Advanced Analogic Technologies Q4 2007 Earnings Call Transcript

Feb.18.08 | About: Advanced Analogic (AATI)

Advanced Analogic Technologies Inc. (NASDAQ:AATI)

Q4 2007 Earnings Call

February 14, 2008 4:30 pm ET

Executives

Lisa Laukkanen - IR, Blueshirt Group

Richard Williams - President, CEO and CTO

Brian McDonald - VP - Finance and CFO

Analysts

Tore Svanberg - Thomas Weisel Partners

Krishna Shankar - JMP Securities

John Lau - Jefferies & Company

Ryan Goodman - Merrill Lynch

Vernon Essi - Needham & Company

Anthony Stoss - Craig-Hallum

Gus Richard - Piper Jaffray

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the AnalogicTech Fourth Quarter 2007 Earnings Call. (Operator Instructions).

This conference is being recorded today Thursday February 14, 2008. I would now like to turn the conference over to, Lisa Laukkanen. Please go ahead, ma'am.

Lisa Laukkanen

Good afternoon and thank you for joining us on today's conference call to discuss AnalogicTech's fourth quarter and fiscal year 2007 results. This call is being broadcast live over the web and can be accessed for 90 days in the investor relation section of AnalogicTech's website at AnalogicTech.com.

On today's call are Richard K. Williams, President, Chief Executive Officer and Chief Technical Officer, and Brian McDonald, VP of Finance and Chief Financial Officer. After the market closed today, AnalogicTech issued a press release discussing the results for the fourth quarter and fiscal year ended December 31, 2007. The press release is accessible online at the company's website or you can call the Blueshirt Group at 415-217-4961 and we'll fax or email you a copy.

We would like to remind you that during the course of this conference call, AnalogicTech's management team may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are simply predictions and actual events or results may differ materially.

We refer you to the documents that the company files from time to time with the Securities and Exchange Commission, specifically the company's most recent Form 10-Q and 10-K. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

With that said, I would like to now turn the call over to AnalogicTech's President, CEO and CTO, Richard Williams.

Richard Williams

Thank you for joining us today as AnalogicTech reports its fourth quarter and fiscal 2007 results. During the call, I will provide a brief recap of the financial results and business highlights for the quarter, and then review our product development and growth strategy. I will then turn the call over to Brian for a detailed financial review of the fourth quarter and the fiscal year, followed by guidance for the first quarter. We will then open up the call to your questions.

2007 was a tremendous year for AnalogicTech, as we grew our annual revenue by 35% to a record level of $109.6 million. During the year, we introduced a record number of new products and continued the successful roll-out of products using our proprietary process technology in ModularBCD. We expanded the applications and market opportunities for our products and diversified our customer base.

Additional highlights are as follows. Our fourth quarter revenue and earnings were in the upper end of our guidance range for the quarter. Revenue for the fourth quarter grew 53% year-over-year to $32.1 million. GAAP net income for the fourth quarter was $3 million or $0.06 per diluted share. For the year, GAAP net income was $1.9 million or $0.04 per diluted share.

During the fourth quarter, we continued to increase our presence at our larger end customers. Samsung was once again our number one customer, accounting for approximately 30% of total revenue. Contributing to the higher sales of Samsung during the quarter, was seasonally strong demand for our ChargePumps and new demand for switching regulators in consumer applications. We have also began to secure design wins for switching regulators in the high-end cell phone platform.

Sales to LG remained seasonably strong and represented approximately 17% of total revenue. Sales to LG followed a nominally seasonally slowdown in December. We continue to experience robust design win activity across a broad range of LG’s product portfolio, including both high-end and emerging market phones. New applications include high current flash drivers for megapixel camera phones. Production commenced on recent design wins for LG’s new touch screen phone models, Beauty and Venus.

At Sony Ericsson, we recently secured design wins through our long standing relationship with Sagem, a licensed ODM for Sony Ericsson. We expect the existing production phone models with Sony Ericsson to continue to be sold into the second quarter and new models to commence production shortly thereafter. With two conduits for cultivating opportunities at Sony Ericsson, both directly and through Sagem, we remain encouraged by the long-term prospects for expanding our relationship and penetrating new applications.

Typically for the first quarter, handset manufacturers including Samsung, LG, ZTE and Sony Ericsson have commenced the transition to new models. While Q1 revenue depends heavily on the timing of these transitions, the prospects for our first half handset business remained strong. New models includes switching regulators, high current camera flash and battery over voltage protection product.

The scheduled migration to our low cost higher margin LED drivers for mass-market phone began during the fourth quarter with the receipt of the first pilot production orders. Since then we have begun to secure design wins with production start dates ranging from March to July 2008. The new LED drivers are expected to improve our overall margins starting late in the second quarter.

