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Executives

Geoff Ribar – CFO

Michael Canning – Chief Exec. Officer, Pres

Rob Baxter – Senior VP

Kanwar Chadha – Co-Founder, VP of Marketing, Sec.

Analysts

Adam Benjamin – Jefferies & Co.

John Nichols – Deutsche Bank Securities

Brian Moddof – Deutsche Bank Securities

Noelle Swatland - Lehman Brothers

Sanjay Devgan - Morgan Stanley

Ramesh Misra – Collins Stewart LLC

James Schneider- Goldman Sachs

Mahesh Sanganeria - RBC Capital Markets

Richard Keiser-Sanford Bernstein

Tayyib Shah – Longbow Research

Amit Kapur – Piper Jaffray

David Wu – Global Crown Capital

Eric Geranhati – Banc of America

Peter Friedland – Soleil-Soleil

David Neiderman – Pacific Crest

Jeff Evanson – Dougherty & Company LLC

SiRF Technology Holdings Inc. (SIRF) Q4 2007 Earnings Call February 4, 2008 4:30 PM ET

Operator

Welcome to today’s SiRF Technology Holdings Fourth Quarter 2007 Financial Results Teleconference.

(Operator Instructions)

I would now like to turn the call over to Geoff Ribar, Chief Financial Officer. Mr. Ribar, please go ahead.

Geoff Ribar

This is Geoff Ribar, Chief Financial Officer of SiRF. Welcome to our Fourth Quarter 2007 Earnings Release Conference Call, which release was issued earlier, this afternoon and also is available in the SiRF website. Participating today with me will be Michael Canning, President and Chief Executive Officer; Rob Baxter, Senior Vice President, Kanwar Chadha, Co-Founder and VP of Marketing.

Mike will cover an overview of the fourth quarter and then I will walk you through the numbers. Mike will then wrap-up with guidance. But before I begin, I need to mention that this call will contain forward-looking statements which are based on our current expectations, including forecasted revenues, gross margin, operating expenses, 2008 tax rate and earnings.

These forward-looking statements are subject to a number of risks and uncertainties including the risk of adverse changes in the global economy, delays and the release of new products. Our ability to keep up with technological change, fluctuations in customer demand for SiRF products or end-user demands for our customer’s products, competition anticipated benefits of our centrality. Our acquisition of Centrality Communication Inc., customer product cancellation issues or delays, our expense levels, manufacturing inefficiencies, shortage of components used in our customer’s devices, fluctuating foundry capacity, and intellectual property litigation common in our industry.

We ask that you keep this in mind and do not rely on any such statements of expectation. The information we provided here speaks only as of this date and SiRF disclaims any duty to update the information herein. For a more full discussion of the risk to which forward-looking statements are subject, please refer to our press release from earlier today and to our Form 10-Q for the quarter ended September 30, 2007 as filed with SEC.

At this time I would like to introduce our President and Chief Executive Officer, Michael Canning to provide an overview of the business for the quarter.

Michael Canning

This is Michael Canning, CEO of SiRF Technology. Thank you all for joining us today as we discuss our Q4 2007 results. This was a good revenue quarter for SiRF, fueled by strong seasonal demand for GPS location enabled consumer products and we reported record growth and revenue in units. However, our gross margin performance was negatively impacted by a combination of competitive market pricing and the shift of product mix.

This product mix shift was triggered by late breaking demand softness from two major customers and a general weakness in the Korean Market. This resulted in gross margin and ultimately EPS lower than we had anticipated.

Going forward, we now expect to see our gross margin at approximately 50% for the near future, driven primarily by increasing competitiveness in the P&D market segment and by our anticipated product mix.

Our market share in Q4 was negatively impacted at one major customer partially offset by shared gains elsewhere. Going forward, we believe that no significant change in our overall market share will occur in Q1 although our market share with different customers could show changes either positive or negative in the future.

During Q4, our SiRF and Centrality teams worked diligently to integrate our technologies and personnel. We now have a more powerful joint product roadmap that builds on our combined expertise and demand for our SoC products is growing rapidly. With the help of our supply chain partners, we were successful in helping some key customers with the high volume ramp up of their products powered by our Atlas System on Chip platform in time for the holiday season.

According to many published reports, Portable Navigation Devices, PNDs, were a big hit in the holiday season, especially in US, and we continue to maintain our leadership position in this market. Many of our customers launched new and innovative devices in time for the holiday season. Magellan, a leading supplier of PNDs, unveiled a broad range of ultra-slim pocket sized products, this included the Magellan RoadMate 1200 which has "turn it on and go" auto navigation functionality at a very attractive price, and the Maestro 4200 and Maestro 3200 series of GPS navigation devices offering a wide range of features and price points, with integrated AAA TourBook travel information.

