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Advanced Analogic Technologies Inc. (NASDAQ:AATI)

Q1 2008 Earnings Call

April 28, 2008 4:30 pm ET

Executives

Lisa Laukkanen - Blueshirt Group IR

Richard K. Williams - President, CEO, and CTO

Brian McDonald - VP of Finance and CFO

Analysts

Tore Svanberg - Thomas Weisel Partners

John Lau - Jefferies and Company

Auguste Richard - Piper Jaffray

Gary Nackenson - Monness, Crespi

Anthony Stoss - Craig-Hallum

Ryan Goodman - Merrill Lynch

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the AnalogicTech first quarter 2008 earnings conference. (Operator Instructions). This conference is being recorded today Monday, April 28th, 2008.

I would now like to turn the conference over to Lisa Laukkanen. Please go ahead.

Lisa Laukkanen

Good afternoon and thank you for joining us on today's conference call to discuss AnalogicTech's first quarter 2008 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 close today, AnalogicTech issued a press release discussing the results for its first quarter, ended March 31, 2008. The press release is accessible online at the company's website or you can call the Blueshirt Group at 415-217-4961 and we will fax or e-mail 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 results or events may differ materially. We refer you to the documents 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 K. Williams

Thank you for joining us today, as AnalogicTech reports its first quarter 2008 results. During the call, I will provide a brief recap of the financial results and business highlights for the quarter, I will then turn the call over to Brian for detailed financial review of the quarter followed by guidance for the second quarter. We will then open up the call to your questions.

The first quarter proved to be an unexpectedly challenging quarter for AnalogicTech. Our revenue was impacted by a number of factors unique to the Asia handset market that evolved as the quarter progressed. Season normally has impacted our business beyond the effects of normal seasonality and anticipated Q1 model transitions.

Specifically, in Q4 of last year, China distributors purchased our product at a brisk rate in anticipation of strong first quarter demand. Samsung also purchased products aggressively throughout the quarter and even through December end. Only after Chinese New Year, it has become evident that new handsets in China would ramp slower than projected, in part due to delays in adopting and deploying its own China specific 3G standard TD-SCDMA.

Also during the quarter Samsung decided to implement an internal manufacturing and logistic exchange and use its existing whip during the transition. The combination of these events, depressed consumption a new order in Q1 resulting a lower direct revenues and a temporary accumulation of excess distributor inventory. Unfortunately the impact of these dynamics became evident only late in the first quarter and early in the second quarter. Consistent with the foregoing, revenue for the first quarter of 2008 was $25.1 million, down 22% sequentially, perhaps representing an increase of 19% year-over-year.

Net income on a GAAP basis was $0.4 million or $0.01 per diluted share, gross margins on a GAAP basis improved sequentially by 2.1% to 54.7%. Despite these challenges we experienced strong design win momentum during the first quarter including confirmed design wins in a number of high-end and high profile handset models. We believe our robust design win activities speak to new business opportunities. We are developing with our recently released proprietary and higher ASP products. The introduction of our first high voltage and highly integrated multifunction products also address new markets outside of our traditional concentration in handsets. Additional highlights of the first quarter are as follows.

We experienced strong sequential growth in sales to LG placing them as our number one customer and representing approximately 29% of total revenue. Sales growth during the quarter was predominantly in their high-end models including recent design win activity we are now ramping production in multiple high profile models including, View, Viewty, Venus and Chocolate and Music. Products include 4 and 6 channel charge pumps, multifunction charge pumps, switching regulators and low dropout linear regulators.

Samsung accounted for approximately 25% of total revenue for the first quarter. We are excited to capture several design wins for a high profile models such as Sole, Instinct, Roxy during the quarter. As I mentioned earlier Q1 sales to Samsung, where impacted by the inventory build in the fourth quarter as well as the timing of Q1 model transitions. Sales increased strongly in the month of March; however it was not enough to offset the slower sales in the proceeding two months.

At Sony Ericsson, we currently expect sales of the existing production phone models to continue to be sold into the third quarter. Recent design wins for new models are expected to commence production in mid to late second quarter. And additional handset designed at the Beijing site is expected to ramp in the third quarter. We remain encouraged by the long term prospects for expanding our relationship directly with Sony Ericsson and through their ODM Sagem.