Overall, 59% of revenues were from lighting and display products, 25% from voltage regulation and DC-to-DC converter products, and 16% from other power management products, including port protection and battery management. Switching regulator revenue used in our lighting solution is recorded in the lighting and display category.

In 2007, we greatly accelerated the pace of product development activities. We introduced a total of 28 new products during the fourth quarter, including 7 new platform and 21 derivative products. For the year, we released a record 106 new products. Today our total power management product portfolio now comprises 637 products.

We continue to be pleased with our progress on worldwide product development and activities, using our proprietary ModularBCD process technology. It expands our market opportunities to include higher-voltage applications, such as notebooks, set-top boxes, routers, high-definition televisions, digital photo frames, and the handheld point of sale terminals.

Additionally ModularBCD enables us to offer highly integrated products, and SOCs for digital still cameras, GPS, and Bluetooth accessories. To-date we've released 35 ModularBCD based products into production and have more than 33 new products currently in development. One of the strengths of our proprietary ModularBCD technology is its unique ability to assemble complex and highly integrated power management ICs in a lego-like fashion. Unlike conventional BCD technologies originating from the 1980s using expensive epitaxy, high temperature processing, large line widths even over 1 micron.

And requiring full custom design every time on ModularBCD technology is truly modular, allowing circuit reuse, mixing of on-chip voltages, faster design time, and shorter time to market. With this low cost epi-less isolation, unwanted interaction parasitics and noise are suppressed. While it's 0.35 micron line width CMOS facilitates high levels of integration and small chip sizes. No other commercial BCD technology offers such advantages.

Exemplifying ModularBCDs integration capability, we have designed and are now offering a number of new multi-function products. They include a power SOC for Bluetooth headsets and accessories combing a battery charger with multiple voltage regulators now in production. A power management unit companion PMU for VIA's new CDMA chipset now, sampling. A three regulator mini PMU for applications such as HD radios, personal navigations and MP3 players now in production.

A five general PMU for GPS and personal navigation devices. A PMU for Bluetooth hand free car kits, a fully integrated power SOC for digital still cameras, the most complex IC we ever designed developed by our Shanghai design team, the chip worked the first time. The product now sampling, is expected to contribute revenues in late 2008 and beyond. In total we are now sampling or selling over 20 highly integrated modular VCD products.

High voltage products represent another growth driver for AnalogicTech. We are now sampling or developing a number of 12, 20,30, 40 volts LED drivers for large screen and OLED displays including single channel and multi-channel solutions for four inch to 60 inch panels requiring high voltage drive of anywhere from 8 to over 1000 LEDs. Markets include Personal Media Players, Portable DVD Players, Digital Picture Frames, Personal Navigation Devices, Telematic Displays, No-Port Computers, Monitors, Consumer TVs And High Definition Televisions.

The first revenue associated with large display black light drivers is expected in the first half of 2009. As discussed in the last earnings call, we remain encouraged that the ITC in its final determination upheld the favorable ruling for AnalogicTech for its ChargePump and the majority of its switching regulator product lines. Recently Linear Technology served noticed that it will be appealing portions of the final determination to the Federal Circuit Court. As such, the ITC will be defending its decision against Linear Technology. AnalogicTech has been allowed to intervene in this appeal process which is expected to conclude no earlier than the fourth quarter of this year.

AnalogicTech's lawsuit against Linear in US Federal Court for business interference, trade liable, patent misuse and unfair business practices remained stayed while the ITC appeals process proceeds. In the fourth quarter AnalogicTech filed 30 US and foreign patent applications covering fundamental innovations in switching regulators and process technology.

In conclusion AnalogicTech's fourth quarter kept a strong year for the company. We are proud of the progress that we have made in building our leadership position in our targeted markets. We had a number of significant accomplishments including the successful roll-out of 5-volt, 12-volts, and 30-volt products using ModularBCD, expanding the end market opportunities through the introduction of new products, and diversifying our customer base.

As we enter 2008, we are well-positioned for long-term growth and continued market penetration. We are very excited about the multiple growth drivers that we see for the year, and believe our current design win momentum and the positive customers response to our new product introductions bodes well for another year at AnalogicTech.

2008 growth drivers include the volume ramp and ongoing roll-out of ModularBCD products including 12-volt and 30-volt products, design wins and new customer penetration, new product targeting new applications such as 28 over-voltage protection Lithium-Ion chargers, low-voltage switching regulators, 20-volt to 60-volt LED drivers for small TVs and personal media players and power SOCs for digital still cameras, Bluetooth, and PMU applications. And the large credit option of two and three channel low-cost white LED drivers targeted towards the highly affordable handset market.

We are encouraged by our success to date and remained confident in our belief that AnalogicTech has excellent growth prospectus as we addressed the growing total power management needs of consumer, communications and computing applications.

