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RF Micro Devices Inc. (NASDAQ:RFMD)

F3Q08 (Qtr End 12/29/2007) Earnings Call

January 31, 2008 5:00 pm ET

Executives

Doug Delieto - IR

Bob Bruggeworth - President and CEO

Dean Priddy - CFO and Corporate VP of Administration

Analysts

Ittai Kidron - Oppenheimer

John Lau - Jeffries & Company

Harsh Kumar - Morgan Keegan

Larissa Talisha - JPMorgan

Edward Snyder - Charter Equity Research

Mark McKechnie - American Technology Research

James Faucette - Pacific Crest

Brian Modoff - Deutsche Bank

Cody Acree - Stifel Nicolaus

Aaron Husock - Morgan Stanley

Suji De Silva - Kaufman Brothers

Operator

Ladies and gentlemen, thank you very much for standing-by and welcome to the RF Micro Devices fiscal 2008 third quarter results call. During today's presentation all parties will be in a listen-only mode. And following the presentation, the conference will be open for questions. As a reminder, this conference is being recorded Thursday, January 31 of 2008.

I would now like to turn the conference over to Doug DeLieto, Vice President of Investor Relations. Please go ahead, sir.

Doug Delieto

Thanks very much. Good afternoon everyone and welcome to our earnings call. At 4:00 clock today, we issued our earnings release. If anyone listening did not receive the copy, please contact Janet Jasmine at the Financial Relations Board at 212-827-3777. Janet will fax a copy to you, and verify that your name is on our distribution list. In the meantime, the release is also available on our website rfmd.com under Investor Info and on PRnewswire.com.

At this time, I want to remind our audience that this call includes forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts, and typically are identified by use of terms: such as, may, will, should, could, expect, plan, anticipate, believe, estimate, predict, potential, continue, and similar words, although some forward-looking statements are expressed differently.

You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events, and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements other than as is required under the federal securities laws.

RF Micro Devices business is subject to numerous risks and uncertainties, including variability in quarterly operating results, the rate of growth and development of wireless markets, risks associated with the operations of our wafer fabrication facilities, molecular beam epitaxy facility, assembly facility and test and tape and reel facilities. Our ability to complete acquisitions and integrate acquired companies including the risks that we may not realize expected synergies from our business combinations. Our ability to attract and retain skilled personnel and develop leaders, variability and production yields.

Our ability to reduce costs and improve gross margins by implementing innovative technologies; our ability to bring new products to market; our ability to adjust production capacity in a timely fashion in response to changes in demands of our products, dependence on a limited number of customers and dependence on third parties.

These and other risks and uncertainties which are described in more detail in RF Micro Devices' most recent Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.

In today's press release and on today's call, we provide both GAAP and non-GAAP financial measures. We provide the supplemental information to enable investors to perform additional comparisons of operating results, and to analyze financial performance without the impact of certain non cash expenses or unusual items that may obscure trends in the companies underlying performance.

During today's call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today. Also given the November 13, 2007 closing date of these Sirenza transactions all of our comments about past performance reflected partial quarter of Sirenza and all of our comments about future expectations reflect a full quarter of the combined entity.

Finally, in fairness to all listeners, that the participants please limit themselves to one question and a follow-up. After each person in the queue has gotten their turn, we will then give participants an opportunity to ask a second question. With me tonight on the line are Bob Bruggeworth, President and Chief Executive Officer and Dean Priddy, Chief Financial Officer, as well as other members of RFMD's management team.

And with that, I'll turn the call over to Bob.

Bob Bruggeworth

Thanks, Doug. And welcome everyone to this evening's conference call. As you are aware, we previewed our quarter on January 11th, citing demand weakness for GSM, GPRS, front-ends. Given the level of detail of that announcement, and the subsequent public comments from our customer base we plan to spend less time than we ordinarily would on past results and instead focus on our immediate business environment in our fiscal year unfolding.

Within that, we'll update you on fiscal 2009 growth drivers, margin improvement initiatives, and other efforts underway that we expect will contribute this coming fiscal year to diversification, earnings growth and free cash flow. We'll also discuss a number of bright spots both in the December and in March, such as POLARIS 3, wireless LAN, EDGE and 3G multi-mode that support our fiscal 2009 growth expectations. We're also prepared tonight to discuss our share repurchase program, which we announced this afternoon concurrent with our earnings announcement.

As we stated in the release, RFMD's Board of Directors has authorized a repurchase of up to a $150 million of common shares. RFMD currently has approximately 292 million common shares outstanding and the buyback program is effective immediately. This is the first share repurchase program in the company's history. The decision to buyback our shares reflects Managements' and the Board of Directors' confidence in our plans to increase shareholder value.

Let's move now to the quarterly results. Consistent with the revised guidance provided on January 11, RFMD achieved December quarterly revenue up $268.2 million with non-GAAP earnings per share of $0.06. As Doug indicated, our December quarterly revenue performance included a partial quarter of revenue from Sirenza Microdevices. Backing out the Sirenza revenue, RFMDs revenue was approximately 4% below the low end of the original guidance provided on our October 23rd quarterly earnings call.

In our January 11th press release, we outlined the reasons for our revenue performance, namely: broad-based reductions in demand for manufacturers of GSM and GPRS handsets.

The quarter began strong for GSM/GPRS front-ends, for Chinese customers and top-tier customers, as well. As the December quarter progressed, we saw a pronounced shift in the demand among China local phone makers, and softness in the level of inventory pools from Tier-1 handset manufacturers.

The shift was related primarily to GSM/GPRS front-ends, with this segment ending up down approximately $20 million quarter-over-quarter. In China, we believe GSM/GPRS front-end inventory was built, and will work its way through the channel during the March quarter.

Additionally, we're in the midst of a key GSM/GPRS platform transition with a major customer that is scheduled to begin a ramp late in the March quarter, and continue into FY'09. Also within the partial quarter of Sirenza revenue, we saw softness in the infrastructure, broadband and consumer markets.

We continue to believe the shift in demand is temporary, and we are confident in our ability this year to diversify our revenue, improve gross margins, grow earnings and generate free cash flow.

It is worth pointing out, demand was strong in December quarter for many of our products, and we expect these products will contribute to our growth in fiscal 2009. Both our EDGE business and our wideband CDMA business were strong in the December quarter, and were up sequentially.

We saw a significant growth in 3G multimode products, where RFMD is the world's leader. POLARIS 3 ramped aggressively in December, with an improving margin structure. We saw very nice growth in wireless LAN products across multiple segments and products as we began shipments of 802.11 end products and we strengthened our wireless LAN leadership in handsets.