The migration to our lower cost higher margin LED drivers for mass market phones is proceeding as expected. In addition to migrating to a lower cost product we also anticipate the new parts will help stimulate future demand in the China handset market. Production start dates range from March to July 2008. The new LED drivers are expected to contribute to the improvement of our overall margins starting late in the second quarter.

Overall 59% of revenues were from lighting and display products, 27% from voltage regulation and DC-to-DC converter products and 14% from other power management products including port protection and battery management. Switching regulator revenue used in a lighting solution is reported in the lighting and display category.

In the first quarter we continued our strong phase of product development activities. We introduced a total of 20 new products including five new platform and 15 derivative products. We continued to be pleased with our progress on worldwide product development activities using our proprietary Modular BCD process technology, especially in the development of high voltage and multi-function PMU and power SOC products.

Examples include a one chip power SOC for digital still cameras, a PMU companion chip for the new VIA chipset a mini PMU for Bluetooth accessories and our first 28 volt over voltage protected safety switch and battery charger products.

We are now sampling switching regulators operating at 12, 30 and even up to 40 volts. To-date, we have released 39 modular BCD base products in the production and have more than 38 new products currently in development.

In the last few quarters, we have released more 37 products addressing new markets or applications, which we presently do not serve, including products for set-top boxes, monitors, notebook computers, high definition televisions, digital picture frames and more. Many of these new and proprietary products include high voltage circuitry.

As discussed in our last earnings call, Linear Technology has appealed portions of ITC's final determination to the United States Courts of Appeals. AnalogicTech has intervened in this action seeking to shore up the initial determination, which we view as largely favorably to AnalogicTech. This appeal 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 remain stayed while the ITC appeal proceeds.

AnalogicTech currently has more than 180 US and foreign patent applications and more than 50 issued patents reflecting our continued commitment to the development of fundamental innovations in switching regulators and process technology.

In conclusion, our design win momentum for the first quarter laid the solid foundation for growth in the second half of 2008 and beyond. We expect however to see continued challenges in the near-term environment.

In particularly we believe the local Chinese handset market will continue to experience weakness as it recovers from delays in adopting and in deploying its own China specific 3G standard and the temporary tightening of its money supply.

We expect the excess inventory that is accumulated in the first quarter at local distributors in China to continue to be worked off in the second quarter. We remain excited about our new products and our numerous long-term growth prospects.

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 second quarter 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 Q1 '08 was $25.1 million compared to $32.1 million in Q4 of '07 and $21.1 million in Q1 of '07. Revenue decreased by 22% sequentially and increased 19% from Q1 of '07.

In Q1, sales in Korea were $14.6 million, China $4.7 million, Taiwan $4.6 million and all others at $1.2 million. For the prior quarter, sales in Korea were $16.1 million, China at $9.5 million, Taiwan $4.7 million and all others at $1.8 million.

Sequentially, decreased sales in Korea were primarily driven by lower sales to Samsung, partially offset by increased sales to LG. So the sales decrease in China was due to distributor channel inventory built up primarily in Q4 of '07 and a slowdown in point of sales in the local handset market.

Direct sales to Samsung accounted for 12% of total revenue as compared to 11% in Q4 of '07. Sales to Samsung combined with its contract manufactures accounted for 25% of total revenue, as compared to 30% in Q4 of '07. Sales to LG represented 29% of our total revenues, compared to 17% in Q4 of '07. Sales to Chip-Tech represented 10% of our total revenues compared to 17% in Q4 of '07.

GAAP gross margin was 54.7% for the quarter, which compares to 52.6% in Q4 of '07 and 52.9% in Q1 of '07. Non-GAAP gross margin was 56% compared to 53.6% last quarter and 54.4% in Q1 of '07. Gross margin increased primarily due to improved product mix, yields and manufacturing cost reductions.

R&D spending was $7.7 million or 31% of revenue for the quarter, a decrease of $0.7 million from Q4 '07 and an increase of $0.6 million from Q1 of '07. The sequential decrease in R&D expenses was primarily the result of decreased engineering wafer expenses. Included in the R&D spending was $0.8 million of stock based compensation expense.