I will now turn the call over to Brian for a detailed financial review.

Brian McDonald

Thank you Richard, and thank you everyone for attending our conference call. I will review our results for the quarter and then briefly discuss our outlook for the first quarter and first half of fiscal '08. Please keep in mind that the financial data mentioned within this call will be on a GAAP basis unless otherwise noted.

Now let me outline the details. Revenue for Q4 '07 was a record at $32.1 million, compared to $21 million in Q4 of '06 and $30.6 million in Q3 of '07. Our Q4 revenue increased by 53% from Q4 of '06 and increased 5% sequentially. Revenue for the year was also a record at a $109.6 million compared to $81.2 million in 2006. This represents a 35% increase year-over-year.

In Q4 sales in Korea were $16.1 million; China at $9.5 million; Taiwan at $4.7 million; and all others at $1.8 million. For the prior quarter, sales in Korea were $15.5 million; China, $8.6 million; Taiwan, $5.2 million; and all others at $1.3 million. Sequentially the sales increase in Korea was driven by increased sales to Samsung for switching regulators and consumer applications and seasonally strong demand for charged pumps. Growth in China was driven by increased sales to new and existing local handset and memory card manufacturers. Sales in Taiwan were seasonally lower primarily in the consumer market segment.

Direct sales to Samsung accounted for approximately 11% of total revenue that's compared to 8% in Q3 of ‘07. Sales to Samsung remained strong throughout the quarter. Sales to Samsung combined with this contract manufacturers accounted for approximately 30% of total revenue as compared to 25% in Q3 of ‘07. Sales to LG represented approximately 17% of our total revenues, compared to 22% in Q3 of ‘07. Sales to LG followed a normal seasonal slowdown in December. Sales of Chieftec, our largest China distributor represented approximately 17% of our total revenues compared to 14% in Q3 of ‘07.

GAAP gross margin was 52.6% for the quarter, this compares to 54.3% in Q4 of ‘06 and 53.6% in Q3 of ‘07. The decrease in gross margin from Q3 ‘07 was primarily due to lower sales of previously written down inventory. Aside from the inventory effect, product margins remained at prior quarter’s run rate. We expect our margins to gradually improve over the course of the year as we increase sales of higher margin products and transition high volume products to low cost solutions.

R&D spending was $8.4 million or 26% of revenue for the quarter, an increase of $1.8 million from Q4 of '06 and $0.4 million from Q3 of '07. The sequential increase in R&D expenses was primarily the result of increase new product development expenses, included in the R&D spending was $0.7 million of stock-based compensation expense.

SG&A spending was approximately $6.6 million or 21% of revenue for the quarter. This represents an increase of $0.5 million from Q4 of '06, and an increase of $0.2 million from Q3 of '07. The sequential increase was primarily attributable to higher stock-based compensation expense.

Included in the SG&A spending was $1 million of stock-based compensation expense. Litigation costs was $0.1 million for Q4 '07, as compared to $3.3 million in Q4 of '06 and $0.6 million in the previous quarter. The sequential decline was a result of decreased ITC legal activities.

Operating expenses in total were $15.1 million, this compares to $15.9 million in Q4 '06 and $14.9 million in Q3 of '07. The slight sequential increase was due to higher product development and stock compensation expense offset by lower litigation expenses.

Stock-based compensation expense was $1.8 million for Q4 '07, compared to $1.8 million in Q4 of '06, and $1.6 million in Q3 of '07. Operating income was $1.8 million for the quarter, as compared to operating loss of $4.5 million in Q4 of '06 and operating income of $1.5 million in Q3 of '07.

Other income net was $1.2 million or 4% of revenue for the quarter, this compares to $1.5 million in Q4 '06 and $1.4 million in Q3 of '07. The sequential drop was due to $0.2 million write down of a strategic investment in a private analog company. Tax expense was $0.1 million, as compared to $0.3 million in Q3 '07. The sequential decline of tax expense was associated with additional benefits related to R&D tax credits and disqualifying disposition from stock options.

Net income for Q4 '07 was $3 million, or $0.06 per diluted share, compared to a net loss of $2.6 million, or $0.06 per share in Q4 '06, and compared to net income of $2.6 million, or $0.05 per share, in Q3 of '07. For the year, net income was $1.9 million or $0.04 per diluted share compared to a net loss of $2.1 million or $0.05 share in 2006.

Moving on to the balance sheet, cash and cash equivalents and short-term investments totaled $114.2 million at the end of the quarter, up by $6.5 million from Q4 of '06.