NAVIGON, a leading provider of navigation products in Europe, expanded its North American presence with a broad range of PNDs including many with Lifetime Traffic and ZAGAT Survey Ratings. In Europe, Binatone Electronics, the second largest DECT manufacturer in the world, commenced high volume production of PNDs.

In Japan, Sony released the SiRFstar III-based PND, the NV-U2, and Sanyo launched Japan's first Mobile TV PND powered by SiRFstar III architecture. In the US, Dash Navigation announced that it had started taking orders for the first internet-connected navigation system, Dash Express.

Also in the quarter, OnStar announced an interesting option called stolen vehicle slow down, which will be available on 1.7 million vehicles in North America for the 2009 model year. This feature used in conjunction with GPS tracking allows authorities to track and recover stolen vehicles in real-time by gradually limiting fuel to the engine.

Turning to our wireless market segment, a significant even took place in October we held our first Location 2.0 summit, bringing the innovation and leadership of the location industry together to address all aspects of the location ecosystem. This invitation only event was attended with active participation by the leading global operators and service providers, device manufacturers and enabling platform providers as well as content and application developers, the points of view expressed and information exchanges between the participants reinforced our belief that location technology will become an integral part of the mobile phone platform during the next years.

At this event we also unveiled our SiRFecosystem strategy to accelerate the deployment of location enabled content and services and we introduced SiRFstudio, a standards-based, end-to-end location services enabling platform that is designed to simplify and speed the development and deployment of location-aware applications across a broad range of mobile devices.

In this quarter, we also announced that as a founding member of the Open Handset Alliance, we are rapidly implementing key end-to-end location-awareness features needed to enable mobile devices powered by the Android platform to provide an optimal location awareness experience for consumers.

We continue to experience good growth in the wireless market with AT&T and Research In Motion announcing the availability of the BlackBerry Curve 8310, which adds the power of built-in GPS to the popular BlackBerry Curve.

In China, a leading supplier of mobile phones, Lenovo, launched the SiRFStar III-based P990 navigation phone. In India, HTC announced the launch of their P3300 phone also SiRFStar III-based with FM wireless LAN and the 2 megapixel camera capable of embedding GPS location data within the picture data and Motorola announced their handheld ruggedized mobile computer for enterprise applications, the MC70.

Now before I turn the discussion over to Geoff who will cover our financial performance in detail, let me give our sales breakdown by platform. Our sales rate platform for Q4 was more than 65% in automotive, more than 20% in wireless and above 10% in consumer.

Geoff Ribar

We achieved record revenues for the fourth quarter of 2007 of $104 million compared to revenues of $74.2 million in the fourth quarter of last year, an increase of 35% year-over-year. We also achieved record revenues for the fiscal 2007 of $329.4 million, compared to $247.7 million for fiscal 2006, an increase of 33%. Q4 revenue was comprised of $98.9 million from products and approximately $1.4 from license and royalties. Q4 and 2007 revenues included revenues from our SoC product line which we acquired in Q3 2007 as part of the Centrality acquisition. Non-GAAP gross margin in the fourth quarter 52.6%, non-GAAP gross margin dollars of $52.8 million. The non-GAAP gross margin for the year was 54.1%, the non-GAAP gross margin dollars were $178.3 million for 2007. Non-GAAP gross margins exclude stock compensation charges of $0.4 million, fair value adjustments of acquisition related in inventory of $0.3 million and amortization of acquisition related intangibles of $3.7 million in Q4 and excludes $1.5 million of stock compensation charges, $7.3 million of acquisition related intangibles and $1.9 million for fair value adjustments in acquisition related inventory for 2007.

As Mike said earlier, our gross margins were negatively impacted by a combination of competitive market pricing and the shift to product mix. This product mix shift was triggered by a late break in demand softness from two major customers and general weakness in the Korean market. This resulted in gross margin and ultimate EPS lower than we had anticipated.

GAAP net income was for the fourth quarter was $717,000.00 or $0.01 per diluted share, based on $64.3 weighted average shares outstanding. The fourth quarter net income includes $9.9 million of stock compensation expense, $6.2 million in amortization of acquisition related intangibles, $548,000.00 of acquisition related to contingent payments and a fair value adjustment on acquisition related inventory of $313,000.00.

GAAP net loss for fiscal year 2007 was $10.4 million, or $0.19 per share diluted and basic share based on $55.5 million weighted average shares outstanding. This compares with net income of $2.4 million, or $0.04 per diluted share, based on $56 million weighted average shares outstanding in fiscal 2006.