Looking forward, the products and market showing strength in December continue to support our outlook for March. POLARIS 3 will continue to ramp and will be up in the March quarter, with continued margin improvement. Wireless LAN adoption is increasing and the addressable market for RFMD is growing quickly with the added content of 802.11n applications. Broadband, consumer and wireless infrastructure end markets appear stable and inline with March quarter typical seasonality. Contrary to the softness in GSM, GPRS, we expect relative strength in wideband CDMA and EDGE.

Now, let me direct your attention to our multi-market products group. As many of you know, we closed the Sirenza transaction in mid November, and Sirenza is already providing a quick-lift in terms of gross margin improvement, profitability and diversification. In terms of profitability, we currently expect that MPG and the acquired Sirenza business in particular, will be accretive to pro forma earnings in our current March 2008 quarter, ahead of expectations.

At the time of the acquisition, we committed to $7 million of hard synergies. We have already achieved most of the committed synergies and we expect to achieve the full $7 million run-rate by the end of the March quarter. We've also identified additional areas for soft synergies that will contribute to gross margin improvement in fiscal 2009 and beyond.

To give you an idea of a significance of MPG's potential financial contribution in fiscal 2009, we're going to take an atypical approach to guidance and provide you more forward-looking information than we would normally share. To that end, in the coming fiscal year, we currently expect MPG will deliver the following: $250 million in revenue, gross margin, and operating margin approaching 50% and 20%, respectively; and significant positive free cash flow.

Going forward, we won't provide this level of visibility but we believe it was necessary at this time. During past communications with investors, we've been unable to clearly outline the potential total MPG contribution; because we have audited GAAP results only for the period Sirenza was part of RFMD.

In our Shanghai manufacturing facility, CapEx related to the expansion is complete. Customer qualifications have been also completed, and shipments have begun.

In the March quarter, we expect to complete the manufacturing move from Broomfield to Shanghai. And we currently expect to capture gross margin improvement in MPG, clearly supportive of our gross margin model of 50%.

We expect to leverage our scale and industry leadership in RF into additional high value markets like Aerospace and Defense, WiMAX, other broadband and consumer, standard products and 3G infrastructure all of which support accretive corporate gross margins.

On the subject of acquisitions and earnings accretion, let's next look at the proposed acquisition of Filtronics. On December 20th, we announced a definitive agreement to acquire Filtronics Compound Semiconductors for an acquisition price of approximately $25 million. The acquisition is expected to close in March. The pending acquisition includes the purchase of their six-inch Gallium Arsenide fab, which is currently a major supplier of pHEMT to RFMD, as well as the purchase of their growing and profitable high frequency mimics based business.

The transaction is extremely complimentary to MPG's current business and is consistent with our diversification strategy. From a corporate standpoint, the transaction is accretive to both gross margin and EPS.

The addition of Filtronics high-volume gas fab is expected to improve RFMD's gross margins the first quarter after closing the acquisition. RFMD is already the industry leader in compound semiconductors, and the addition of the Filtronics capacity represents an increase of approximately 30%. Even more important is the fact that the fab is currently under-utilized, and has readily available clean-room space. By transferring our gas process technologies to this facility, using their existing equipment set, RFMD can bring up the capacity necessary to support our forecasted demand with significantly reduced capital expenditures.

The Filtronics acquisition positively impacts the financials of MPG and CPG and supports each of our target metrics; that being, diversification, gross margin improvement, earnings growth and free cash flow.

Moving next to a big revenue driver for the company, POLARIS 3. POLARIS 3 is proliferating into multiple handset platforms within our largest customer, and our current expectations are for continued quarter-over-quarter growth including the current quarter. Based upon current customer forecast activities, we expect growth for P3 over the next two years.

As many of our highest volume products ramp, including POLARIS 3, then we'll benefit greatly from our recently completed Beijing facility expansion. The expansion approximately doubles our assembly capacity with the capital outlay already completed.

As we discussed on last quarters call RFMD is focused on deploying GPS in handsets. Given the proprietary advantages of our product software based architecture, it can leverage the host devices processing power in mid to high-end phones, or it can be built with integrated ARM processor to enable location-based services across an entire phone platform serving any market.

We expect our low-cost software based approach to GPS will help enable the future volumes anticipated in handsets with location-based services and navigation capabilities. I'd like to briefly touch upon the opportunities developing around our GPS products.

On our last call, we discussed that in RFMD, GPS product was selected by a leading handset manufacturer, we're pleased to report that opportunity is squarely on-track and plan to sample our GPS SoC in the March quarter.

In the December quarter, we also engaged in two new opportunities, which would add to our handset customer base. Looking forward, you will see continued diversification whether it's in the form of new markets, new products, new customers or increased exposure to existing customers.

Our multi-market products group under the leadership of former Sirenza's CEO, Bob Van Buskirk has a track record of successful M&A activity, and we will continue to evaluate opportunities that leverage our strengths and are quickly accretive.

Additionally, you will see a significant improvement in cash flow, as we utilize the assets we put in place to support our FY '09 revenue plan.

In our cellular products group, we are confident that the dynamic we experienced in GSM/GPRS handsets will reverse itself later in the March quarter, and setup a sequential rebound in June.

We also expect wideband CDMA and EDGE will continue to be strong for RFMD, and will be less than seasonal in March.

In our multi-market products group, we anticipate relative strength in wireless LAN, standard products and Aerospace and Defense. And we expect the broadband and consumers will retain the growth beyond the near-term seasonality.

Our current outlook is for MPG revenue to be flat to up in March. We are confident the actions we are taking to diversify our business improve gross margin, grow our earnings per share and maximize our return on investment capital will result in shareholder value creation.

With that, I'll turn the call over to Dean.

Dean Priddy

Thanks, Bob, and good afternoon everyone. Just as a reminder, as Doug pointed out earlier in the call; my comments and comparisons to income statement items to be based primarily on non-GAAP results. Additionally, former Sirenza results are consolidated for partial quarter in December, while guidance will include a full quarter of results.

This quarter, I'll discuss financial results and opportunities according to our newly formed MPG and CPG business units. CPG includes all PA front-end components designed for cellular standards, along with cellular radio solutions including transceivers and GPS. MPG includes its all former Sirenza revenue, plus RFMD's wireless LAN and infrastructure revenue.

Now, let's go to the December financials. Revenue for the December quarter was 268.2 million compared to 255.8 million in the previous quarter. The revenue contributed by about Sirenza during the December quarter was $14.7 million. CPG contributed $232.8 million in revenue, down from $238.3 million in the previous quarter. The decline in CPG revenue was caused by GSM/GPRS front-end weakness at certain Chinese handset manufacturers along with product transitions with top-tier customers. Within CPG we saw strength in multi-mode 3G front-ends, EDGE front-ends and P3, all of which grew sequentially.

MPG posted $35.4 million in revenue, including partial quarter results from Sirenza. Within MPG, we saw strength in wireless LAN PAs offset by weakness in infrastructure, broadband and consumer products.