Net accounts receivable was $14.4 million at the end of the quarter, up by $3.4 million from Q4 '06 due to higher sales. The average day sales outstanding for the quarter were 41 days, an improvement compared to 48 days last year-end. And 41 days represents a record since our IPO in August of 2005. Net inventories were $12.2 million at the end of the quarter, up $3.7 million from Q4 of '06. This increase was a function higher sales during the year. Our inventory turns for the quarter were a 5.0, an improvement compared to 4.5 in Q4 of '06.

Overall, inventory levels at our distributors remained within our two month target.

Now, on to the business outlook. Let me comment on Q1 of 2008 and the first half of 2008. We expect Q1 revenues to be between $26.5 million to $29.5 million, up approximately 30% year-over-year. And our first quarter guidance reflects seasonality and the uncertain timing of model transitions by our major handset customers. We expect first half revenues to be between $57 million to $61 million.

We expect Q1 gross margin to be flat with Q4 of approximately 52.6%. R&D expenses in the range of $7.5 million and $7.7 million, exclusive of stock-based compensation expenses. SG&A expenses in the range of $5.3 million and $5.5 million, exclusive of stock-based compensation expenses.

Litigation expense in the range of $0.2 million to $0.4 million. Stock-based compensation expenses in the range of $1.7 million to $1.8 million, other income in the range of $1.1 million to $1.3 million. Amortization of intangible assets to be approximately $0.3 million, tax expense approximately $0.3 million to $0.5 million, and GAAP earnings per share to be between breakeven and $0.02.

That concludes my remarks, now I’d like to open the line for questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Our first question comes from Tore Svanberg. Please go ahead.

Tore Svanberg - Thomas Weisel Partners

Yes. Congratulations on a great year, guys. I had a couple of questions. First of all, you had mentioned you expect the gross margin to gradually improve throughout the year. Could you elaborate a little bit more on that, what types of improvement should we be looking for and when do they start happening?

Brian McDonald

Okay. Tore, like we said the first quarter is going to be roughly flat. But in the second quarter we'll start to see a modest increase primarily attributable to the lower cost products for the low end handsets, that will start to ramp in the later part of the quarter, and then you will start to the new high-voltage products, expectedly in the second half.

Richard Williams

And the final switching regulators also starting to come in during the second half.

Brian McDonald

Right. So you'll start to see the gross margin increase little bit in the second quarter and get up close to model by the end of the year which is up into the 58% range, there will be a little bit softer that maybe exit the year at about 57%.

Tore Svanberg - Thomas Weisel Partners

Great. And I think you mentioned you had 106 new products in '07, how did that compare with '06?

Richard Williams

I think '06 was in the range of its like 65 or something…

Brian McDonald

It was almost twice.

Richard Williams

50 to 60 somewhat there, yeah.

Tore Svanberg - Thomas Weisel Partners

Okay.

Brian McDonald

Almost twice.

Richard Williams

It's almost double. But I think the point to make here is that not only did we nearly double the number of new products, new products we're putting on now are much more complex.

Tore Svanberg - Thomas Weisel Partners

And I guess to that point you keep talking about ModularBCD and the flexibility (inaudible).

Richard Williams

We were 57 I checked, 57 were released last year.

Tore Svanberg - Thomas Weisel Partners

Okay. So the [first] period of market would be, have you made any studies yet on how faster the products are now generating revenues versus what you did before ModularBCD?

Richard Williams

I think the design in time depends upon the complex of the application. So all I can comment on is the design time doing something as a complex as a power SOC for a digital still camera with multiple positive and negative voltages and high voltages and chargers and all these functions. These kinds of functions integrated under a single chip. Before my experience with other technologies you could go through several iterations before would even work. It would be absolutely unheard of to put it on to a chip and have it work the first time.

But since each of the blocks have been proving on ModularBCD. Their integration in a tile or Lego-like fashion has only the issue of isolation, and since it is a fully isolated process, there is a very few risks other than execution risk. A very few technical risks evolved with the integration and that's why I believe you can take a brand new design team who would never design on ModularBCD before, halfway around the world, bring them up on this process, have been designed the most complex chip we've ever made and have it worked the first time. That's pretty amazing accomplishment by anything I ever have experienced.

Tore Svanberg - Thomas Weisel Partners

Very good. And you mentioned that you expect to get into some higher end model like Samsung, you did mentioned some of the LG do you have any other code names or model that you probably designed into?

Richard Williams

We could do that later. I think we'd have to go and dig through the paper work to find out which models were, and/or so it were in so many models, it's hard to see which one.

Tore Svanberg - Thomas Weisel Partners

Okay. Fair enough. And then lastly your China business was up very nicely in the quarter, yet some other companies have reported about small goals in China in Q4. So can you elaborate little bit on your success in Q4 was a namely share gains or was something else that happened there?