SG&A spending was approximately $6.4 million or 26% of revenue for the quarter, this represents a decrease of $0.2 million from Q4 '07 and an increase of $0.2 million from Q1 of '07. The sequential decrease was primarily attributable to lower stock based compensation and lower external commissions on the low revenues. Included in the SG&A spending was $0.9 million of stock based compensation.

Litigation cost was $0.3 million for Q1 of '08 as compared to $0.1 million in Q4 of '07 and $1.6 million in Q1 of '07. Operating expenses in total were $14.4 million this compares to $15.1 million in Q4 of '07 and $14.9 million in Q1 of '07. The slight sequential decrease was due to lower engineering wafer expenses.

Stock based compensation expense was $1.7 million for Q1 '08 as compared to $1.8 million in Q4 of '07 and $1.7 million in Q1 of '07. Operating loss was $0.6 million for the quarter as compared to operating income of $1.8 million in the Q4 of '07 and operating loss of $3.7 million in Q1 of '07.

Other income net was $1.1 million or 4.6% revenue for the quarter. This compares to $1.2 million in Q4 of '07 and $1.1 million in Q1 of '07. The sequential decrease was primarily result of lower interest income. Tax expense was $0.1 million as compared to $0.1 million in Q4 of '07. Net income for Q1 of '08 was $0.4 million or $0.01 per diluted share, compared to a net income of $3 million or $0.06 per share in Q4 of '07, and compared to a net loss of $2.8 million or $0.06 per share in Q1 of 07.

Cash, cash equivalents in short-term investments totaled $111.2 million at the end of the quarter, down by $3 million from the end of last year. The decrease was primarily attributable to the reclassification of certain short-term investments to long-term. Net accounts receivable was $13.9 million at the end of the quarter, down by $0.6 million for Q4 '07 due to lower sales. The average day sales outstanding for the quarter were at 50 days and increase from 41 days last year end. The Q1 increase is consistent with prior year trends.

Net inventories were $14.1 million at the end of the quarter, up $1.8 million from Q4 '07. This increase was in anticipation of higher forecasted sales. Inventory turns for the quarter were 3.2 as compared to 5.0 at the previous quarter. We expect inventory turns to improve in the second half commensurate with sales growth.

Now on to the business outlook. Let me comment on Q2 of '08. We expect Q2 '08 revenues to be in the range of $24 million to $26 million. A GAAP gross margin to be approximately flat with Q1 and gradually improving in the second half of the year. R&D expenses in the range of $6.8 million and $7 million exclusive of stock-based compensation expense. Stock comp for R&D will be in the range of $0.9 million to $1 million. SG&A expenses in the range of $5.2 million and $5.4 million exclusive of stock-based compensation expense with stock-comp in the $0.9 million to $1.1 million for SG&A.

Litigation expenses expect to be in the range of $0.2 million to $0.4 million. Total stock-based compensation expense in the range of $1.9 million to $2.1 million. Other income in the range of $0.7 million to $0.9 million, the reduced other income is a result of lower interest rates. Amortization of intangible assets to be approximately $0.3 million, tax expense in the range of $0.2 million to $0.4 million and GAAP EPS to be between minus a penny into penny.

That concludes my remarks. Now I would 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 from Thomas Weisel Partners. Please go ahead.

Tore Svanberg - Thomas Weisel Partners

Yes. Thank you. A couple of questions. First of all could you just talk a little bit more about the visibility for Q2; you mentioned March you've seen pretty nice pickup -- you're guiding more for flattish growth. So, could you just talk a little bit about your visibility and how things have been so far this quarter?

Brian McDonald

Okay. It was pretty much a mixed bag Tore; there are some models that are starting to ramp and other models that we're still anticipating ramping in the last month of the quarter. So, we're being a little conservative here because we're not fully aware of what the timing of some of these new ramps are going to be and we are still burning off that excess inventory in China.