GAAP net income in 2007 included charges related to acquisition of Centrality communications in Q3, debt of acquisition cost from previous acquisitions and non-cash compensation expensenses.

We achieved non-GAAP net income in the fourth quarter of fiscal 2007 up $17.7 million or $0.28 per diluted share as compared to non-GAAP net income of $15.7 million or $0.28 per diluted share for the fourth quarter of fiscal 2006. Non-GAAP net income for the fourth quarter of fiscal 2007 excludes $9.9 million in stock compensation expense, $6.2 million in amortization of acquisition related intangibles, $548,000.00 of acquisition related to contingent payments and a fair value adjustment on acquisition related inventory of $313,000.00.

Non-GAAP net income for the fourth quarter of fiscal 2006 excludes $7.3 million in stock compensation expense, $1.1 million in amortization of acquisition related intangibles, $776,000.00 of acquisition related to contingent payments and a benefit of $2.6 million related to the prior period estimated R&D tax credits.

GAAP net income for fiscal 2007 was $60.0 million or $0.99 per diluted share, as compared to non-GAAP net income of $50.3 million, or $0.90 per diluted share for fiscal 2006. Non-GAAP net income for fiscal 2007 excludes $13.9 million of acquisition related in- process R&D, $37.7 million in stock compensation expense, $12.8 million of amortization related intangible, $2.7 million of acquisition expenses contingent payments, $1.9 million of fair value adjustments on acquisition-related inventory and prior period revision of R&D tax credits of $1.4 million.

Non-GAAP net income for fiscal 2006 excludes $13.3 million of acquired in-process research and development expense, $26.2 million of stock compensation expense, $5.2 million of acquisition-related intangibles and $3.2 million of acquisition-related contingent payments. Chips and SoC volume increased approximately 77% during the fourth quarter of 2007 as compared to the fourth quarter of 2006, while ASP’s declined approximately 24% over the same period. Chip setting unit and SoC units volumes increased approximately 15% from Q3 2007 while ASP’s declined 4%. Chip set unit volume increased approximately 75% during fiscal 2007 as compared to fiscal 2006 while ASP’s declined approximately 23% over the same period.

We had two 10% of our greater customers, Promate, our Taiwanese distributor supplies Top Tom’s Manufacturers as well as MYTECH and some of the other Taiwanese OEMs. Promate accounted for approximately 28% of our Q4 revenues and one direct customer at 13%. Headcount at the end of the fourth quarter was 753 versus 755 at the end of Q3 of 2007.

Q4 DSO was 34 days down from 44 days in Q3 due to strong seasonal demand. We expect DSO to increase in Q1.

Inventory returns were 6.9 down slightly 7 turns in Q3 2007 and near target. SirF had cash, cash equivalents and short-term investments and long-investments of $139 million as of December 31, 2007 as compared to $197 million on December 31, 2006. These cash balances reflect the acquisition of Centrality in Q3 2007.

Cash and investment generation was also at $20.75 million in Q4. The geographic revenue for the quarter by region was Asia Pacific at 85%, US at 6%, Europe at 7% and the rest of the world at 2%.

We expect 2008 non-GAAP tax rate to be approximately 20% for Q1 on the year. We also expect significant increases in operating expenses in Q1 2008 due to higher litigation expenses and increased R&D expenses mostly related to new products.

Now, I will turn it back over to Mike to go over our closing time outlook for the first quarter of 2008

Michael Canning

We had a good revenue growth in 2007 as the PND market continue to ramp strongly and demand for GPS enabled location technology and wireless applications started a strong ramp. This trend continued into the holiday season. However, the beginning of this year has been marked by increased uncertainty about the strength and direction of the economy, a decline in consumer spending could adversely affect our sales. Under these circumstances, predictions for our full year financial performance are no longer meaningful and so we will be providing guidance only one quarter at a time and with much less visibility that we have enjoyed in the past.

In reviewing our revenue forecast for Q1 and comparing with Q4, we are seeing typical seasonal declines in ordering from our traditional customer base. This year, however, our seasonal decline will be accentuated due to the additions of the SoC business through our Centrality acquisition.

This business is currently driven by mostly tier two and white box customers in China who typically present a much larger revenue decline from Q4 to Q1 because their annual volume is highly concentrated on the holiday season.

In addition, we do not expect demand from our wireless customers to offset these declines in Q1. Consequently our forecast for Q1 anticipates much greater than normal seasonality and uncertainty and so we have a guiding revenue in the range of $71 million to $77 million and non-GAAP EPS from a loss of $0.04 cents to break even. This assumes that 20% pro forma tax rates for the year.