Richard Williams

I don't think its share gains, but it also that we have not sold much into the grey market or fourth tier handset manufacturers, and we know that the China banks have tightened upon their lending that some of the grey markets companies have definitely been in a position where they have been strap for cash and they have been hurt. So, people who are providing chip sets into those markets definitely got hurt.

We've been basically focusing on the leaders in the field and that's both in the local manufacturers as well as the foreign [parent] companies, international companies who are doing manufacturing in China and that is not necessarily even reflective of the China handset market, but that's more reflective of a global contract manufacturing market. So we have a couple of elements that keeps us somewhat separate from the local trends that you're seeing in China. Quite frankly, business-wise we see China still has a lot of growth opportunity.

Tore Svanberg - Thomas Weisel Partners

Understood. Thanks again and congrats on 2007.

Richard Williams

Thank you

Brian McDonald

Thanks Tore

Operator

Thank you. Our next question comes from Krishna Shankar with JMP Securities. Please go ahead.

Krishna Shankar - JMP Securities

Yes, congratulation also on a great quarter. Couple of questions, as you look that the guidance for Q1, is this what you would describe as seasonal, do you see anything unusual there in terms of handset ordering patterns.

Richard Williams

Hello

Krishna Shankar - JMP Securities

Hello, can you here me

Richard Williams

Yes. So we would say that quarter one follows a range that is a normal range for Q1. That's because we've seen years going from flat down to roughly 15% and anything in between. And considering Q4 was a very strong quarter where Samsung kept pulling or kept buying products right up to the end of December. Then you could say definitely that this would be a pretty much a normal year and quarter four looked pretty strong, so.

Brian McDonald

Right. And to elaborate on that a little bit more, Krishna. We were basically down 15% in the first quarter of 2006 and essentially flat in the first quarter of 2007. So the range has been pretty broad for us. And I think this year in the current guidance with the strong Samsung activity that went almost all the way through the end of December, we are anticipating a little softness there in the first part of the quarter and that's reflected in the guidance.

Richard Williams

But having said that LG has definitely been strong in the first quarter. So it's not a single point that represents the whole market. So I think -- we're pretty optimistic about the fact that the real issue is that the business for the first half is strong and that only a minor shift in timing can change the Q1 revenue. But it will have a little impact on the first half revenues. So we're still pretty optimistic about the first half of the year.

Krishna Shankar - JMP Securities

Yes. And just one quick follow-on, how…

Richard Williams

Hello.

Operator

Pardon me, he just got disconnected.

Brian McDonald

Okay.

Operator

Our next question is from John Lau with Jefferies and Company. Please go ahead.

John Lau - Jefferies & Company

Great, thank you, Richard. I wanted to ask you, it seems like you are seeing normal patterns as you had itemized in the variance between flat to down 15 seems to be pretty normal out there. Are you seeing any out-of-place inventory build up or anything that's unusual out there in the market place?

Richard Williams

We've heard some rumors that there were inventory in the channel of some of the handset manufactures in U.S. carriers, so we tried to verify that. We were unable to find any models that specifically were in high inventory, and so the ones that affect our business did not seem to be U.S. specific and they didn’t seem to be particularly sensitive to that problem.

So, we still do not see over inventory, what we see is the normal hand-off between the fall [into] models and these spring models. And that is a transition where some of the model ramped down or end of life and some of them start to ramp up and it's all entirely a matter of timing on how they do that handover. If they think they can stretch a little bit more sales out of the older model they will otherwise they cut it off and then they start ramping as soon as they get back from Chinese New Year.

So we are just now starting to see activity pick up because Chinese New Year's pretty much just finished in Asia this week.

John Lau - Jefferies & Company

All right.

Brian McDonald

And John also one of the thing we track pretty closely as the inventory at our distributors. I mentioned in my comments that our Chinese distributors overall our Asian distributors overall remained at a target inventory level of two months. Now we did see at one of our distributors in Asia little bit of build up in inventory ahead of that. And then that would indicate may be a little bit of slowness in some of the China handset manufacturers, but as Richard indicated now that the new year is over we start to expect to see that pick up.

John Lau - Jefferies & Company

Okay, thank you. And you had mentioned that China seems to be seasonally down with lots of opportunities. Richard, what are the exciting hand products that your are looking to see really roll out in the second half of this year in terms of hand products?

Richard William

First, I’d say, I think the adoption of over voltage protection is going to happen very quickly, and I think that opens up a lot of new opportunities. I see high current camera flash, one amps, two amps and we are even looking at a product that will do with LED camera flash at four amps and make an LED flash nearly as bright as that of the xenon flash. And that seems to be something that's very interesting because as cameras and camera phones go up in megapixels, the sensitivity of the image sensor declines, and they need more light. And that's why a lot of the LEDs lying in cell phone and cameras today is not enough to take good picture.

