Executives
Carolynne Borders - Director of Corporate Communications
Steven J. Bilodeau - Chairman, President and Chief Executive Officer
David S. Smith – Senior Vice President and Chief Financial Officer
Analysts
Christian Schwab – Craig Hallum Capital Group
Vernon Essi – Needham & Co.
Josh Baribeau – Canaccord Adams Inc.
Standard Microsystems Corporation (SMSC) F4Q08 Earnings Call April 17, 2008 8:00 AM ET
Operator
Good morning, ladies and gentlemen, and welcome to the SMSC Fourth Quarter and Fiscal Year 2008 Conference Call. (Operator Instructions)I will now turn the conference over to your host, Carolyn Borders of SMSC.
Carolynne Borders
Thank you. Good morning and thank you for joining us today for SMSC’s Fourth Quarter and Fiscal Year 2008 Conference Call. You should have all received a copy of our press release issued this morning. You may also find the release on our website at www.smsc.com. If you dialed in on the phone line, please note that there is also a slide presentation that accompanies this call which can be found in the Investor Relation section of our website.
Representing management today are Steve Bilodeau, Chairman, President and Chief Executive Officer, and David Smith, Senior Vice President and Chief Financial Officer.
Following management’s discussion we will open the call to a Q&A session and I will also note that a replay of today’s call will be available on our website.
If you are participating in our on-line web cast, please move on to Slide 2 for a quick note on our Safe Harbor statement. Certain matters discussed in this teleconference are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected or forecasted. Such risks and uncertainties include but are not limited to, those discussed in this teleconference and those found in the company’s Form 10-K, 10-Qs and other filings with the Securities and Exchange Commission. I’d also refer you to the forward looking statement language contained in today's press release regarding risks and uncertainties.
Today's presentation also includes non-GAAP financial measures, which should not be considered an isolation or as an alternative to results of operations data or any other measure of performance derived in accordance with U.S. GAAP.
However, these non-GAAP financial measures are presented because management believes they provide useful supplemental information for management and investors and allow them to perform meaningful comparisons to the company's past and present results.
Guidance is presented on a non-GAAP basis only, given that the GAAP basis charges for equity based compensation related to stock appreciation rights cannot be projected reasonably. GAAP and non-GAAP numbers along with a reconciliation of the two are available in today's press release and in the appendix of this presentation.
And with that I’ll ask you to advance to Slide 3 in the presentation and I’ll turn the call over to Steve Bilodeau.
Steven J. Bilodeau
Thanks, Carolynne. And thank you all for joining us this morning.
We are pleased to announce today that SMSC delivered record annual financial results once again. This was a highly successful, transformative year for SMSC, which has also paved the way for what we believe will be another solid year of earnings improvement in fiscal 2009. This slide shows the early guidance we gave four or five quarters ago when we launched our strategy refinement plans compared to final year-end results.
To start, fiscal 2008 marked the fifth consecutive year of record semiconductor product revenues for SMSC. During the year we discontinued approximately 8% of prior year revenues that were considered low-margin, non-strategic business. We said at this time last year the fiscal 2008 revenues would be flat on a year-over-year basis. In fact, final 2008 revenues actually grew by 2%, despite the 8% portfolio pruning. By comparison, calendar 2007 worldwide semiconductor revenues grew around 3.2% for the Semiconductor Industry Association.
We delivered significant improvement in profitability last year with gross margins, operating margins, and net income all expanding sharply. When we first announced our strategy refinement we stated that we expected fiscal 2008 gross margin percentage to increase between 3% and 5% from the fiscal 2007 results. This past December we also stated that our expectation was to achieve approximately 5% versus fiscal year 2007. We in fact delivered 4.5%, a huge accomplishment and as you will hear in a few minutes, we also expect additional significant product margin expansion in the coming fiscal year.
With respect to operating margins, the company committed to holding operating expenses steady and did so. On a non-GAAP basis SMSC delivered an operating margin of 15.1% of sales for fiscal 2008, in line with our guidance. GAAP operating margin was 10%.
The company grew earnings by over 20% on both a GAAP and a non-GAAP basis. With respect to cash flow, SMSC projected to finish the year with cash flow from operations of about $50 million and exceeded that by delivering approximately $59 million.
Lastly, we exceeded our key strategic goal in automotive infotainment with a number of Asian car makers adopting the most technology, as well as a number of model launches with these manufacturers occurring in fiscal 2008. More on that in a few slides over.