So, we are seeing, we are monitoring point of sale, but at the same time we've got to burn it down to a certain level before we start to see new orders coming out of China. So trying to gauge that, there are a lot of moving parts and that's why we are concentrating on our growth in the second half and as you know all the design wins that are driving Q2 occurred several quarters ago. So, we are not really in control of the timing of these hands offs, but generally I’d say that we are seeing an overall pickup in the market, but as I said, we are still burning off that inventory in China.

Richard K. Williams

And Tore, I think on a positive note we are now seeing a positive book-to-bill in the month of April. In addition to that, we have seen a pickup, in some of the POS sales in China. From a coverage standpoint from BIBA billings and backlog, as of today, we are at about 50% to 55% for BIBA including the [Hutch] shipments about 75%. That 75% is consistent with about a year-and-half ago; it’s a little behind last quarter maybe 5% to 10%, but the numbers do show we are picking up.

Brian McDonald

But some of the new models that are expected to ramp late in Q2; we have higher content, and higher ASPs and higher margin product in those models, because those are higher value phones. So, on a good note basically we are starting to begin to see the models or the product transitions that we've been pushing for to get into higher ASP and higher margin products.

Tore Svanberg - Thomas Weisel Partners

Good. In your prepared remarks you mentioned some high-profile phones that for some of your customers, when do these phones hit critical mass; is it the end of Q2, is it early Q3 or later in the year. I am just trying to understand the momentum of those design wins?

Brian McDonald

I think that's part of our conservativeness in the guidance on Q2. So, we are still treating those ramps, while they will be starting in Q2 to not to hit the full run rate into Q3 or even late Q3. So, we're remaining conservative on the ramp, but those are expected to the hottest phones that the major suppliers are offering in this season.

Tore Svanberg - Thomas Weisel Partners

Great and on gross margin it seems that you already got more of a benefit because I assume that the mix of the low cost product is still quite small. So, can you help us understand a little bit more the trajectory on gross margin between now and the end of the year?

Richard K. Williams

Yeah, what we said this quarter Tore, yes, be flat to Q1, part of that is we did see some improvements in Q1 a little ahead of time. We expect that to continue with that rate in Q2 and then we expect to see some incremental upside on margins with more of the new products on the high voltage side and on the margin with the BCD side. And with the high profile design wins that Samsung and LG. And it is also with the lower cost products coming on it allowing us to pickup additional business at good margins that otherwise we might have to walk away from.

Tore Svanberg - Thomas Weisel Partners

Okay. Very good and then you didn't talk much about the 802.11 business this quarter. Can you just give us an update there please?

Richard K. Williams

We can, I can tell you that the Q1 numbers for the 802.11 business was about flat with the fourth quarter, which was about what our expectations were; actually a little bit higher as a percent of sales. And then, what we see coming into the next two quarters is that we project the next transition from a mix that includes still some 802.11a, b, g to transition more to end platform. So, we're not exactly sure how that transition is going to occur but it is definitely starting to happen, and we're seeing some of the older models starting to ramp down and some of the newer models begin to pick up. But it looks as there will be a one to two quarter transition on moving to a predominantly end platform.

Tore Svanberg - Thomas Weisel Partners

Great. And finally on inventories, you expect to get the turns improved second half but with this quarter where should we model inventories to go?

Richard K. Williams

On the internal net we said we came in around three, probably get I would say flat to up slightly.

Tore Svanberg - Thomas Weisel Partners

Great. Thank you very much.

Brian McDonald

Okay, thank you.

Operator

Thank you. Our next question comes from John Lau from Jefferies and Company. Please go ahead.

John Lau - Jefferies and Company

Great, thank you. Rich, I was wondering, you had mentioned that the revenues had declined for Samsung and some of that was with the internal manufacturing. Can you go over again your comfort level on your design activity with them? Are all the designs wins still solid and this is just a transition for the manufacturing?

Richard K. Williams

Yeah, we actually are very pleased with the design win traction we have in the new models. We are pleased because first they had some of the highest volume projected models coming. Second of all, we have a greater degree of proprietary products that are not as easily displaced by competition and those products have higher ASP's and higher margins. So in general our traction on the new models looks very encouraging.