Gross profit was $79.3 million with gross margin of 29.6% versus 32.5% last quarter. Gross margins were impacted by lower production volumes and the high reliance on outsourced pHEMT. Yields on P3 improved considerably during the quarter, helping to improve margins on this high running product.

Operating expenses were $73.2 million compared to operating expenses of $65.9 million last quarter and the increase -- with the increase largely reflecting a partial quarter of Sirenza results.

Operating income was $6.1 million or 2.3% of sales compared to 6.7% of sales last quarter. Other incomes were $6 million compared to $7.2 million last quarter. The decrease in other income is the result of the cash element of the Sirenza transaction.

Non-GAAP net income for the December quarter was $15.4 million or $0.06 per diluted share based on $279.5 million weighted average shares outstanding. Non-GAAP EPS benefited from a higher than projected tax benefit of $3.4 million. The GAAP loss was $15.1 million or $0.06 per diluted share.

Now going to the balance sheet. Total cash in short-term investments decreased $254 million to $447 million compared to $701 million in previous quarter. Net cash used to purchase Sirenza was $258 million. Cash flow from operations was a strong $55 million and one of our strongest quarters ever.

Net accounts receivable were $119.2 million with DSOs at 37.6 days versus 36.7 days last quarter. This is the fifth straight quarter in which DSOs remained under 40 days. However, I will point out, we anticipate DSOs for MPG will run higher than historic corporate averages consistent with the business model favoring much higher gross margins.

Inventory increased to $156 million from $121.5 million last quarter resulting in turns consistent with last quarter of 5.3. The increase in inventory is largely due to transferring Sirenza inventory balances.

Net PP&E was $418 million compared to $381 million last quarter. CapEx during the quarter was $42.6 million with depreciation and amortization of $25.8 million.

Now, for the guidance, we currently project March quarterly revenue to be in the range of $215 million to $230 million. CPG demand for GSM/GPRS front-ends is expected to remain suppressed in the March quarter as inventory in China has digested and RFMD begins to ramp new high-volume GSM/GPRS platforms for top-tier customers. GSM/GPRS demand is expected to bottom-out in the March quarter, and rebound in the June quarter.

EDGE and 3G multi-mode products are expected to be less than seasonal in March. We anticipate MPG revenue will be flattish-to-up with seasonal cable TV, broadband and consumers segment offset by a strong wireless LAN front-end demand.

Margins are expected to improve sequentially driven by mix shift to higher margin products. MPG margins are anticipated to approach model of 50%. Expenses will increase as a full quarter of Sirenza expenses are absorbed. The increase will be approximately $5 million plus or minus.

Share count will see a full quarter impact from the Sirenza acquisition, and will increase to the mid $290 million range. EPS is anticipated to be approximately $0.01 to $0.02 on a non-GAAP basis, and the GAAP loss per share is anticipated to be approximately $0.05 to $0.07.

Finally, a few comments on our share buyback, projected cash flow in FY '09 gives us confidence to implement $150 million share repurchase program. Driving our cash flow includes profitability coupled with a significant reduction in capital expenditures.

Fiscal year '09 will be one of the lightest years in recent memory in terms of CapEx, and we're reducing spending without sacrificing our ability to meet projected top-line growth. We feel now it's the time to take decisive steps to improve RFMD's capital structure.

And with that, I'll open up the call to questions. Thank you.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). The first question comes from the line of Ittai Kidron with Oppenheimer. Please go ahead.

Ittai Kidron - Oppenheimer

Hi, guys. Just a quick question, I am trying to analyze the bounce back in June. Dean, how should we think about it from a sequential growth standpoint? I know you are not going to guidance but maybe can you just give us a sense of magnitude in the 215 to 230 that you have guidance for March. What kind of -- it seems like CPG is going to drop to around the 190 level, am I roughly in the ballpark?

Bob Bruggeworth

Ittai, this is Bob. I'll go and address it and I think, I'll give you a little bit of color here and then I think you can may be build your model for the June quarter. When we look at the decrease from December to March, let's just say, half of the reduction is seasonality, about a quarter there is that inventory that we talked was built-up in China and another quarter of that is a delay in a platform ramp. So, again, it's how we burn through the China inventory, we start to see that ramp. And then as you know, what the rough quarter build-up is of seasonality. So, that's how I'd rank that, that delta between December and March.

Ittai Kidron - Oppenheimer

Just to clarify that, on the platform, the 25% that is platform related, does that mean that the strong volume you had this past quarter, part of it was inventory build ahead of this platform ramp down?

Bob Bruggeworth

No. I am just saying the delta from the run rates.

Ittai Kidron - Oppenheimer

Okay. And any thoughts on the buyback, how is that going to be implemented, is that going to be automated or discretionary according to your goodwill?

Dean Priddy

Yes, it will. Yeah, that's a strictly up to how the company wants to structure it. So, we've got flexibility there.

Ittai Kidron - Oppenheimer

Okay, very good. Good luck, guys.

Dean Priddy

Okay. Thank you.

Bob Bruggeworth

Thank you.

Operator

Thank you, sir. The next question comes from the line of Chris Danley with JPMorgan. Please go ahead.

Larissa Talisha - JPMorgan

Hi. This is [Larissa Talisha], calling for Chris Danley. Couple of questions, one on your operating expenses, and gross margins going forward, can you give us just a sense of where you think they are going to go for the rest of the calendar year?

Dean Priddy

In terms of margins, we've got several gross margin improvement initiatives that's going to drive improvements in gross margin as the year progresses. Upon closing the Filtronic acquisition, you won't see any of the benefit of that in the March quarter, but you will begin to see that in the June quarter. And we mentioned on the January 11th conference at Needham; and that was about a $7 million drag on gross margin if you compare what we are outpaying for outsourced pHEMT compared to what we can manufacture it internally for. So, that’s going to be a huge margin driver going forward. We are continuing to see margins on P3 improve. The pricing environment is stabilizing, so that's giving us some tailwinds for margin improvement. And we are seeing a bit of a mix shift as well as the year goes on to higher value products and multi-mode 3G and also in our multi-market products group, which is already operating close to a model margin. So, several things favor continued margin expansion through the year.

Now in terms of expenses, we are going to be very, very tightly managing expenses. Obviously, as we take on the full quarter of Sirenza this quarter, you will see a bit of a step-up in expenses. You'll see a small step-up once we acquire Filtronic and close on that deal. Then in terms of any organic growth within the company you can expect, essentially flatness.

Larissa Talisha - JPMorgan

Okay. And then, just in terms of the competitive landscape. When your competitors had a really good quarter claiming they had market share gains. How would you sort of characterize their comments in terms of what you are seeing out there?