So, definitely digital still camera opportunity, where we have the one chip digital still camera and a whole bunch of other components that can go into that market.

We also see personal navigation in GPS expanding, still as a handheld devices, but gradually working their way toward an eventual integration into a cell phone. And when GPS becomes integrated into the cell phone at that time I predict that the 911 function, the emergency response function will be something that the Government start to become very interested in, and to do that they will have to have the accuracy to actually place where someone is placing in a call within a few feet from where the caller is located. And that takes fairly sophisticated GPS technology and a fairly good amount of power management requirements to do that as well. So that's much more difficult then just simply keeping track that where you are on a road.

So all those are new and emerging applications, but I think they are very exciting. And we still see design activity on putting voltage regulation to power the RF power amplifier with a [bud] converter that can be programmed in voltage to improve the efficiency of 3G, 3.5G and 3.75G phones which are HSUPA and HSBPA for high data rates. So that's exciting also.

John Lau - Jefferies & Company

Great, thank you.

Richard Williams

Okay, and lastly we should mention we see with our higher-voltage products, we're opening up our new markets like the set-top box and digital photo frame and a whole bunch of other areas, which our market that are out there they have been served a fairly low-tech solutions to date, and now we're offering higher performance or a more feature rich products then what is available in the market today, and we're excited about those prospects as well.

And lastly the designing process starting throughout Asia on the back lighting for large displays, a high-voltage displays we've already rolled out, a 40-volt drivers, and then we'll soon be putting out an 8-channel version of that. So we're looking at that as something that has to start happening now to drive 2009. So we're already working on the end of 2008 and also 2009 now for growth drivers.

John Lau - Jefferies & Company

Okay. Wow, thanks.

Operator

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

Ryan Goodman - Merrill Lynch

Hi, guys this is Ryan Goodman for Srini. I had a question on the Broadcom business, if you could just give us an update there what you are seeing with 802.11n business and anywhere else you might be getting traction there?

Brian McDonald

Okay. Just real quick on from our percentage sales in the fourth quarter the business remained strong for us. It was flat from the third quarter which is typically a very strong quarter in the third quarter and therefore we would expect to see some seasonality but we did remain flat, and we continue to see some activity. You know bookings activity is reasonably good at this point in time. As far as other transaction Richard I'll let you.

Richard Williams

Okay. Several things are happening in the broader point of view, particularly with Broadcom but not only with Broadcom. We are continuing to find new applications and new requirements for Wi-Fi and we are offering and developing new products including new low-noise switching regulators that can serve the Wi-Fi market, and we are working closely with Broadcom and our other customers on that. I would say in general our relationship with Broadcom continues to improve and diversify, and we will start to look an opportunities in other market sectors that Broadcom serves not just the 802.11n. And we hope to continue to improve that relationship and become a strategic partner to them in their future power management requirements when they elect not to integrate those functions themselves. And we would like to be the vendor of choice to provide those solutions for them and do so very strategically. So, quite encouraging in that.

Ryan Goodman - Merrill Lynch

Okay, great. And then, hey, Brain, I just had couple of housekeeping questions. Could you give us the operating cash flow and CapEx numbers?

Brian McDonald

Yeah. The CapEx for the quarter was about $800,000. The operating cash flow was approximately $2 million for the quarter. I think net-net we were actually about $3 million, it was actually 3.8. Excuse me, 3.8 on the operating cash flow.

Ryan Goodman - Merrill Lynch

Okay, great. Thanks

Operator

Thank you. Our next question comes from Vernon Essi with Needham & Company, please go ahead.

Vernon Essi - Needham & Company

Thanks very much. Good quarter. Just going into some simple questions here. Brian, on the litigation side, it seems like your guidance was a little lighter than what I think you've indicated in the past. Could you give an idea how that might play out from the rest of the year?

Brian McDonald

Yeah, what's driving that Vern is the $100,000 that we actually incurred in the fourth quarter was below what we expected, and the activity is basically shut off. So we're a little optimistic by that. This appeal process will run, it will cause us to put up very little money going forward. The next couple quarters, I’d say will be in the range of what I indicated on the guidance. And we don't expect that really to take off maybe until the fourth quarter of this year, probably more realistically the first quarter of ’09.

Richard Williams

Let me clarify one point there. That when Linear Tech goes into an appeal process, they are actually appealing their case against the ITC. So the ITC is writing a brief, that is opposing the Linear Tech brief and we have the option to weigh in, but we are not actually the one in the court fight, it's between the ITC and Linear Technology, and we are only offering an interested party opinion.

Vernon Essi - Needham & Company

Right.

Richard Williams

So that's why the expenses involved in that process are not as high as when we were in fact the defendant.