At this time, we will open it up to questions from callers. Kanwar Chadha, co-founder and VP of Marketing and Rob Baxter our Senior VP and Geoff Ribar, our CFO will join me for the question and answer period. However, before we start, I should point out that there are certain issues of confidentiality relating to various customers or partners that we are required to respect and this may limit how completely we are able to answer your questions. We will take the first question.

Question and Answer Session

Operator

(Operator Instructions)

We will take our first question from the side of Adam Benjamin with Jefferies, your line is open, please go ahead.

Adam Benjamin – Jefferies & Co.

Can you just give a little more detail, I am just trying to reconcile the lead breaking softness by two customers and how that would have a big impact on gross margin?

Michael Canning

Well the impact is partially competitive and partially mix shift and the customers who are in different market segments.

Rob Baxter

For the mix mode, more towards the SoC product line as a result, which as I think you are aware is lower margin business than our traditional SiRFStar III discrete business.

Adam Benjamin – Jefferies & Co.

And you were expecting these orders to come in and they got cancelled late in the end of the quarter, is what you are saying?

Michael Canning

The indications from our customers change late in the quarter, yes that is correct.

Operator

And we will take our next question from the side of Brian Moddof with Deutsche Bank, your line is open, please go ahead.

John Nichols– Deutsche Bank Securities

I just want to ask about the increase in operating expenses this quarter. We have seen a lot bigger than we had anticipated. Is that the legal cost unit mentioned before?

Michael Canning

It is primarily legal and tooling on new products.

Rob Baxter

Also you need to remember in Q3, we did not have a full quarter of Centrality engineering or G&A as part of our overall expenses. Having said that, the expenses were basically pretty similar to our expectations, which may have been higher than yours, but similar to ours.

Brian Moddof – Deutsche Bank Securities

And so you have guided then to a lower growth margin rate, how far should we expect for the gross margin and the operating margin trends to continue at this higher level of plans?

Michael Canning

Well, obviously, we will scale our spending to match revenue, but it is difficult to scale operating spending back in zero time when there is a more than normal decline in revenue. As far as gross margin is concerned, I think since we are only forecasting quarter by quarter, we will take it quarter by quarter and see how it goes. We have always expected that gross margins would start to shift down as ramping of certain products occur and as competitive influences came into the market so for the moment, I think it is probably best to assume that we will be around 50% gross margin.

Brian Moddof – Deutsche Bank Securities

Okay and then lastly, can you talk a little bit just about how wireless is trending for the year? I am not asking for guidance to know that that is difficult to give, can you just maybe talk a little bit about how you expect how that market to ramp this year?

Kanwar Chadha

We expect the wireless market to provide good growth opportunities, the customers which have launched GPS enabled products. Their products are doing quite well and wireless has been showing good growth for us in the last two quarters and we expect it to become an increasing part of our mix this year.

Operator

Our next question comes from the side of Noelle Swatland with Lehman Brothers, your lines is open, please go ahead.

Noelle Swatland with Lehman Brothers

I have just one clarification and a question. The first is just on the market for the two customers that felt weakness at the end of the quarter. Could you specify which ones, I may have missed that?

Michael Canning

No I did not.

Noelle Swatland with Lehman Brothers

Generally speaking, how do you feel about inventories in the PND market moving into the first quarter?

Michael Canning

It is difficult to assess exactly what the inventory picture is. What we can tell is that there was quite strong demand in Q4 right up to the end of the quarter. It would not be surprising if there were some little overhang. Frankly, the economic picture is clouding a lot of things and the fact that lunar new year is upon us means we probably will not be getting much clarification on that until another let us say two or three weeks from now.

Noelle Swatland with Lehman Brothers

Just in terms of the normal seasonality that you refer to, can you just remind us what that is generally in the first quarter? Was that referring to the traditional PND market as well?

Michael Canning

Yes.

Noelle Swatland with Lehman Brothers

Can you just remind us.

Kanwar Chadwa

Traditionally, if you look at last two years for us, we have seen the PND market seasonality to be about 10% to 15% range. That is for the traditional customers we had. This year, we also got with our SoC product line a number of customers out of Asia who have a very high seasonality because they typically sell only during that holiday season and the Q1 for them is very weak, so this year, for us, the seasonality is higher than what our normal seasonality would have been.

Operator

Our next question come from the side of Sanjay Devgan with Morgan Stanley, your line is open, please go ahead.

Sanjay Devgan - Morgan Stanley

One quick housekeeping question, Geoff, I missed the tax guidance for 2008, did you say around 20% for the second quarter?

Geoff Ribar

20% on the pro forma pretax number.