Bob Bruggewort

This is Bob I'll go and take that. As far as, some of our competitors are having a good quarter. Yeah, I think, absolutely, there was some business out there. I think there was also some consolidation in the quarter amongst some of the smaller players being consolidated. So, it is possible that others are out there taking share.

Larissa Talisha - JPMorgan

Okay. Thank you.

Operator

Thank you, Ma'am. The next question comes from the line of Harsh Kumar with Morgan Keegan. Please go ahead.

Harsh Kumar - Morgan Keegan

Hi, guys. Couple of questions. First of all, what should we be thinking about gross margins for the March quarter? And what should we be thinking about your model going forward with MPG -- Sirenza combine into your business?

Dean Priddy

As I stated before, we expect margin improvement going into the March quarter for the company. And a lot of that is driven by simply the mix of higher margin products. And we expect margin improvement trend to continue, and as our multi-market product continues to grow with the higher margin structure, that continues to have an accretive impact on total margin.

However, I would not discount our Cellular Product Group stability to improve gross margin as the year progresses. The Filtronic acquisition is going to weight very favorably towards that trend. I mentioned on more favorable pricing environment, and we are going to get volume back very quickly as the year progresses. So, several things in favor, both in MPG and CPG for gross margin.

Harsh Kumar - Morgan Keegan

Just another one if I can. Your cellular business seasonality outside of the inventory build, Dean, is that pretty much roughly inline with normal seasonality are you seeing worse seasonality in the marketplace?

Bob Bruggewort

Yeah, Harsh. I think every year we get that question of what's normal. Normal to our mind is somewhere between 10% and 15%. There are segments. I think 2G is the one the GSM/GPRS is where we're seeing more than seasonality in the wideband CDMA, EDGE products that we have, we are less than what we would consider normal seasonality. And then clearly, when we talked about MPG, we're expecting that to be flat to up, so a little better than seasonality.

Harsh Kumar - Morgan Keegan

And just last question if can slide one in, at this price, at this current stock price, there is a big difference between announcing a buyback versus actual buyback, are you buyers? Is your company buyer at this level?

Dean Priddy

Partially, we announced the share buyback, it's the first time we have announced it. Many companies announce and don't follow-through; some companies announce and follow-through. We'll report what we do next quarter in our public filing.

Harsh Kumar - Morgan Keegan

Fair enough. Thanks, guys.

Dean Priddy

Thanks.

Operator

Thank you. The next question comes from the line of John Lau with Jeffries & Company. Please go ahead.

John Lau - Jeffries & Company

Great, thank you very much. Dean, I was wondering if you can give us a little bit more clarity for the MPG, I know, Bob had given us. Bob, also, you had given us some guidance that MPG was going to be about $250 million for the fiscal year '09.

If you take a look at what happened last quarter, they were around $40 million, arguably about $30 million, you're going to be sequentially flat to slightly up for another $30 million.

So you've had two quarters now of $30 million revenue. Can you tell us how you're going to get to the $250 for a fiscal year '09? Thank you.

Bob Bruggeworth

Yeah. Hey, John. This is Bob, I'll go and take that. You are little low in your first number. Again, we saw a soft December, and I think that's not uncommon in some of these markets. So, I think your first number for the first two months is low.

So, I think let me state it different way, if we put our MPG business, what our RGMD already had, along with what the current run rate is, okay, and where Sirenza ended the year. We are only talking about 10% to 12% growth rate, so not a lot of significant growth, we'll be able to achieve those numbers. We think it's very doable, 250, 50, 20.

Operator

Thank you, sir. The next question comes from the line of Edward Snyder with Charter Equity Research. Please go ahead.

Edward Snyder - Charter Equity Research

I have several questions. Actually, last quarter, we guided down or guided down the margins for the current period, in fact, it was supposed to bottom in the December period, I don't know if it has changed subsequent to that. One of the rationale for that was, the market share that you would gain, they won't be a largest customer in the low end GSM/GPRS area, which will kick-up your revenue but hurts your margins. The price, you pay this difficult price for that last quarter, and I am sure you remember. And the rationale was that, you were going to be able to keep that share that you suffered on the quarter that, those market share gains would stick with the company. Now, its look, that's not the case, I know that China was a big problem for the quarter but you also loss share at some of your largest OEMs, as far as your largest customer. So, I am confused basically, what's going on, is it a product transition that you didn't anticipate, did you have to give share backup to your competitor that you took from on the core is that smack dab in the business that you had gained last quarter which is GSM/GPRS apparently. And now it's, we've got to reverse this quarter, what we have last quarter, you didn't heard on the revenue line, your margin moving up. So, I am just curious about visibility, what do you think is going on at your strategic customers is causing such wild swings in your business model?

Bob Bruggeworth

Ed, this is Bob. I am going to take that, number one, we didn't loose share on the parts that we talked about that we'd gained share. There was a platform shift that we expect it to ramp sooner, our products, so that it would have been seamless, and that's not we're transpired, and that's why we are confident in our talk about this platform shift and it coming back. So, when you gain share on certain platforms, as you know there is product mix issues, so no the story hasn't changed. Now, what we expected to unfold did not unfold in the ramp of the new platform?

Dean Priddy

Yeah. And I think some of the comments from our customers in fact one customer in particular mentioned that they saw accelerated demand for a new platform, and they saw a particular strengthen in China with that platform. So, if you are not own it initially, but you know that you are going to be ramping it, sometime this quarter then, and these are very high volume platforms, and you get it back very, very quickly once you start ramping

Bob Bruggewort

Which is what, we've shown in the past, Ed.

Edward Snyder - Charter Equity Research

Yes, it has, but it's not -- it's just basically a mix shift in the new platform. You are on the new platform, but they didn't pull enough your product, or what occurred, was there a technical issue with that product not yours, but with the phone ramping itself, or how would you characterize the misstep there?

Bob Bruggewort

Yeah, first of all I wouldn't call it misstep. Number two, I'd say there were no technical problems. Customers adjust their platforms and where they ramp and what programs that I have to remind you Ed, we don't have a 100% of anybody's business, so let me say that.

The second things is there were customers out there that talked about they had component shortages during the quarter, as well that impacted revenues, but the primary event that we are talking about is they are bring up, we're on a new platform for us that is going to be ramping late in the March quarter into the June quarter, I think that's what we need to stay focused on.

Yeah, and then in terms of P3, sounds like that's clicking of pretty well, I mean, there is not large enough to offset, the pull last quarter itself. But how many units did you ramp in the P3 and what are your yields at this point?

Dean Priddy

Yeah. We're not giving units on P3 but yields are up almost to the levels that P2 will add whenever they reach there peaks. So, a great deal of progress that's being made on yields and hence our talk about improved margin structure. And we have a bit more improvement to do and a bit more in the way of supply-chain savings, so to improve margins. We've had tremendous progress and we'll continue to make that progress. But units are definitely growing and will be up substantially in the March quarter.