So, the only caution that we're putting on it is how they will do the transition and so we're guiding cautiously on that, but at the same time we are confident that we're -- if anything improving or increasing our content in Samsung phones.

John Lau - Jefferies and Company

And this manufacturing transition is it pretty much almost done now? Is it done; how would you characterize that?

Richard K. Williams

I would say that there has been some kind of say -- they started a transition plan that was very aggressive. I think they've backed off from that a little bit. So some of the suppliers that they thought that they might change have now started ordering again. So it looks like they backed off the aggressive transition plan and they are doing a more moderate one. Moreover they have used the whip that was bought in Q4 pretty much used that up. So we expect that the run rate at Samsung should pick back up and even possibly pass LG again in the quarter.

John Lau - Jefferies and Company

Great. Thank you.

Operator

Thank you. Our next question comes from Auguste Richard from Piper Jaffray. Please go ahead.

Auguste Richard - Piper Jaffray

Yes, thanks for taking my question. Just to talk a little bit about the Chinese market. In [June checks], it seems like the handset demand is not bad and inventories at the OM level or the sales of the handsets themselves were pretty clean. Can you talk about the competitive landscape or some of the baseband guys integrating power management into their products? Are you seeing any customers or competitors with similar products?

Richard K. Williams

Okay, that's a complicated question, because there are a lot of pieces to it. So let's start with the high end phone, okay. The high end phones, part of the issue there is that high end phones wanted to take advantage of the 3G features, and China as you know earlier this year decided that they were going to spin their own version of a 3G network and have not come to conclusion on what that's going to be. So there is not a final conclusion on when that network is going to be deployed or even who are the carriers that are going to be licensed to carry it. So, that impacted some of the features laden designs which were already designed into, that now they are going to have to wait for that transition. So that's one piece of it.

On the other extreme, the super low end phones, we do see some competition in the ChargePump space, but I would say that's nothing more than what we normally see and if anything our competitiveness in that arena has improved by the rollout of our low-cost products. So, that comes to where does the inventory buildup really come from. The biggest impact we believe, aside from the high-end being delayed with 3G was coming from that as Motorola lost market share worldwide and especially in the China market, every China local manufacturer basically modeled that they were going to get a 100% of that lost revenue from Motorola and of course you can have five or six suppliers each pickup a 100% because that's more than the market offers.

So what instead happened is that they have to divide that revenue up among each other and at the same time Samsung and Nokia seem to have come in and picked up a good portion of that lost revenue from Motorola. So now it seems like if any thing the China local handset manufacturer's did not enjoy the benefit of the Motorola slowdown and their optimism in quarter four was not followed up with a larger market, which is what they were counting on.

So we think it was over optimistic assumptions on the part of their business plans that led to this inventory situation and a lower consumption rate from the local handset manufactures. On the other had it means that Samsung is picking up some of that and we will benefit in the market for China out of our Korea sales instead of through our local China sale. So we're still participating in the market all be it in a different way. I might also comment that even some of the Samsung revenue will even start to show up in Japan we expect. So Samsung has also, when its logistics changed albeit at a slower pace than originally planned.

Auguste Richard - Piper Jaffray

So you highlight two effects, one the way in the 3G standard and the second overly optimistic forecast from the indigenous Chinese suppliers. Can you disaggregate those two impacts and just size them, which one is impacting you more or are they about the same order?

Richard K. Williams

I don’t know by total. Brian will probably have to go analyze that, but I can tell you by type the Motorola market was more the mid-tier phones and 3G is more of the high-end phone. And then charged pump competition, which we were talking about earlier that's the low-end phone. So, there's really three different things going on and I think we're doing fine on the low-end and we're doing well on the high-end, when it comes back we are in there. And the middle tier, we're just picking up through our supply chain, through Korea and not from the local guys. However, they are putting new models together and they certainly are not down for the count; they are working to come back and we're working with them to support them.

Auguste Richard - Piper Jaffray

And then just one last one from me on the three-channel LED driver; is that still slated for ramping in the latter half of the second quarter?