Brian McDonald

Yeah. And also Vern, the appeal process continues Linear Tech cannot enter any new evidence into the process, so we don't have -- ourselves we won't have to go dig up more research or anything like that. So most of our hard work is already behind us.

Vernon Essi - Needham & Company

On the litigation side the next big fork on the road is obviously is going to be your case against them which could commence later this year?

Brian McDonald

Our case against is probably realistically early '09.

Vernon Essi - Needham & Company

Okay. And so just to revisit that guidance is 0.2 to 0.4 correct?

Brian McDonald

That's correct.

Vernon Essi - Needham & Company

And then also another question I know you disclosed this. But what was your -- you would have characterized your ModularBCD revenue this quarter, where did it land over the fourth quarter?

Brian McDonald

It ended up at about 4% of sales or cost of $1.2 million.

Richard Williams

And from the design-in point of view, the projected revenue of course is rising because we see a lot of the design wins of new models that we'll be using in new product.

Vernon Essi - Needham & Company

Okay. Thank you very much, guys.

Brian McDonald

All right Vern.

Operator

Thank you. Our next question comes from Anthony Stoss with Craig-Hallum. Please go ahead.

Anthony Stoss - Craig-Hallum

Hi, guys, most of mine have been answered, but a couple of other quick ones. If you could comment on, if you're seeing maybe strength in the high-end 3G or if its low end phones, any sense there then I'll follow-up with a couple more questions?

Richard Williams

I think we see swings in both of those. I'd say the middle sector is where the bottom's falling out of it and that's kind of where the Motorola Razor phone sits. So, Motorola is definitely taking a hit because that middle sector has dropped off. But the super low end is growing rapidly and the number of high end phones just a whole bunch of new stuff megapixel cameras, digital multimedia broadcasting some people taking about HD radio, there is just all kind of new gadgets and features that people are looking at integrating.

I would say from a market point of view the iPhone was very, very healthy for the industry, because it revitalize the whole high-end portion of the cell phone industry, and made people realize -- made companies realize that there is a lot of pent up demand for feature-rich product. The only thing is the supplier had to come up with which features their customers want, and that's been the tricky thing for company. So you see Samsung does a lot of different models, other companies are picking a few selective models and trying to make them feature rich, two different approaches for the same market.

Anthony Stoss - Craig-Hallum

Okay. If I'm not mistaken the 2% of your revenues last quarter Q3 I should say were ModularBCD now [four]. Richard I believe you said you expect to exit 2008 at about 20% of your revenue, is that still on track?

Brian McDonald

That is on track.

Richard Williams

Yeah. I would see that's on track. I mean the design wins we have are substantial and the number of new products coming out are as you saw in my discussion becoming overwhelmingly weighted towards ModularBCD especially the higher ASP feature-rich products. I would expect the low end of the LED drive business will stay Analogy CMOS. There is very little benefit to using DCD technology to enter that market. I know some companies were running around saying that they’re going to somehow take the market in LED drive by going to be BCD and I don't see it confers any advantage for just a non-integrated standalone LED driver. So, I think we are well positioned to handle both markets with the optimum products for both.

Anthony Stoss - Craig-Hallum

Next question, your ramp with Sony Ericsson, my understanding is you've three phones kind of dedicated or expected now, do you have much review after those first three phones have launched, kind of Q2?

Richard Williams

I would say we are in Phase II of the relationship. The first one was, last year's try us and see Then this year is definitely a bigger step towards being a much larger portion of their total volume, and so, where are now with Sony Ericsson is the starting of a relationship building. They opened up a large number of applications to us and we have to come back and show them what we can do in each of those applications, how we can help them, and until you're a trusted supplier, you don't get that chance.

So, we first became a [dream] partner to Sony Ericsson, then we started ramping in the production, we showed we can meet the volume. Now we are giving a chance to open it up in the many, many new things. I would say obviously, they will pick a few leading-edge things to drive the relationship first. For example, a high current camera flash might be something that Sony Ericsson, since they do have a lot of very nice feature phones, they might be interested in that kind of area. And this is the kind of products -- that leading-edge products that we will discuss and use to drive the relationship into a much broader relationship than the one we have now, but having said that, it's a pretty good relationship already.

Anthony Stoss - Craig-Hallum

Okay. And my last question is understandably you have much better visibility into LG and Samsung. How much visibility do you have in Chieftec and what would you expect them to be kind of towards the end of this year?

Richard Williams

Okay. So Chieftec is a distributor and not really a customer, and so what we do is we track the end customers. And we have pretty good visibility into all their end customers. So to answer the question of what Chieftec is we'll have to go and [roll up] each of those individual opportunities and see what that does for them as a distributor. And I don't have that information in front of me that would take a little bit of work for us to go try to analyze.