Bob Bruggeworth

Just to calibrate that, Ed, I mean it's still below the company average margin, although we're making good progress. Well, that gets to your earlier point on margins.

Edward Snyder - Charter Equity Research

Yeah. P2 and its peak was below margin, I mean, such a big product for you and it was because of you had pHEMT switches and all sorts of, actually some stacked margins and it was below that. So two things, one, it sounds like you've got a little bit more leverage on P3 then you had in P2, and then two, as you bring Filtronics up that should help with P3 margins maybe pushing above what we'd seen in P2 at its peak?

Bob Bruggeworth

It will definitely help as you pointed out with the pHEMT. And as Dean commented as we-- work on our supply-chain that will also get us there. So, we'll make progress on P3 yes.

Edward Snyder - Charter Equity Research

Thanks, guys.

Bob Bruggeworth

Thank you.

Operator

Thank you. The next question comes from the line of Mark McKechnie with American Technology Research. Please go ahead.

Mark McKechnie - American Technology Research

Great. Thank you very much. Hi, Bob and Dean.

Bob Bruggeworth

Hi, Mark.

Mark McKechnie - American Technology Research

Hi. So, I wanted to get a sense then, you didn't have a full quarter from SMDI, so when we look at in the March, if you expect your OpEx to go up sequentially, yeah?

Bob Bruggeworth

Yeah. We just guided to roughly a $5 million plus or minus increase in OpEx for the March quarter, which is largely attributable to the full quarter of the Sirenza acquisition.

Mark McKechnie - American Technology Research

Got you, that's fair. And did you give a specific gross margin number or what did you do [29, 6] years that you are talking about, your gross margin is obviously going to tick-up, maybe in the low 30s?

Bob Bruggewort

Yeah. We're expecting going north of 30 for the March quarter.

Mark McKechnie - American Technology Research

Got you. And then the share count, Bob, you threw out like 292,000 shares, again because we're going to have to add some more in there?

Dean Priddy

Yeah. It's mid-290s.

Bob Bruggeworth

Yeah, mid-290s, when Dean gave his number. Again, that's more of a weighted average when we closed the transaction, but going forward for your modeling probably 295 or give or take a few.

Mark McKechnie - American Technology Research

Got you. And then, you talked about this ramp with a big customer GSM/GPRS and kind of a temporary, is this what I'm thinking it is, I mean, was this the customer where you have lost a little bit of share here on the initial ramp, of their super low end, and you're getting into their BOM too going forward?

Bob Bruggewort

Yeah. I would say, clearly it's a major program, major customer on a low cost platform.

Mark McKechnie - American Technology Research

Got you. Yeah, that makes sense. Okay. And couple of more details on P3. Margins up, revenue up sequentially, did you specifically said you're bringing on more customers or are you going to get into a more platforms with the existing customer, how is that going to grow, and maybe you can talk about the trajectory through the year?

Bob Bruggewort

Yeah. I'll talk about transceivers in general, first. Then I'll come down to that. We expect for the whole POLARIS family to continue to add phones, throughout the year, that is for both POLARIS 2 and POLARIS 3. So, we are adding multiple phones. On POLARIS 3, we are working with other customers at this time on POLARIS 3, but in our comments we were talking about new phones with the same customer.

Mark McKechnie - American Technology Research

That makes sense. So, clearly they are happy with your performance and they are moving, what you were talking about from one phone to half a dozen by the end of the year may be?

Bob Bruggewort

Yeah, I think they are very happy with the phones we are in as well as our performance, yes.

Mark McKechnie - American Technology Research

Great. And then, one last one. Dean, you'd spend some time talking about cash flow, a good $55 million here in operating cash flow, and you are buying back some shares. Although, you are looking at a negative net cash position here, I mean, your buyback kind of be limited to what you are throwing off in Op cash flow or are you willing to kind of burn down some of your cash levels a bit more to buyback your shares at these levels?

Dean Priddy

I think we'll see free cash flow it's efficient to support our share buyback plan.

Mark McKechnie - American Technology Research

Got you. So, you did $55 million in Op cash here, I mean, is that level going to drop here in the March quarter, obviously but did you expect to get back?

Dean Priddy

Yeah, March is maybe a little bit of a trough as we work to a little bit of the demand issue, I don't see a disaster, we see a positive cash flow from ops, its not a strong as the December quarter, and we still have a better CapEx carryover into the March quarter. But, once again the Filtronic acquisition gives us a great deal of flexibility on what was previously planned for capital expenditures. So, that's going to have a tremendous impact. First you add to that. We have already spent some money on the Beijing expansion to double the assembly capacity. We've already spent the capital on Shanghai for the -- for what was formally the Sirenza expansion. So, by and large our capital requirements had been put in place and to charge Filtronic, once again that's about a 30% increase in installed equipment capacity and it doesn't even include about 2X the amount of clean-room space that's sitting there available if we want to add some additional equipment or a different process technology other than what we are running there.

So, we are in a very good shape in terms of where we stand with the installed capacity and our ability to begin utilizing that capacity.

Bob Bruggewort

And I guess the other thing that may not be clear is, there might be people out there that know Filtronic's capacity. By actually putting in place our process technology, which is a much simpler pHEMT process, we actually get a capacity boost as well. So, when we factor all that in, that’s why we are very confident in being able to keep up with our forecasted demand.

Mark McKechnie - American Technology Research

No, thanks. That’s a good complete answer. And then finally if you can talk about, I guess you are about a month into the March quarter here. You gave a descent range on the guidance. You said during your pre-announcement that January stated our pretty slow. Are you seeing, obviously you guidance implied some sort of a pick up in February or March. I mean, how far out do your orders go, what can you say about the pace of business so far this quarter and the trajectory over the next two months?

Bob Bruggewort

Yeah. I would absolutely agree. It started off a little slow like every year and it's definitely picked up and it's to a run rate and our visibility to what supports the guidance we gave.

And again, I think the other thing we are looking at is couple of different dimensions. We are seeing the inventory that we talked about in China being coming down so there is demand for the product, so that's working nicely. And the former Sirenza business is booked pretty good, for this point in time from prior years. So, we feel comfortable on our guidance.

Operator

Thank you, sir. The next question comes from the line of James Faucette with Pacific Crest. Please go ahead.

James Faucette - Pacific Crest

Thanks very much. I wanted to look out a little perhaps a little further into 2008 and kind of talk about your design activity right now. In 2007 or coming into 2007 obviously you had a pretty good design win activity, but unfortunately with maybe some handset makers did lose a bit of share. And I'm just wondering how you feel you are doing with the big handset makers that are currently gaining share, do you feel like your win rates are improving there, say versus this time last year? And what do you feel like your prospects are in terms of continuing to at least gain win design share?