Let’s proceed to Slide 4 to review the key elements of our strategy in going to market. We believe we have a somewhat unique approach to serving the semiconductor market. We have select vertical markets that we can maintain a leadership position. We have a highly customer-centric focus. Our products are predominantly not catalogue second-source parts, but instead unique solutions that are designed in to our customers’ systems, thereby optimizing value and speeding time to market. This strategy drives how we invest R&D dollars and is a key factor in our realization of predictable high returns on our product development investments.
The vast majority of our products are analog or mixed signal in design. In fact, our high performance analog, or HPA products, are expected to be SMSC’s strongest growth driver for fiscal 2009. We’ll talk a little bit more about that later in the call.
Lastly, as we’ve stated in the past, we believe SMSC has near optimal diversity in its focus markets. We have multiple growth platforms with opportunities to cross market our products through combinations of our interconnect technologies.
If you’re following along with our slides, please advance to Slide 5 for a snapshot of revenues by vertical market. This slide compares FY2008 to FY2007 revenues on a full year basis, broken into the five vertical markets that we serve. As you can see, our desktop PC revenues climbed a couple of points as a result of the strategy refinement discussed earlier, and both industrial and mobile PC products each picked up a percentage point. However, by and large, revenue percentages among vertical categories held quite steady.
In the fourth quarter of fiscal 2008 percentage breakouts were within one to two percentage points of the FY2008 full year results in all segments with entertainment and portable PCs being slightly stronger and CE roughly two points weaker.
Let’s move on to Slide 6 for some comments on our current outlook for fiscal 2009. Current third-party estimates call for the semiconductor industry revenue growth this year in the range of 2.4%-7.5%, with a midpoint of about 5%.We expect that SMSC will keep pace with this. SMSC’s high performance analog products, USB hubs, and MOST-based I-MIX are expected to be the highest growth product areas this fiscal year.
We anticipate another strong year of gross margin expansion in fiscal 2009 with gross margins expanding another one to two full percentage points over fiscal 2008. Further, we are pleased to report that we expect gross margin improvements, during the first three quarters alone, will more than offset the loss of the Intel IP payments in Q4 2009. Let me reiterate this point about margins another way. We believe that our total gross margin percentage will be higher next fourth quarter without the IP revenue than they were this past quarter with them.
We believe we can grow non-GAAP operating income percentage in FY2009.
We also expect to deliver non-GAAP net income growth at twice the expected rate of revenue growth.
Lastly, we expect SMSC to deliver solid, positive cash flow that is similar, or even slightly better, than we did in fiscal 2008.
If you will join me on Slide 7, we’ll take a look at recent market highlights. Sales to PC customers in the fourth quarter reflect the typical seasonality to the period. Notebook sales, in particular, were in line with the mobile market strength currently being reported. Current bookings for PC products suggest that the historical seasonality between the fourth and the first quarter will play out as usual, with a pick up in the second quarter. A broad-based product offering, which continues to add differentiating analog functionality, is helping to offset the phase out of Legacy designs through customer wins. As part of this we’ve made a lot of progress with 45nm system wins as a result of being first to market with our thermal management solutions for advanced processor geometries.
Although there has been some uncertainty related to the general macro environment and its effect on consumer spending, as it stands today our view of the PC market is that it continues to be business as usual. Current and projected sales into this vertical market are anticipated to follow our usual seasonal pattern of sales that are flat to down between Q4 and Q1, a strong ramp beginning in Q2, followed by a solid Q3, and slower, sequential sales again in Q4.
Let’s go on to Slide 8 for a look at the consumer electronics vertical market. Like the PC market, sales into the CE vertical market are subject to a similar seasonal trend and we look forward to the expected up tick that begins in the second quarter, which starts June 1. On top of the normal seasonal pattern influencing CE sales we see some softness in recent Ethernet sales due to delayed deployment of some Set Top Box programs in China.
The particular bright spot among our CE design win successes as been the ramp of USB 5.0 in portable applications. Earlier in the call I discussed our high performance analog solutions which include analog sensors and high speed 5.0s. These products serve a variety of vertical markets and applications, such as smart phones, personal navigation devices, and personal media players.
The largest source of SMSC’s growth in FY2009 versus FY2008 is expected to come from our HPA products. Sales of HPA products are expected to double this year and grow to approximately 15% of total company revenue in FY2009. The level of design wins for our HPA products has increased dramatically and is expected to continue. Industry tear downs of Microsoft, [inaudible], and Samsung products, to name just a few, all show the adoption of SMSC’s leading HPA technology. In addition, in the most recent EE Times episode of the [inaudible] PC featured a couple of GPS devices, including the HP I-Pac 310, which uses SMSC’s high speed USB 5.0.