Richard K. Williams

It’s already started. We're starting to see the first orders and it definitely will be transitioning in the second quarter and will get even further cost reductions kicking in the third and fourth quarter. So, we have an ongoing program and as we pointed out, we also take a benefit -- we'll take advantage of those lower costs to also hopefully stimulate new demand in the China local market, which is, you know, is very price sensitive on the low-end.

Auguste Richard - Piper Jaffray

Got it, okay. Thanks so much.

Brian McDonald

Thank you.

Operator

Thank you. Our next question comes from Gary Nackenson from Monness, Crespi. Please go ahead.

Gary Nackenson - Monness, Crespi

Hey, guys. So, it seems like earlier in the quarter you guys are feeling better about Samsung coming back and visibility into Q2. Did something change in the quarter?

Richard K. Williams

Gary, it is that Samsung internally debated about their logistics plan all the way through to the Chinese New Years. So, in that time each week went by; we were waiting for another wait and see week, while they were deciding. And we knew what models we are in, we knew what they forecast for the number of phones they wanted to make would be, but we are in the POS and then as said in some of the POS started showing up out Japan.

So, they've started moving their supply chain around and then eventually became clear that the transition would take longer than they anticipated and then we started seeing our orders from some of the incumbents, who originally were slated to no longer be doing the module manufacturing and then it looks like they finally picked it up and started ordering again. So, we think that part of it was that they purchased aggressively all the way up to the end of December and part of it is that they had a hard time making a final decision on what they were going to do.

I might remind you that the reason LG was strong and Samsung was weak in Q1, is affected by the fact that in Q4 LG stopped purchasing products half way through December, where Samsung continued to purchase right up to the end of the year and we had pointed that fact out that was somewhat unusual for Samsung to purchase all the way to the end of the year. Now, we have better clarity as to why.

Brian McDonald

And I think Gary, on the China front, as we watch the POS reports. We are expecting a pretty big up-tick late in the quarter even on the POS reports and we didn’t see that until we got the final month end, POS reports from the distributors.

Richard K. Williams

So, basically this wasn't a single event. This was a number of events that kind of reveal themselves gradually and I would say the China distribution was optimistic even after the Chinese New Years and it wasn't even till later that they began to realize that there was a slowdown in their customers.

Gary Nackenson - Monness, Crespi

I mean, does it feel like the same demand picture being pushed out unfortunately again instead of being pushed out into, late Q1, early Q2, now being pushed out to late Q2 or what does it feel like, maybe a diminish in overall of demand.

Richard K. Williams

No, okay. So, if you look at it on a year point of view, it would represent a reduction in overall demand because of the delays.

Gary Nackenson - Monness, Crespi

Right.

Richard K. Williams

But the good news is that for the new models, where we have higher ASPs and higher content and a better margin profile. So, it hurts our total revenue, but it helps our possibility.

Gary Nackenson - Monness, Crespi

In China, the over optimistic piece of China not the 3G, not the [Mitsu], but the overoptimistic piece, or those inventories and handsets do you think or are they components in web.

Brian McDonald

I don't know what you mean.

Gary Nackenson - Monness, Crespi

The excess of inventories has been worked through are they in handsets on shows. Do you think or they…

Richard K. Williams

They didn't build the excess handsets.

Gary Nackenson - Monness, Crespi

That's what I want to know.

Richard K. Williams

As far as we can see they just slowed down their build rate. And those products are still being bought, but if you just pushed out the number of months that it would take to consume them.

Gary Nackenson - Monness, Crespi

So, that's consistent with industry check that handset inventories have been cleaned?

Richard K. Williams

Right. It just basically a slowdown and it didn't build ahead. Especially with all the gloom and doom it has been in the press these days about recession fears and all this. I think most manufactures are staying pretty lean on their finished goods.

Gary Nackenson - Monness, Crespi

Right and just quick housekeeping, you said the litigation expense in Q2 would be 0.2 to 0.4, is that right?

Brian McDonald

Yeah, $200,000 to $400,000.

Gary Nackenson - Monness, Crespi

Right, okay, that's all I have. Thanks guys.

Richard K. Williams

Thanks, Gary.

Brian McDonald

Thanks, Gary.

Operator

(Operator Instructions). Our next question comes from Anthony Stoss from Craig-Hallum. Please go ahead.