Bob Bruggeworth

Yeah. I think from a design win in perspective in the second half of '07 we started to get good traction. And some of the other leading OEMs were our market share isn’t as high that the average for the company. So, we feel real good about that and that's why we believe, the next fiscal year we should be out to see significant growth out of our -- in particular our front end business, as we start to ramp with some of these customers. In fact, some of the top-five handset manufacturers were going to be up quarter-over-quarter.

James Faucette - Pacific Crest

So, when will you start to have a first the shipping of those new design wins that you've start to pick up you mentioned starting in the second half of last year. When will those products start to ship and when will you start to be able to size the potential for those products, that's question number one?

Number two, there has been some commentary that you may lose a little bit of share on the other hand at your largest customer as they diversify there supplier base a little bit. What do you think or feel like the bottom is for you with that customer?

Bob Bruggeworth

Let me take your first one, because some of those parts are beginning to ramp, although as you well know a lot of the other leading handset manufacturers don't have some of the volume of the top two players. And we are starting to see that now, and it will be meaningful moving forward into the June quarter and throughout the calendar year.

And as far as our largest customer, we've done a good job servicing them, market share shifts based on platforms and sometimes we get a little ahead of ourselves, right now we think we're little behind where we should be, and we'll get back toward a more traditional rates beginning in the June quarter.

Mark McKechnie - American Technology Research

That's very helpful. Thank you.

Bob Bruggewort

Thanks, James.

Operator

Thank you. The next question comes from the line of Todd Koffman with Raymond James. Please go ahead. Currently, Todd has put his line on hold. The next question comes from the line of Brian Modoff with Deutsche Bank. Please go ahead.

Brian Modoff - Deutsche Bank

Yeah, couple of questions. In terms of understanding the Sirenza business again, it seems like it was running around $45 million to $50 million on a quarterly basis, and you did 47 on the last quarter, which was from what about midway through the quarter?

Dean Priddy

That was midway through the quarter, but is this Brian?

Brian Modoff - Deutsche Bank

Yeah.

Dean Priddy

Hey, Brian. Yeah, for one thing, their quarter was a bit front-end loaded, and then because of purchase accounting, there was deferred revenue on the balance sheet that simply never gets recognized.

It actually becomes part of the purchase price accounting and ends up on the balance sheet of the company, so that tended to dilute the revenue. Now, with that said, there was a bit of softness in infrastructure, there was a bit of softness in broadband and consumer, but we're seeing some of that begin to come back as we speak, because for instance cable TV products are expected to be definitely less than seasonal, and beginning to come back. If the infrastructure market comes back, the RF content grows disproportionate to the infrastructure growth. So, there was a bit of softness but it wasn't quite the level of revenue, if you simply take what the results were, and multiply times two. So, the quarter was much more respectable than that.

Bob Bruggewort

I guess, Brian. The other thing is, you know, the run rates there were in that $40 million to $45 million range, but not pushing $50 million.

Brian Modoff - Deutsche Bank

Yeah. So, the combination of that plus what you already had in that business would put you in the mid $50 million to $60 million range, to start the year, you get to around 250 for us.

Bob Bruggewort

That's what said, think about 10% to 12% growth and you get to the 250.

Brian Modoff - Deutsche Bank

Yes. And then another question, Motorola, they're announcing tonight that they may sell-off their handset business. And so, if they end up being in something of a transitional period over the next 18 months, were units could be lower than normal. How do you think that affects your business? How do you offset that?

Bob Bruggewort

Yeah, obviously Brian, they are not as big as they used to be, and I think most of the audience recognizes that POLARIS 2 for that matter is not as largest what it was. We were winning back other programs and other new handsets that yet to be determined to your point, what happens with the volume. And I think it depends on where it goes. If Motorola looses EDGE business to Nokia, where we've got high dollar content, man that's great; Motorola was not a large player in 3G. We've got great position there. So, if it's on the high end, we are positioned pretty well, on the low end we talked about how we are starting to ramp into other customers in the mid-tier along with that our largest customer. So, depending on who take sub-share, I can play up some scenarios where it wouldn't be that bad for us.

Brian Modoff - Deutsche Bank

What about if it's Korean vendors?

Bob Bruggewort

Yeah. Actually, we are starting to grow our market share back there. We were not as strong in '07 as what we had been in prior years, and have locked in a several designs that I mentioned earlier in the last half of '07, that we expect to be ramping in second half of '08.

Operator

Thank you, sir. Next question comes from the line of Cody Acree with Stifel Nicolaus. Please go ahead.

Cody Acree - Stifel Nicolaus

Thanks, guys. Bob, could you talk just a little more about China, about the inventory pressure there? What was is that led to the excess of inventory, particularly given the strength that you are seeing from some of the larger OEM's not necessarily just the Chinese locals. And I think more importantly how do we avoid this kind of dramatic volatility in future?

Bob Bruggewort

Yeah, great question. As far as the macro, what's going on, I think Dean alluded to this a little bit. Reading some of our larger customers and what happened is, they took some of the tier 2 players in that low end handset market, and that’s what really transpired during the quarter, and it was on a platform that quite honestly we didn't benefit from, to your point. That's what we are working on, is getting a better product balance portfolio, as we move forward in that, when there are share shifts within the marketplace, it's less disruptive to our business. So, that’s what we are focused on, and in fact really had changed the organizational structure six months ago to do a better job of focusing on more customers and balancing out our product portfolio. So, that’s step one from the macro view.

Cody Acree - Stifel Nicolaus

Great. And then may be follow-up a bit there. If MPG is growing 10% to 12%, so obviously a great gross margins, could you handicap CPG through '09 and how does that -- the mix of those two blend together to play into the gross margins just more on a mix, obviously you have a lot of infrastructural things doing working to drive margins and just the mix of those two, how do those play each other?

Bob Bruggewort

Yeah. I think at this point in time, again I commented in my opening comments that we're giving a lot more clarity because of the uncertainty of the close of the transaction with Sirenza, so that you get a good feel for that business, and it does sound from the questions like the audience recognizes. You've got a great asset there, that's run-rate of $250 million making above 50% throwing off a lot of cash at about 20%, that's a great asset and that's worth a lot.

We are not ready to link so far forward in the handset market, what's going on there. But clearly like in other years there is no reason why we can't grow as faster then the market. We believe, we've got great print position in those homes that as far as we know are forecasted for ramps throughout the year. There's design activities I've already talked about, that we'll be launching throughout '08, and there is still design wins or the products we're working on getting design and it will ramp in the second-half of the year. So, we think we've laid a pretty good foundation for good growth.