Also on the product front, last week we announced a new set of Ethernet devices which broadens our portfolio, positioning us as the One-Stop-Shop for vintage customers seeking networking solutions. We differentiate in the breadth of our product line, the diversity of the system architectures that we support, and the quality and longevity of the service that we provide worldwide.
On to Slide 9 to discuss automotive infotainment. We are very pleased with the progress made in fiscal 2008 to expand the pan of our automotive infotainment solutions. Perhaps the best proof point is our penetration of the Asia market with MOST, which stands for media oriented system transport. Our expectation as we enter fiscal 2008 was to achieve MOST adoption with four vehicle models from three different Asian brands. We are proud to say we achieved this goal with the launch of five models from four brands. The most recent vehicles to launch MOST are the SsangYong Chairman W platform and Toyota’s second platform launch with the Crown model.
Looking ahead, we anticipate a similar number of new models to be launched in FY2009 by Asia-based brands as compared to last year. We also expect to make significant progress with volume car manufacturers in 2009. Our MediaLB technology is also continuing to gain acceptance among designers of infotainment ICs that want to connect their applications to the MOST network inside of the car. MediaLB is a chip-to-chip interface that provides seamless connectivity for application ICs for our MOST intelligent interface controls, or I-MIX. Recently Altera selected the MediaLB IP core use in the PARIS infotainment development platform. Fujitsu Microelectronics Europe also chose MediaLB for its latest 32 bit micro controller that is designed for automotive applications, including dash boards and infotainment control. To date, eighteen partners have selected MediaLB as the connection to the MOST data domain automotive infotainment products.
Also worth noting, the newest, MOST speed grade, the MOST 150, has already been gaining excellent traction with target auto makers for next generation infotainment systems, particularly those systems featuring extensive digital video and IP-based applications. We continue to work diligently to enable the expansion of MOST-based technology across the worldwide automotive market.
On to the next slide. Slide 10 is a conceptual snapshot of the technology adoption curve for MOST starting with the first launch by BMW in 2001 through the next half decade or so. As you know, the product life cycles in the automotive industry are long and take several years after start of production, or SOP, for the platforms to ramp to full production and consequently for meaningful revenues to be realized by SMSC. This is why the various ways of adoption are shown and are important to understand. It helps to crystallize the concept that MOST has the potential of a long life within each car maker as it rolls out through various vehicle lines. Even with broad adoption, over many years, as with the early adopters, new ramps with new car makers, layer growth opportunities onto what we expect will be a highly attractive growth area for many years to come.
Looking at the three sets of MOST adopters, the initial wave continues to roll out their full product line using MOST. As of today it is almost complete and you see the second wave of adopters starting to ramp. As I mentioned on the previous slide, four Asian brands launched their first vehicles with MOST in fiscal 2008. We expect that revenues from these brands will start to materialize more meaningfully beginning in fiscal 2010. Until then, we expect growth in these products in line with that of the whole company.
You’ll see that the third wave of adopters is expected to announce SOP in the 2010-2011 time frame, following suit with the trickle-down that occurred with many of the early adopters, MOST should extend beyond luxury car makers and further into the mid- and low-end brands. And the message here is that this is a product line with strong growth opportunities for many years to come.
Now I would like to hand the call over to David for a review of SMSC’s fourth quarter and the outlook for Q1. David.
David S. Smith
Thanks very much, Steve, and good morning everyone.
We’re on Slide 11 of the presentation. Our fourth quarter sales were at the bottom end of our guidance range, as we saw slightly softer than expected consumer electronics-related demand.
Gross margins were a bit lower than planned. Gold is used in some of our semiconductor packages and when gold prices shot up we got hit with some unplanned, unexpected costs. We think this is back under control and we have taken steps to mitigate this in future quarters.
Our operating expenses were in line, except for a few unplanned, mask charges that are timing related.
Taxes were lower than planned due to the impact of some successful tax planning activities. Overall forward projections for tax rate are unchanged, however.
Non-GAAP EPS came in at the high end of our guidance at the end of the quarter. I want to expand on the detail in our press release for investors or analysts to construct earnings and EPS models. We have revised our diluted share calculation for the prior quarters this year, which slightly increased EPS, as described in the press release. The share count impact was about 400,000 shares in the first quarter and 300,000 in the second and the third. Our diluted shares outstanding recording $3.4 million in the fourth quarter and for the year $23.6 million.