But the individual components in Chieftec, their customers and the end customers in China are all growing pretty healthy this year. This year is an Olympics year I think a lot of people have not factored that into, that's going to create additional demand for products in China.

There was even been a story going around, there might be a net demand for GPS phones for the Beijing Olympics, right, to help people from getting lost, for all the tourists that will be coming. So we'll see what develops. But I would say generally Chieftec should grow in the later half of the year, and in the first half of the year I would still say that go through the slower.

Anthony Stoss - Craig-Hallum

Okay. That's what I was driving at. Thank you.

Operator

Thank you. We have time for one last question. Our final question comes from Gus Richard with Piper Jaffray. Please go ahead.

Gus Richard - Piper Jaffray

Thanks for taking my question. Most have been answered. Just a little clarification on the Broadcom reference design, if I'm not mistaken that business for Broadcom was up the 802.11n 50% sequentially in the fourth quarter due to a customer coming on strong, and I was just wondering the disconnect between your results and theirs?

Brian McDonald

So Richard, I think what you are saying us is that, we said our business is relatively flat quarter-on-quarter sequentially, and as they indicated growth of 50%.

Gus Richard - Piper Jaffray

Correct, sequential.

Richard Williams

So, but what we would see as we -- because we go through a contract manufacturer and that contract manufacturer orders ahead and distributors also keep inventory, there is a filtering effect on our revenue that takes out some of the peaks and valleys of the business. So, that we would see steady growth even if they were just see a jump, because some of the business they would be seeing taking off in quarter four, we might be included in some of our Q3 revenue.

Gus Richard - Piper Jaffray

Okay.

Richard Williams

But there's a time delay, right?

Gus Richard - Piper Jaffray

Right. I would imagine you guys would go through the same sort of distribution, but be that as it may. Let me try another one. In looking at the model transitions that you got coming up in Samsung, LG etcetera. Can you talk a little bit about increased number of models you're in or give some qualitative thoughts on how you guys are doing in terms of gaining content for handsets, so that we can sort of get an idea of how that business is going for you over the next year or so?

Richard Williams

Yeah. So, what I think you can say there is on the low-end what we will do is we will cost reduce and make more profitable the LED black lighting by offering a two or three channel only solution. If the VIA chipset end ups becoming an emerging market standard, then we will pick up business as a PMU companionship to that CDMA chipset and that would be a driver for us on the low-end.

And on the high-end, our content is definitely higher now than it was before. Some of the high-end models we see $0.80 or even over a $1 of content and if it's just a lighting solution, we will might be anywhere from $0.20 to $0.60. So all the new higher-end models have more and more power management and so each function that they add gives us more opportunity. And we are already seeing a shift up in the ASPs as we begin to rollout, switching regulators, battery chargers and PMUs.

Gus Richard - Piper Jaffray

Okay. And then just sort of frame of reference, so it was very helpful. And how many skews year-end and sort of what you thing the volume increase in handsets

Richard Williams

So difficult to say. We have various products

Brian McDonald

50%.

Richard Williams

In half of the models or more, and in LG even more. So, it's very difficult to tell and you never know which one's are going to ramp, which ones are going to delay, which one s are going to be heavily promoted. So that's why we track all the design wins and we track over 1,000 design wins at any given time. So imagine out of a 1,000 design wins trying to figure out what mix you're going to get as they ramp later on.

That's what you would have to do to try to put in any meaning behind that. Suffice to say that we are sufficiently engaged to have a representative offering in everything that they make. So that there's a pretty good chance if any one of those models takes off or anyone of the sectors takes off, we are going to either have a large share or at least a non-negligible share of the business opportunities when it ramps.

Gus Richard - Piper Jaffray

Okay. So it's fair to say, while it's hard to predict which model ramp and which one won't. The number of models that you are in, in these customers is indeed increasing and not only that but your content per model either high-end or low-end is on the mark up?

Richard Williams

As we move, more and more high-value products out in the market place, our value as a supplier to those customers actually improves, and as our value improves our visibility to their road maps improves, and that helps us in new product definition of the next generation beyond the one that's starting to ramp.

Gus Richard - Piper Jaffray

Got it, okay, very good. Thanks so much.

Richard Williams

All right. Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes our questions-and-answer session. I would now like to turn the call back over to management for any closing remarks.

Brian McDonald

I think, I would do it and everybody have a great Valentines Day. Thank you very much for joining the call.

Richard Williams

Yeah. And I think this has been a very strong 2007 and a very exciting opportunity in 2008. So with that have a good day.

Operator

Ladies and gentlemen, this concludes the AnalogicTech fourth quarter 2007 earnings conference call. If you would like to listen to a replay of today's conference please dial 303-590-3000, or 800-405-2236 and enter pass code 11106339. ACT would like to thank you for your participation. You may now disconnect.

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