Sanjay Devgan - Morgan Stanley

And then quick follow up question. I am assuming, I remember your previous guide, you noted that Centrality would probably make up around 10% of your total revenues this quarter and I am assuming that was the case, is it fair to assume that the contribution from Centrality next quarter will be minimal at that, if I can just do the math, and look at your guidance?

Michael Canning

No, the SoC business last quarter we had said was about 10% of our business so it was clearly higher this quarter.

Operator

And our next question comes from the side of Ramesh Misra with Collins Stewart, your line is open, please go ahead.

Ramesh Misra – Collins Stewart LLC

My first question was a clarification, did you say the non-GAAP gross margin in Q1 would be around 50%?

Michael Canning

That is correct.

Ramesh Misra – Collins Stewart LLC

In regards to the softness of the two customers, was this handset and PNDs or the handsets only, I think I missed that answer as well?

Michael Canning

Yes.

Operator

Our next question comes from the side of James Schneider with Goldman Sachs. Your line is open, please go ahead

James Schneider - Goldman Sachs

If you look at the SoC business, what percentage of your units you think that could be in the back half of this year?

Michael Canning

We express our guidance in terms of product mix, but it will be growing through the balance of 2008.

Geoff Ribar

And basically, right we are moving business in that direction from our discreet solution.

Kanwar Chadha

Right, but keep in mind this year we have a very rich product line so that the SoC mix will increase, but also some of the new products would become an increasing part of our mix in the second half of the year.

James Schneider- Goldman Sachs

And then I think you have previously talked about the fact that you believe that over time you believed the SoC products can command the same growth margin as the other products, do you still think that is the case?

Michael Canning

Yes absolutely.

Operator

Our next question comes from the side of Mahesh Sanganeria with RBC Capital Markets, your line is open, please go ahead.

Mahesh Sanganeria - RBC Capital Markets

Can you give us an idea of how does the Q1 product, the segment mix will look like? It is similar to Q4 or we are going to see more wireless than PNDs?

Kanwar Chadha

We clearly will see wireless becoming an increasing part of the mix in Q1.

Mahesh Sanganeria - RBC Capital Markets

And when do you see that in selection in wireless as we go through the year and what will guide that, is it the adoption of GPS and lower handset?

Kanwar Chadha

That is correct; I think there are two or three main drivers, one is of course some of the leading manufacturers of handsets are taking a much stronger position with as far as the location business services are concerned. Second thing, is some of the new platforms will be entering the market and these will be more of feature phone oriented platforms rather than the smart phone oriented platforms with which the GPS focus has been so far. And third, some of the of course the instructive technology and content like the Android platform, the open handset lines where location is one of the poor parts of the platform. So a combination of those three in our opinion will drive increasing adoption of location GPS into the wireless handsets.

Operator

Our next question comes from the side of Richard Keiser with Sanford Bernstein. Your line is open, please go ahead.

Richard Keiser-Sanford Bernstein

I just want to ask a question about the wireless business, it seems like a number of hardware platforms now have chosen software-based solutions, obviously the iPhone went with the technology from Skyhook wireless and it seems like Google is doing a lot of work to improve its ‘MyLocation’, just generally speaking, the competitiveness of software only solutions increased over the last six to nine months and how do you see that impacting your prospects in next generation platforms?

Kanwar Chadha

Luckily, we actually looked at what that triangulation based schemes are doing as first step towards more accurate location vessel business, so if you look at the Google Android platform or a number of other platforms being launched, the starting point is with whatever signals are available, but the real LBS services really require more accurate location than any of these triangulation schemes can give. So we look at these as frontal growth potential for GPS-based handsets.

Richard Keiser-Sanford Bernstein

Is it not in high-density populated areas, I just during this call downloaded Google maps and turned it on and it pinpointed my location actually within 20 yards, so that is a pure software solution. Are the mass majority for these wireless applications not for highly densely populated areas where I should get very good cell tower coverage?

Kanwar Chadha

Not necessarily, problem is you can get some accurate location in certain environments, but you cannot really navigate with that and as soon as you get out of a certain dense area coverage, your location goes away. So that from a reliability standpoint, you need to have a location system which works across different kind of environments, dense open canyons, not so dense urban canyon, rural areas, highways, if you look at navigation from example, you are driving and being indoor does not really help having a strong location. So you know in the longer run, we do believe and we have said that before, that you will see more and more of a hybridization of location, we do it in the automobile today combining GPS with other sensors which are in the automobile platform. In future you will see more and more combination of GPS with other radio-signal based positioning, but we believe that GPS is the only real global system, which has coverage that is much broader than any of these technologies individually can provide.