Now please turn to Slide 12. We tried in the past to emphasis the seasonality in our business, and it’s usually pretty predictable. SMSC’s seasonality should not be a surprise to investors. We expect normal seasonality to happen again in this year, fiscal 2009.
Here’s how the seasonality usually plays out: sales grow markedly from our first quarter to the second quarter, which ends in August; and then modestly from the second quarter to the third quarter, which ends in November. This is because during this part of the year PC sales increase as new products ramp with big brand customers selling into the back-to-school period, for instance, and then the customers selling consumer electronics ramp going into the holiday period. You can see all of this in the bar chart on the slide. Our sales are weakest in the fourth and the first quarters, after this seasonal ramp. Fourth quarter sales are predictably, quotably lower than the third quarter. First quarter is usually either flat-to or slightly down from the fourth quarter. Then the cycle repeats and, as Steve said, annual sales have grown year-over-year for many years.
Meanwhile, our non-GAAP operating expenses usually grow slowly, sequentially quarter after quarter as long as the company is growing, and that has continued and we expect it will continue. We cannot effectively modulate our expenses on a quarterly basis in line with seasonality, trying to keep them growing slower than sales and gross profit rates on an annual basis when the operating margin and net income growth are faster than sales growth.
One of the important outcomes of this pattern of sales seasonality and more linear operating expense growth is that our non-GAAP operating and net income margins will tend to be highest in the second and the third quarters and lower in the fourth and the first quarters. So on a year-over-year basis the plan is to keep non-GAAP operating margin and net income increasing. That’s our plan.
Let’s turn to Slide 13. This quarter we have reclassified our investment in auction-rate securities to long-term investments. As most of you know, unprecedented credit market conditions caused the auction-rate market to fail during the last three months. Since the instruments can’t be re-priced and liquidated every ninety days or so as planned, this accounting approach is appropriately conservative. We do believe that these securities will either get restructured or sold at some point so that we would not have to hold these securities to the maturity of the underlying instruments.
The quality of the instruments is high. What we hold is related to high grade state and local government or high grade student loan backed debt. Meanwhile, we have ample cash flow to weather this as long as we have to, which is why, together, with the quality of the securities we hold, we had no impairment or income statement impact.
In the fourth quarter we invested $13.4 million in SMSC stock, bringing in a total investment in stock to $40.6 million for the full year. The size of our cash and investment position, in total, increased year-over-year by $26 million. This is a result of the strong cash flow generating capacity now inherent in SMSC’s business model.
Working capital is in good shape. After scrambling a bit in the middle of this last year, when demand ramped a bit faster than expected, our inventory is now about $5 million higher than ideal but it is in support of known product demand. We expect that inventories will trend down after Q1 through FY2009.
And finally, on Slide 14, some first quarter guidance. Right in line with the typical SMSC’s seasonality where first quarter sales are often lower than in the fourth quarter, we see sales coming in in the $90 million-$93 million range. We typically do see year-over-year increases in the first quarter. This year should be no exception as our momentum in the marketplace in fiscal 2008 will set us up nicely for further improvements in financial performance in 2009.
The mid-point of our Q1 guidance represents a 12% increase on a year-over-year basis. We expect gross margins to be about 50-100 basis points higher sequentially, non-GAAP operating expenses to be flat sequentially, tax rate guidance remains in the 30% range, and non-GAAP EPS is expected to land in the $0.35-$0.40 range for the first quarter. At the mid-point of guidance this represents a 29% increase in non-GAAP EPS year-over-year.
And now I’ll open up the call to questions and after that Steve will have a few closing comments.
Question-and-Answer Session
Operator
(Operator Instructions) We’ll take our first question from Christian Schwab, Craig Hallum Capital Group.
Christian Schwab - Craig Hallum Capital Group
Dave, can you tell us what specifically is going to drive the gross margin year-over-year?
David S. Smith
The things that are driving the gross margin are the same things that have been driving it for a while. It’s really ultimately driven by the fact that our customers are willing to pay for the value that we add. It’s really—you know, we continue to manage our supply chain and test costs well, we spend a lot of time and investment effort on that, but at the end of the day, it’s favorable product mix that drives that.
Steven J. Bilodeau
And we actually expect this and that the margin—we plan anyway, is that our margins in each of our major work areas will be increasing. So it isn’t coming just from like automotive or the PC sector or our networking products. It’s really we expect to see margins lift across the board.