Cody Acree - Stifel Nicolaus

Given that foundation, it's nothing else would you expect it to out grow the MPG Group?

Bob Bruggewort

It's clearly possible.

Cody Acree - Stifel Nicolaus

Okay. Dean and then…

Bob Bruggewort

Although, I just want to comment. In a fiscal year we are coming off a down year a down quarter.

Cody Acree - Stifel Nicolaus

Right.

Bob Bruggewort

That's not a year-over-year comment, that's from this quarter forward.

Cody Acree - Stifel Nicolaus

Okay. Great. Dean, could you give us anymore details on the split of the stock-compensation probably versus Op expense?

Dean Priddy

Yeah, there was about $1 million that went into the manufacturing in the COGS, Admin, R&D and Sales and Marketing made up the rest. Admin was about $1.3 million, sales and marketing about a $1 million in R&D was about $1.5 million.

Cody Acree - Stifel Nicolaus

Okay. Thanks guys.

Bob Bruggeworth

Absolutely. Before we take the next question I want to comment on back to Brian's question about Motorola didn't finished it, I commented a lot about the handset. But as Motorola focuses on their other core businesses through our multi-market products group, both through the products that Sirenza brought to the party along with what RFMD had, that would be great growth for us in infrastructure area along with set-top boxes, cable TV, line amplifiers, their public mobile radio, et cetera. Clearly that's not all bad for us. That's in a lot of our profitable businesses. So, I just want to close on that for the group.

Operator

Thank you. The next question comes from the line of Aaron Husock with Morgan Stanley. Please go ahead.

Aaron Husock - Morgan Stanley

Great, thanks for taking my question. I just wanted to follow-up on the Sirenza's question. I understand why deferred revenue recognition would had an impact on the December quarter, but just as you get a full quarter of Sirenza here, and as I would assume the bulk of that deferred revenue issue is behind you, I would think business would be up something on the order of $25 million, sequentially in the March quarter, here you are guiding that whole segment and you are flat to up slightly, is there something wrong in the Sirenza business?

Bob Bruggewort

No. absolutely not. Aaron, when we made our comments to flat to up slightly that's considering in our mind with the full revenue would have been for that quarter plus RFMD's MPG business.

Dean Priddy

Yeah, it's apples-to-apples there, and we were not trying to skew things by only a partial quarter of Sirenza revenue, we were trying to go back and reconstruct what Sirenza's quarter would have been, plus what was formally our wireless LAN and infrastructure business. So, we think that combined entity is flat to up in the March quarter.

Aaron Husock - Morgan Stanley

Okay, great. Can you tell us roughly what revenue number you are using for kind of what that apples-to-apples comparison for --?

Dean Priddy

Yeah. Well, like I've said, there is no real GAAP number out there and we've been more or less advised by counsel not to give a specific revenue number, since that is always GAAP in our mind. So, we are trying to bridge it for you without giving an actual number. But, if you work backwards, and if a $250 million of run rate which only requires about 10% growth. You can kind to see where we would be for the quarter.

Cody Acree - Stifel Nicolaus

Okay, great. Thank you.

Dean Priddy

Okay. Thanks.

Operator

Thank you. The next question comes from Suji De Silva, Kaufman Brothers. Please go ahead.

Suji De Silva - Kaufman Brothers

Hi Bob. Thanks for taking the question. Do you guys think your 2G business, I guess, calendar year maybe would be up year-over-year?

Bob Bruggewort

Give me a minute to look at that? I didn't look at the total year, it came down significantly as we said in December and March. We absolutely project the 2G business in overall to grow year-over-year, I'd have to go do the maths what I am confident is it's going to grow from here forward for calendar 2008 for us.

Suji De Silva - Kaufman Brothers

So that statements about…

Dean Priddy

We just leave it to front ends in general and we expect growth --

Suji De Silva - Kaufman Brothers

Okay. That's fair.

Dean Priddy

The mix is -- I mean, the mix is going to be shifting a bit towards higher value products since the year progresses, EDGE and wideband CDMA, like Sony Ericsson is all about EDGE and wideband CDMA force us and they're ramping big this year.

Samsung is all about EDGE and they are ramping big, LG is more about wideband and CDMA and they are ramping. So, we've seen a bit more of a mix shift towards the more advanced to their standards, but I wouldn't discount the volumes in GPRS. I think they are going to come back pretty strong in June.

Suji De Silva - Kaufman Brothers

So, statements about EDGE is for the calendar year '08 versus '07, is that correct?

Bob Bruggewort

Calendar year '08, yes.

Suji De Silva - Kaufman Brothers

Okay, great. And then I recall way back when the GPS was part of the wireless connectivity business and now it appears you’ve moved it to the cellular products group through the SMDI acquisition, is that correct?

Bob Bruggewort

That's correct and primarily as I said, we are focused -- in my opening comments, I stated that we are focused on handsets.

Suji De Silva - Kaufman Brothers

Yes, can you tell us how much GPS was magnitude wise in December and what do you think it will be in March to help the growth there?

Bob Bruggewort

Yeah absolutely, we don’t expect revenue until really the end of our fiscal '09.

Suji De Silva - Kaufman Brothers

Okay, so still zero.

Bob Bruggewort

That's correct.

Suji De Silva - Kaufman Brothers

Great, and last question, I think are you guys still targeting 35%gross margins for the handset business and if so, do you think P3 at peak can be at those levels.

Bob Bruggewort

We are still targeting 35% for CPG; I think P3 will be challenged to get the 35%.

Suji De Silva - Kaufman Brothers

Okay, great. Thanks for taking the question guys.

Bob Bruggewort

Thank you.

Operator

Thank you. The next question is a follow up question with John Lau. Please go ahead.

John Lau - Jeffries

Great, thank you very much. I was wondering if you can help us try to understand the magnitude of your China business overall. You mentioned, Bob, that the impact for the December quarter was $20million, and that on a going forward rate, the March quarter, a quarter that the 60million delta was to China, and so that's about 15. So, $35million is that the extent of your businesses. I mean, is there any thing left at this point or help us just try to understand how much of it was Mainland Chinese business. Okay.

Dean Priddy

I think you were in the ballpark; you did some pretty quick math.

John Lau - Jeffries

Is there anything left?

Dean Priddy

Yeah, we are still shaping. Sorry, I'm not sure I have followed in all your math. As far as seasonality, is 50% of the draw.

John Lau - Jeffries

Write and then so, basically most of your China business are those $35million, I mean it's over 10% revenue's of your revenues then. Is that how we should think about that?.

Dean Priddy

China is definitely yes, China Inc. is definitely more than 10% of our revenue, yeah.

John Lau - Jeffries

Alright. Thank you.

Bob Bruggewort

Yeah.

Operator

Thank you. The next question is a follow-up from Harsh Kumar. Please go ahead.