Operator

Our next question comes from the side of Tayyib Shah with Longbow Research.

Tayyib Shah – Longbow Research

I wanted to see if you can give us an idea of whether you think your market share loss was too a hosted architecture product or a standalone GPS solution? If you can answer that question in the context of how much of the PND market you think will be using the hosted architecture in 2008 that will be helpful.

Michael Canning

I do not know that it is possible for us to provide that kind of market analysis in a call like this, what I would say is that as always customers are the there to be won and lost, and if they are lost, they can always be won back by new and innovative products and we believe that the losses that we have seen can be temporary and we will work to make sure they are temporary.

Kanwar Chadha

Well the other way to look at it is we believe that the PND market will move more and more towards SoC architectures, so there is question of hosted versus non- hosted will over a period of time go away. I think that the biggest push from our prospective as well as feedback from our customers is to move towards more integrated solutions.

Tayyib Shah – Longbow Research

Okay it does not sound like you have a clear idea of your design win portfolio, the pricing and volumes that you will see from your customers in 2008 and if we look at the consumer IC companies, 50% margin is actually high for an increasingly competitive space. So is there a chance that margins may be substantially lower than the 50% that you are expecting for 2008 as we go forward?

Michael Canning

If we felt that we would have told you that.

Geoff Ribar

Just to clarify, we gave the Q1 margin at 50% right? We said approximately 50%, we did not really talk at periods beyond. Nonetheless, I think there would be new products to come out, they will come out at higher margins and again we will see the continuing competitive price pressure on an ongoing business.

Kanwar Chadha

And I would clarify we do have a pretty good idea of our design pipeline. What we are talking about is due to the economic uncertainty there is more uncertainty in terms of the end-consumer demand for those products as the year was. But we have a reasonably good idea of our customers, their plans and the design wins we have.

Operator

We will take a follow up from the side of Adam Benjamin with Jefferies. Your line is open, please go ahead.

Adam Benjamin – Jefferies & Co.

On the handset side, I just want to follow up on the landscape there and if you can talk just how you are seeing, it appears as if increasingly the handset OEMs are looking at the connectivity socket being kind of an upgrade socket from the Bluetooth to adding GPS and Wi-Fi and FM and the incumbent solution is the Bluetooth solution as the handset OEMs are looking to upgrade there, I know you introduced a combo solution about two years ago, I am not sure if it is in the market yet, I have not seen it yet. Have you talked about a little bit of the dynamics in the market place because it does not seem to be much GPS adoption going on in handsets and as it evolves it could move much more to this connectivity chip and I want to understand your positioning as it goes in that direction.

Kanwar Chadha

First of all, as we have indicated, we do see that GPS as an option in the handset is increasing. We are seeing it in our number and clearly if you look at what Nokia and some of the other handset vendors are saying. There is no question that that option is increasing. Going forward, there are going to be multiple ways of adding GPS into our handsets. We believe that there will be a substantial portion which will be standalone, but also an increasing mix which would be what we call multifunction radios, whether that is GPS with Bluetooth, GPS with Wi-Fi, GPS with WireMax, there are multiple combinations possible and there are some of those combinations which we will be involved with, but I do not think there is going to be one fixed way of integration of GPS into the handsets. If you look at some of our competitors who are integrating into the base brand, some of us rely on the standalone or integrate into the multifunction radios or integrating into the application processors. So if you look at all those four methods, SiRF is capable of doing at least three of them today.

And I believe different companies coming from where they are coming from will take different approaches. Just because you have a Bluetooth in a handset does not mean that that is right anchor to do a multifunction combination. GPS is the most sensitive receiver, so if you are going to integrate GPS with something, GPS is a stronger anchor to have.

Adam Benjamin – Jefferies & Co.

You mentioned that you have three of those, can you talk about which combos those are?

Kanwar Chadha

We clearly can do standalone, we have said that we have acquired technology which enables us to do multifunction radios with GPS Bluetooth, we have acquired technology to add mobile TV and we have capability to integrate GPS and SoC’s application processors, so the only one which we do not have capability today is integrating it into the base band, but we have potential partnerships in those areas. Plus as you know, we have announced joint development with Intel on certain multifunction radio combinations for the future.

Operator

Our next question comes from the side of Amit Kapur with Piper Jaffray, your line is open, please go ahead.

Amit Kapur – Piper Jaffray

You kind of mentioned about the vault of macro economic environment out there, could you maybe comment on, has there been any recent change in the price sensitivity of your customers because of some of those macro economic concerns or is the weakness that you are seeing really just in unit volume.

Michael Canning

No, it is not a price sensitivity at all. It is more a little uncertainty perhaps in customer demand.