Christian Schwab - Craig Hallum Capital Group
So, just to make sure I got that right—thank you—is gross margins are being improved by new products driving higher gross margins, not a mix in sales shift—right?
David S. Smith
That’s correct.
Steven J. Bilodeau
Yes. We expect that generally the vertical market picture splits to look similar to this past year, but the major drivers are the mixed shifts to the higher margin, higher value added products and also some continued improvements in the way we manufacture our products.
Christian Schwab - Craig Hallum Capital Group
Fabulous. And then on the auction-rate securities--since it’s a concern of everybody who owns them—are those all still AAA rated, I would assume.
David S. Smith
Yes.
Christian Schwab - Craig Hallum Capital Group
Okay. And I would also assume that everybody has made every scheduled interest payment?
David S. Smith
That’s correct.
Christian Schwab - Craig Hallum Capital Group
And are any of these—I would imagine maybe some of the student debt, you’re getting paid more money. Is that correct? Since they failed at auction?
David S. Smith
Yes, that’s correct as well. I want to make it absolutely clear that we have had no impairment charge with respect to auction-rate securities.
Christian Schwab - Craig Hallum Capital Group
Right. So what should we assume that that cash earns you as far as a blended rate this year? That $124 million.
David S. Smith
Christian, I’m going to beg off on that question because I just don’t know the answer.
Christian Schwab - Craig Hallum Capital Group
Okay.
David S. Smith
I really can’t project what’s going to happen in the credit market.
Christian Schwab - Craig Hallum Capital Group
Okay. That’s fair. And then just roughly back to the back of the envelope mix between state, local government and student debt. I would assume that the student debt is the type of debt that’s backed by the federal government?
David S. Smith
Yes, on your last question, and I’m not going to give a break down on the mix, but it’s roughly balanced.
Christian Schwab - Craig Hallum Capital Group
Perfect.
David S. Smith
And the important thing to note, again, it’s all AAA rated and we’ve had no impairment charges.
Christian Schwab - Craig Hallum Capital Group
Right. And everybody’s made every payment.
David S. Smith
That’s exactly right. Otherwise we would have had impairment charges.
Christian Schwab - Craig Hallum Capital Group
We all know more than we ever thought we would have to about this instrument. Thank you for that. All right. No further questions.
Operator
We’ll go next to Vernon Essi, Needham & Co.
Vernon Essi - Needham & Co.
Thank you very much, and thanks for the lesson on debt; it’s been a while. Why don’t you just go into the gross margin and if you could get into a little more detail on this gold issue and whether or not that’s playing into your guidance into May, I would appreciate that.
Steven J. Bilodeau
Okay. Sure. I mean, the gold situation obviously—just for background is gold prices really spiked here. It started I guess late last year and grows almost in an unprecedented fast way. And the gold is consumed in our packaging technologies, and particularly more in the older packaging technologies, like QFBs versus some of the GFNs that are out there today. And we got hit with some surprise increases in costs. That has been factored into our Q1 guidance for margin and our full year guidance for margin that we have given you. We have taken measures to reduce our exposure in this area going forward and offsets all baked into what we’ve given here today for guidance.
Vernon Essi - Needham & Co.
So it is safe to assume that this is curing into the current time frame that we have right now and it is, to the best that you can tell, sort of a one-time situation, so on an apples-to-apples basis, your pricing on packaging should theoretically decrease, as we head into the later quarters of the fiscal 2009 year?
Steven J. Bilodeau
Let me try to say it again: we can’t necessarily predict what gold prices are going to do, but for the Q1 guidance we gave –I think we gave a 50-100 basis point increase for the quarter and that’s that low, if you will, because we baked in some inventory and things that have some of the higher costs in them. We’ve taken into account in the full year guidance sort of the current level of gold pricing, if you will. If we saw it double again we would have a problem and so would everybody else in the market, but we are doing other things to mitigate the problem, such as switching to packages that have lower gold content, reducing the amount of gold content per package, the way we negotiate our agreements with our packaging supplier. So there’s a bunch of things you can do to mitigate that and we’re doing all the above.
Vernon Essi - Needham & Co.
Okay. And then, is there any—it seems like you’re obviously ramping very nicely on the geometry front. Any cost gains that are coming out of foundries that you would care to discuss or any news on how capacity is going in general, in the industry.
