

Sandy Harrison - Signal Hill

Got you. Okay and just use kind of -- given the turns rates you have had the last two quarters that that just seems a little conservative, so just wanted to make sure. All right. Thanks guys.

Bob Bailey

Well I think, I'll just follow up on that Sandy. With some of the discussions with customers and forecasts, lead times et cetera. We thought it prudent to be a little bit more conservative on this quarter just based on a lot of factors like that.

Sandy Harrison - Signal Hill

Sure, okay. Thanks.

Operator

Our next question comes from Cody Acree and Cody is from Stifel Nicolaus. Please go ahead.

Cody Acree - Stifel Nicolaus

Hi. Thanks guys. And I apologize if this is a repeat, but you gave a very good detail on China, fiber-to-the-home and Japan. Could you give me any more detail on what you expect from Taiwan and Korea this year?

Mike Zellner

Well, Korea we are expecting to do some sizable fiber-to-the-home business. We are also engaged towards some key Korean OEMs with WiMAX and some of the optical transport and printer stuff. I don't have a number in front of me on what that is, but we think, I am pretty sure we are going to grow in that country. It is becoming more and more bigger percentage of our global business. Taiwan there is a lot of stuff going on, especially in storage, there is some stuff, I believe, going on in WiMAX that we doing there. And that is probably, this by other things too. That is just a [what we had]. I don't know what the percentage of our business is there.

Cody Acree - Stifel Nicolaus

Do you have any sense of Korea not just sequentially but maybe yes, we can work through the year?

Bob Bailey

No I don't have that.

Cody Acree - Stifel Nicolaus

Okay. May be lastly any other areas outside of Chinese wireline that may be you are looking at a little bit of inventory that may need to correct yet in Q1?

Bob Bailey

No, it's mainly our traditional wireline business. It's not solely China. But that's a big chunk of it.

Cody Acree - Stifel Nicolaus

Okay. Great, thanks guys.

Operator

Thank you. And our next question comes from Eric Ghernati and Eric is from Bank of America Securities. Please go ahead.

Eric Ghernati - Bank of America Securities

Hi. Well thanks for taking my question. I just wanted to clarify the seasonality in storage, even though you heard markets are down. The business that you required it's normally up according to statements from your CFO at that time. Is that true or not?

Bob Bailey

I don't understand you said it's what did you said was down?

Eric Ghernati - Bank of America Securities

Is the seasonality for your storage business, it's typically up even though the end market for storage is down?

Bob Bailey

Okay I don't if that's true or not. But I have just said that our storage business is going to be up pretty robustly in Q1.

Eric Ghernati - Bank of America Securities

Okay, because your CFO at the time when you acquired [Evargo] said that the seasonality for those products are up. So in other words, what you are seeing is not necessarily anything above seasonality. It's just normal seasonality. Is still the statement [true]?

Bob Bailey

No our book-to-bill was extraordinary. So it's beyond any seasonality.

Eric Ghernati - Bank of America Securities

Okay so if that's the case. Guidance being the way it is for the March quarter down sequentially at the mid point. So the weakness is just more pronounced in other segments or can you just?

Bob Bailey

We were saying the wireline is down.

Eric Ghernati - Bank of America Securities

I mean is it more announced than typical or?

Bob Bailey

Well you know it's just the way the numbers add up.

Eric Ghernati - Bank of America Securities

Okay. Thanks very much.

Operator

Thank you. We will have a follow up question from David Wu from Global Crown. Please go ahead.

David Wu - Global Crown

Bob, I just want to clarify this despite the strong ramp on your storage, is that a function of new design when I think you got, last time we had a analyst meeting, at that time, is that peak OEM ramping or is it that OEM, I remember its going to ramp at second half of this calendar year, so the current strength couldn't be that due to their particular design, major design win, right?

Bob Bailey

Are you referring to the server HP business?

David Wu - Global Crown

Yes, yes.

Bob Bailey

Yeah, no, that is zero.

David Wu - Global Crown

Okay, that's sort of second half of this year?

Bob Bailey

Right, that's correct.

David Wu - Global Crown

So the basically, the current strength is really based on the design wins you've been getting all year, last year?

Bob Bailey

Yes.

David Wu - Global Crown

Okay, the other thing I was curious about is, from your perspective, where is WiMAX adopted versus these 4G kind of wireless rollout?

Bob Bailey

Well.

David Wu - Global Crown

But why do customers choose WiMAX versus 4G?

Bob Bailey

Well, that's almost a seminar there but the --

David Wu - Global Crown

Okay.

Bob Bailey

But 4G is really not being deployed at all right now and WiMAX is in its infancy, I don't even know if you had call it an infant yet. It's very, very early. But what we're seeing is a lot of interest in the developing countries because, for example, first time I went to India. I noticed a lot of our people there were using these cellular air cards because the broadband infrastructure, the wireline broadband infrastructure really wasn't there yet, and while the throughput on those cards are not very good at all and once a 3G network is in -- what is it HS --

David Wu - Global Crown

HSDPA.

Bob Bailey

HSDPA that will improve it but WiMAX is far superior to that and so we are already seeing a lot of plans for. Korea has already said the whole of South Korea's going to be WiMAX covered, North America's kind of question mark, because Sprint kind of pulled back a little bit. But I think it will happen eventually but there is a lot of interest in countries to deploy this technology because it's cheap and you can quickly deploy it. But it's going to be one of those technologies that you will see a spurt of growth and none at all. It will be very lumpy it will go into the chasm so to speak and rest for a while and then it will take off again. But we think long-term this is going to be a very profound technology and we're hopping to get out for a share of that market.

David Wu - Global Crown

Thank you.

Bob Bailey

Thank you.

Operator

(Operator Instructions). There are no additional questions at this time, one moment we have a follow up question from Ruben Roy from Pacific Crest. Please go ahead.

Ruben Roy - Pacific Crest

Yes, hi. Thank you for taking the question, Bob you talked about potentially having some good news with respect to GPON going into Verizon and I think that Verizon just started shipping out some GPON equipment. What is the -- what needs to happen? What's the design cycle like? Do you have to displace somebody or are there other RFPs potentially that you can get involved with later on in this year and into that network?

Mike Zellner

Yes, and I warn it sounds like I am over promising here basically we have several engagements and I said hopefully we'll have some things that we'll close on those -- some of those opportunities. But there is -- it's very, very early. In fact, the amount of GPON deployment in the world is really if you rounded it out, it's zero. And so there are OEMs both on the subscriber side as well as CPE, as well as in the network side that are seeing the first generation products as being somewhat [cloggy]. And so the competition is always new competitors and we are one of them. That we want to leap frog that technology and come out with a better mouse trap and so there is always opportunities and people are in different phases of their product developments and there will be openings because it's very fluid right now. So that's where we hope to close. We already have closed on some in Europe and Asia and we hope to close on some in North America in the next year.

Ruben Roy - Pacific Crest

Thank you.

Operator

Thank you. (Operator Instructions). There are no additional questions at this. Please go ahead.

David Climie

Thank you operator. Thank you for attending our conference call today. We will be scheduling our first quarter 2008 earnings release for the second week of April and at that time. We will be reviewing our quarterly results on a conference call and providing our outlook for the second quarter of 2008.

So again, thank you for attending and that end today's call.

Operator

Ladies and gentleman, this concludes today's conference call. Please disconnect your lines and have a wonderful day.