Amit Kapur – Piper Jaffray

You kind of mentioned that we should expect roughly 50% pro forma gross margins for the foreseeable future, what are some of the drivers to maybe get that to recover closer to your target range?

Michael Canning

Your are going to see more sophisticated products coming out and you will start seeing those early this year, so by the end of this year, there should be a broader portfolio than you have seen to date and there will be much more attractive price points.

Kanwar Chadha

Plus, keep in mind, our supply chain organization is working quite diligently on reducing the cost structure for some of the acquired products we have, so as the year evolves, the product mix based on newer products with better margins, interesting products with better cost structure will help the margin model, and at the same time economic uncertainty and competitive price pressures will be offsetting some of that.

Operator

Our next question comes from the side of David Wu with Global Crown Capital. Your line is open, please go ahead.

David Wu – Global Crown Capital

I was curious about two things, the first thing is, given the fact that the SoC business sounds like it is going to drop more in the first quarter of ’08 versus the rest of the company, the gross margin on the other hand is down sequentially from the fourth quarter level, why is that the case particularly, it sounded like the wireless was going to get better in Q1 than in Q4 and the second one was, you mentioned about two customers that notified you late in the quarter about the change of plans, were those competitive win situations where there was alternate supply that moved or were they situations where customers were plain wrong about their end demand and therefore they had to just inventory before the end of the calendar year.

Michael Canning

In both cases, it was a reduction in those customers market demand. With respect to your other question, I think you should not necessarily connect all of those issues together. What we have pointed out is that the SoC business is an increasing percentage of our overall business and that that business itself has a much greater seasonality from Q4 to Q1. It is still growing and growing rapidly through the year. It is just that it contains a number of customers who are much more seasonally active around the holiday season and therefore that segment of our market shows a lot of up tick in Q3 and Q4.

The observations on gross margin, just a general observations where we are saying that given the overall market competitiveness, it is probably more appropriate for us to guide you in the 50% range than anything else and certainly, since we are only guiding one quarter at a time, that is what we are telling you about Q1.

Operator

Our next question comes from the side of Eric Geranhati (ph) with Banc of America. Your line is open, please go ahead.

Eric Geranhati – Banc of America

I have two questions, one for Michael and one for Geoff. You mentioned something with respect to not scaling opex as much as you would anticipate going forward. Does that mean that you are going to keep opex after Q1 at a relatively flattish levels and could you reconcile that with the depressed sales outlook that you provide for Q1 and then the second question for Geoff, my understanding is that the associate business was going to actually help you through the year at least help your ASP’s, has something changed along the lines that you are guiding now for like the depressed gross margins in Q1?

Michael Canning

On opex, two activities that are impacting it in Q1, one of those is new product tooling and that of course tends to be an occasional event, not a recurring event at least not a regularly recurring event. The other one is litigation and in this case is in the ITC, one in March and one in April, and we expect that there will be significant opex associated with those.

Geoff Ribar

On the SoC, there are two different things here, right, the ASP’s on SoC are clearly higher than our discrete business, but the margins and again, you can look at our previous AKA that we filed after we acquired the company. The margins historically on that business were low, so the ASPs are high and the margins were low, again, as Mike said earlier, we are working on improving, our operations group is working on improving those gross margins, but that takes a certain amount of time to get those gross margins up to our standard historical levels, but again, the ASP is good and better than our standalone products.

Operator

Our next question comes from the side of Peter Friedland with Soleil. Your line is open, please go ahead.

Peter Friedland – Soleil-Soleil

With all the consolidation activities that has happened in the GPS Chip’s space with a lot of base band vendors acquiring GPS technology, what do you think that does to you guys as far as your ability longer term to stay independent?

Michael Canning

I do not know that there was anybody that was of any significant size. They were all small companies that would have had great difficulty surviving on their own. So I do not think it is a fair comparison.

Kanwar Chadha

Well, I think what happens is, there is a consolidation because the startups really cannot survive in this market and they get acquired by larger companies. A larger company is clearly a more staying power, but so far we have not seen any significant impact of those acquisitions. In the longer run, it will depend a lot on what kind of focus can they provide versus what kind of product broadening we can do with our product line as we have indicated, we have done a number of acquisitions in the last three or four years and you will start seeing results of those acquisitions and a broader product portfolio this year.

We do believe that location itself is a very important function and we will derive a number of devices where location is the center or a very important feature of what you are trying to do so having other functions like base band, maybe the element in certain market segments is not relevant across the breadth for segments we have.

Operator

Our next question comes from the side of David Neiderman with Pacific Crest, your line is open, please go ahead.