Harsh Kumar - Morgan Keegan

Hi, guys. You just gave out a CBG gross margin of 35%, I guess the follow-up question to that is, when do you think, you might be able to get it now that you've brought Filtronics and you've worked on the P3 yields. Any timeframe would be very helpful? I have got one more follow-up.

Dean Priddy

Yeah. I think we'd rather just begin showing improvement instead of setting a lot in the sand, so to speak. We might have a little bit of clarity coming off, we're getting ready to go through our annual planning cycle, and we'll have better idea on cost savings. And we want to actually get Filtronic closed and behind us, and get our pHEMT processed transferred and get that settled in. And I think once it happens you're going to see things begin to move pretty quickly in the up direction.

Harsh Kumar - Morgan Keegan

That's pretty fair. And Dean, you've got roughly $2.5 million or so in interest income is that under ballpark for the March quarter?

Dean Priddy

Yeah. That's roughly in the ballpark.

Harsh Kumar - Morgan Keegan

Thanks. Thank you.

Operator

Thank you. The next question is a follow-up with Edward Snyder. Please go ahead.

Edward Snyder - Charter Equity Research

Yeah. You've added the Filtronics fab now. And so, you've got that fab, you have got North Carolina expanded the Beijing. What is you utilization at this point? And you were talking about gross margin improvement, how much is that going to come from mix-shift, how much is that going to come from just a higher volumes? And Dean, if you could venture a guess, what run rate do we have to get through to get 35% gross margins, you're talking 300 million, now or what?

Dean Priddy

Yeah. I think, we're setting a specific run-rate for a specific gross margin is proven to be an exercise in futility in the past, because of the mix potential and so forth. So, I'm really not going to put a number out for that. In terms of utilization rates, we mentioned that the Filtronics fab would increase our capacity by roughly 30% and it's currently running at pretty low utilization rates. And in fact our two wafer fabs here are probably running at sub-90% type utilization rate, so we've got some capacity and some surge capacity in place.

In terms of gross margin improvement, what's going to have a bigger impact? Well, we mentioned, if we can produce pHEMT's on parity of cost structure, that would have been a $7 million impact in the December quarter.

That's not going to happen right away but you can imagine as the year progresses and we close in on that number $7 million over the CPG base is a huge improvement in gross profit.

And clearly as mix benefits us, and also customer concentration tends to benefit us. We are ramping new customers who are today much smaller market share, so that is also going to be beneficial to gross profit and gross margins going forward, so it's kind of a combination of all the above.

Edward Snyder - Charter Equity Research

So, I know you are targeting higher margins, but you also are targeting higher revenue last year, about midyear you had a walk away or turn away some business, because you are running pretty close to capacity and kind of shifted towards some of your higher value products.

Now that you have got copious excess capacity and it appears that some of your smaller competitors are struggling mildly with capacity period, is it likely you'll go after some of that business even if the margins aren't accretive to the average at this point?

Bob Bruggeworth

I'll take that Dean if you don't mind. Just to be clear, last year as you remember, we got pretty tight as we back fuel the tremendous drop in our transceiver business that Motorola is well know, and we took a lot of business. This year what we've got in place are designs with a different cost structure.

I spoke about how we reorganized the company about six months ago, or longer than that now to change the paradigm of how we operate and we are bringing out lower cost products. So, as we pick up business, we expect to have a better margin structure. There clearly also is business out there, that if you want to chase with price you can and we are not playing that game.

Edward Snyder - Charter Equity Research

And then the final question, I mean, you have a…

Bob Bruggewort

Just to add to that, I think, just to summarize, the trade-off between growth and profitability, we are clearly going to be focus more on the profitability side this coming fiscal year. We have an opportunity to grow and we fully expect to grow, but it's the product lines and the business units are going to be more selective and focus more on the profitability aspects as opposed to the fuel growth aspects.

Edward Snyder - Charter Equity Research

And then finally, one of the, its kind of a plenty of complaints about this business model, I am sure you guys put up forever and it was kind of, also in this quarter that you have such enormous exposure to your largest customer and they have such enormous bargaining power that it appears that they posted record, almost record operating margins this quarter and you guys got slammed hard. I know it's not completely them, you had other issues going on but we seem to have this trend where you don't gain a lot of traction with them, you've really heavily exposed. Is that going to be remedy primarily through the Sirenza acquisition and like more concentration on MPG at this point or do you realistically think you can gain share in some of the other top-tier handset OEMs, especially considering out, even today's news about Motorola struggling, I mean its clear they are going to be loosing more market share, it looks like they're start shopping this company round. So, without Motorola's the strong second customer, can you gain enough at some of the handset or OEM to try and mitigate this enormous dependences on your largest customer or what would be most the MPG that does that?

Bob Bruggewort

Ed, this is Bob. I’ll go and take and answer your question. I think you've got the two parts pretty well. There is no doubt in our minds that we can gain share in other accounts as we focus our resources on bringing out cost competitive products through product leadership for those guys and earn their business not buy, earn their business as Dean pointed out and rebalance our portfolio to your comment about if Motorola losses share or not and what impacts that have as I said earlier it all depends on where the business falls and Nokia takes it all its just means then your market share is that much larger, if it spread amongst the others it actually makes the job easier of what you are asking if you can balance your portfolio. So, we feel we're good about that to your earlier point about MPG absolutely that’s been the strategy as we can leverage these assets as we build up for this high volume business and that’s purchasing power along with the factories and our assembly cost and the technologies and start to take some of that technology and re-monetize it from the cellular business into the multi-market business and that’s why we easily believe we can grow that, and then you take a rather large customer concentration and you actually decrease the amount of concentration. It's not going to happen obviously in the March or June quarter but that’s the direction we’re going in and if you look at what we’re doing and what percent of sales now our multi-market products business is and we move forward and we start to see the traction that company is like Sony Erickson and we talked about the Koreans we’re rebounding in China that is going to balance out that impact.

But I want to be clear we do like their business, Nokia is a good customer.

Edward Snyder - Charter Equity Research

Great. Thanks, guys.

Operator

Thank you. At this time there are no further questions. Please go ahead.

Bob Bruggewort

Yeah I would like to take this opportunity to reiterate what I said earlier in the prepared remarks we’re confident the actions we're taking to diversify our business, improve gross margin, grow our earnings per share, and maximize our return on invested capital, will create shareholder value. We look forward to updating you on our progress throughout the quarter and Investor Conferences, and on our next earnings call.

Thank you, and good night.

Operator

Thank you. Ladies and gentlemen, this does conclude the RF Microdevices fiscal 2008 third quarter results call. You may now disconnect. Thank you for using AT&T teleconference.

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Source: RF Micro Devices F3Q08 (Qtr End 12/29/2007) Earnings Call Transcript
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