Steven J. Bilodeau
My sense at the moment is capacity is fine, at the moment, are we talking wafer capacity, Vern?
Vernon Essi - Needham & Co.
Yes.
Steven J. Bilodeau
I think it’s fine. Things are available, what we need when we need it. I don’t think it’s, you know, wildly loose or wildly tight, it’s sort of falling about right, right now, from our perspective. We haven’t seen any, you know, wild drops in pricing. If you do, let us know, and we’d be happy to share in that.
Vernon Essi - Needham & Co.
Me neither; just checking, though. Okay, and then, lastly, can you just like go into the consumer debt. You said it was a little bit softer and you cited a Set Top Box program where there are some other instances of specific end products that were off on your targeted goal.
Steven J. Bilodeau
Well, we see, you know, our consumer electronics vertical. See probably a slightly bigger—I’m talking in our fiscal quarters, now; Q3 to Q4—you know, volume of adjustment, seasonality—because it’s post the Christmas holidays and such, than we normally see in PC. And on top of that, as I think we mentioned in our script there, the business that we have in serving the Set Top Box market in China had some delayed deployments in part due to weather and other things that were going on in China. We you know, it’s not just one program, it’s many, many different programs that we have in our solutions in China. And I think there were even some stories on weather in Beijing and other places like that. It just slowed down the deployment a little.
David S. Smith
And we also said, Vern, that this was—I think we characterized it as slight. It’s not like the bottom dropped out; it was just slightly less than we expected.
Vernon Essi - Needham & Co.
Okay. Just in general—my last question here—any color on the—there seems to be a very polarized set of data on flat panel televisions in the consumer market. I know you ship some silicon into there. Any thoughts on how that market’s been shaping up in the first half of 2008?
Steven J. Bilodeau
Well, again we—you know, the current quarter, that area for us is typically—the current quarter being Q1—is our seasonally weakest of the four quarters. And that’s baked into our guidance as well. We typically see a recovery in Q2 and it gets stronger in Q3. So it’s like the color is a little bit more back-ended in the PC market, but you’re right, it’s not gang busters right now.
Vernon Essi - Needham & Co.
I guess what I’m trying to understand is we all expected it to be seasonally soft but there has been discussion that some of the builds are picking up a little bit better than people thought. There’s been more strength than would have been expected. I’m actually fishing to see if you’re seeing the same thing.
Steven J. Bilodeau
No, we’re not seeing that.
Vernon Essi - Needham & Co.
Okay. Thank you very much.
Operator
We’ll go next to Jed Dorsheimer, Canaccord Adams.
Josh Baribeau - Canaccord Adams Inc.
Hi. This is actually Josh Baribeau for Jed. Just one quick question. Could you go into a little bit more detail on the share reclassifications from the prior quarters this year?
David S. Smith
Sure. We had—and we can follow up after the call and we will put out lots of detail in the K when we get it filed—but there were 400,000 fewer shares in the first quarter, 300,000 in the second and the third. And it’s important for anybody who is taking a look at their EPS models and so forth to go back and make those adjustments for those prior quarters. If you go back and you add up the EPS in the quarters as reported, you don’t come to the $1.92 non-GAAP or the same GAAP number unless you make those adjustments. And that’s why we sort of culled it out. Okay?
Josh Baribeau - Canaccord Adams Inc.
Okay. If it’s too complicated we can certainly take it off line. I guess I was looking for the reason more so than the number.
David S. Smith
It was in the treasury and we can get into it. It is complicated, but it basically involves the way in which we were doing the diluted earnings per share calculation and the amount of the assumed proceeds in the treasury stock calculation for the amount of proceeds that were available to buy back shares under the method that you use to calculate diluted earnings per share.
Josh Baribeau - Canaccord Adams Inc.
Okay. That’s it for me. Thanks.
Operator
And there are no further questions. Mr. Bilodeau, I would like to turn the call back over to you for any additional or closing remarks.
Steven J. Bilodeau
Great. Thank you.
FY2008 was a year of significant accomplishment as SMSC transitioned to a stronger earnings model. We’re looking ahead to another year of record semiconductor product revenues. The work we did last year set the stage for what we believe will be another year of solid non-GAAP earnings improvement in FY2009. In particular the expected growth from our high performance analog solutions should help position us to achieve our continued gross margin improvement goals.
And lastly, at the mid-point of our guidance we expect 12% revenue growth and 29% non-GAAP EPS growth in the current first quarter on a year-over-year basis.
Thank you for joining us today.
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