David Neiderman – Pacific Crest

Just a quick housekeeping. What was the sequential ASP decline from Q3 to Q4?

Michael Canning

4%.

David Neiderman – Pacific Crest

And in regards to the Korean softness that you mentioned initially, can you talk a little bit more about that. Was that an end market demand weakness similar to what you talked about with your two customers or was it a share shift.

Michael Canning

There may have been a general weakness in demand, but there was also a component shortage. In Korea, they use 7-inch panels which are not used elsewhere in the world and there was a shortage of those panels, so it was a combination of those factors.

Operator

Our next question comes from the site of Jeff Evanson with Dougherty & Company. Your line is open, please go ahead.

Jeff Evanson – Dougherty & Company LLC

If I look at the sequential decline in gross margins from Q3 to Q4, I am curious what impact volume discounts might have played in that calculation?

Geoff Ribar

So we typically do not give volume discounts, obviously large customers get better pricing than small customers, but we do not specifically get volume discounts.

Operator

Our next question comes from the side of Ramesh Misra with Collin Stewart, your line is open, please go ahead.

Ramesh Misra – Collins Stewart LLC

In regards to your relative pricing in Q1, are you expecting a uniform decline in the standalone solutions versus the SoC or are you expecting one any worse than the other?

Michael Canning

I am not sure that we know exactly how to answer that question.

Kanwar Chadha

I think in general, Q1 part of the product effort to have some comparison, typical decline is similar. Now, clearly, a lot depends on the product mix and the customer mix. Higher volume customers, typically have lower pricing and if the demand goes up, declines can vary, but in general, whether it is an SoC or a standalone product, right now, we are seeing relatively equal price declines.

Ramesh Misra – Collins Stewart LLC

And then, in your comment, in regards to PND seasonality, you said that typically Q1 is down 10% to 15%, in regards to your own performance in the last two years, you have done significantly better than that, so I would like to get a better understanding of your read on seasonality.

Kanwar Chadha

Yes, I think if you go back to two years, over the last two or three years, there always have been some offsetting events in our case, either a wireless customer ramping up or shift in customer moving from their in-house to SiRF, so to a certain extent that counters the seasonality of the overall PND.

So normally we are better, have been better than some of our PND customers. This year actually we are somewhat worse because there is no offsetting E-VAT plus Q4 had a boost from some of these white label box customers, which were significantly more declined in Q4 to Q1.

Geoff Ribar

I think the other thing that is important is, in the past couple of years, there is also a secular growth trend in PNDs and although we expect growth in PND units and volumes this year, it is not a clearer traffic to us that the secular growth will be the same as it was in the prior two years.

Operator

We have a follow-up question from the side of Tayyib Shah with Longbow Research, your line is open please go ahead.

Tayyib Shah – Longbow Research

This is a question for Kanwar, we have seen more movement in terms of providing cellular connectivity in PND devises and security application as well. What is your strategy for addressing that need going forward?

Kanwar Chadha

Clearly, we do see some activity in the PND as one of the subset vendor of the PND market. It is more of a convergence between high-end mobile phone overseas connected PND and depending on how you look at it by one or the other.

There are multiple ways of getting connectivity, either directly to a modem or through a blue tooth connection onto a mobile phone and different decimals are implementing. Different types of PNDs.

The high-end connected PNDs, where people I have to pay, monthly or a yearly annual subscription fee in our opinion for the foreseeable future is not really the mainstream volumes are going to be. Mainstream volumes are going to be in stand-alone PNDs, especially at a much more attractive price volumes that we have seen in last two years.

The highest volume shifts have been to really, PNDs, which are stand-alone, easy to use and at a good price point.

Operator

We have a follow up from the side of David Niederman with Pacific Crest. Your line is open please go ahead.

David Niederman – Pacific Crest Securities

Just a quick question, in regards to the seasonality of the SOCs that you talked about, you had also spoken to the strategy of moving your legacy customers to SOC, so is that seasonality eventually get medicated as you shift away from the white box customers.

Michael Canning

Yes, absolutely

Operator

We have no further questions in the queue at this time. I would now like to turn the call over back to Michael Canning, CEO for closing remarks, please go ahead.

Micheal Canning

Thank you all for joining us today. Not withstanding the disappointing numbers and the uncertain outlook that we are reporting today, the fundamental opportunities and our served markets are still extremely robust. We are comfortable that our new product will address these opportunities well and will provide good opportunities for revenue and earnings growth in the future. Thank you all for joining us.

Operator

This does conclude today’s teleconference, thank you for your participation you may disconnect at any time and have a wonderful day.

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Source: SiRF Technology Holdings Inc. Q4 2007 Earnings Call Transcript
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