Anthony Stoss - Craig-Hallum

Hi, this is Anthony Stoss.

Richard K. Williams

Hi Anthony.

Anthony Stoss - Craig-Hallum

I don't know if I missed this, but what percentage of your revenues were ModularBCD in the quarter?

Brian McDonald

It was about a million dollars, Anthony.

Richard K. Williams

And a lot of their ModularBCD design wins are ramping in the second half as we said before.

Anthony Stoss - Craig-Hallum

So, if you got 38 new products and development Canada ventured, I guess how many of those are of the ModularBCD type?

Brian McDonald

I think it’s roughly 60%.

Richard K. Williams

I think it's, yeah, roughly 60%.

Anthony Stoss - Craig-Hallum

Okay.

Richard K. Williams

Of course, you know some of the high volume ChargePumps are pure derivatives of other products.

Anthony Stoss - Craig-Hallum

Okay. Richard, can you also give us a sense, I know if you get…

Richard K. Williams

… CD is also in the Soul model, which is the high profile phone from Samsung.

Anthony Stoss - Craig-Hallum

And any share loss whatsoever or also can you give us some detail on the pricing environment?

Richard K. Williams

Okay. On the new phones and the new models, I think we are offering higher performance features and as I said there the ASP is actually improved. On the super low end the erosion is steady and constant, but at the same time we're rolling up these lower cost products. So, our competitiveness has improved in that stage.

Anthony Stoss - Craig-Hallum

Do you have a sense of what you think you may have lost in the quarter?

Richard K. Williams

If we did it was in some of the lower-end or maybe the mid-tier, but I think the real result is that we're in many of the models that are just starting to transition around and since those ramps are only now beginning, it's not really a share loss. Now you could say that we lost share if our China customers lost share in the global market then we didn’t get that business. But some portion of that we probably got back through the Samsung business. Of course, since we are not selling to Nokia this time any share off because they experienced that Nokia would be our share off.

Anthony Stoss - Craig-Hallum

Okay. Then last Richard if you won't mind commenting about kind of your view or visibility on your outlook outside of cell phones. Any comment about higher voltage products coming out. Give us the sense of where you think you stand traction wise with some of those?

Richard K. Williams

I think the roll out I showed I said that we counted up almost 40 new products, 37 products that addressed new markets or applications. And those products started rolling out in Q4 of last year. And so if you build in a two or three quarter designing time and ramp then they won't start to show up into Q3 or Q4 of this year. But non-handset business also tends to ramp slower.

So that will push it more towards quarter four than handsets which have fairly short cycle times and rapid ramps. But actually we're very pleased with the initial penetration of some of these complex products. The response we've gotten on the companion chip to the VIA chipset is good. So it looks like it technically meets its requirements.

The PowerSOC for digital still cameras is getting a warm reception and the 28 over-voltage protective products are designed in the models that are waiting to ramp. So that all bodes pretty well for the new products. And to try to get into a broader market we're also of course concentrating on a number of products that would go in televisions and those won't have a major impact on the revenue this year, but those include the LED drivers now; they go all the way up to 40 volts, and we believe that that represents the lion's share of the new LED backlit TV opportunities that are coming in the next few years.

Anthony Stoss - Craig-Hallum

Okay, great. Thank you.

Richard K. Williams

Thanks very much.

Brian McDonald

Thank you, Tony.

Operator

Thank you. And our final question today comes from Srinivas Pajjuri from Merrill Lynch. Please go ahead.

Ryan Goodman - Merrill Lynch

Hey guys this is Ryan Goodman for Srini.

Richard K. Williams

Hey Ryan.

Brian McDonald

Hey Ryan.

Ryan Goodman - Merrill Lynch

Hey you guys touched on this a bit on the downstream with the inventory mix if there was more finished goods or more underdeveloped products. Could you talk about that a bit and your inventory with the increase you've seen over the last few quarters. Are we looking more like a die bank or is that finished goods with the risk of going obsolete any time soon?

Richard K. Williams

The majority of the whip in the inside inventory was whipped, okay. We do stage wafers at the front end. There was some inventory growth this last quarter in finished goods. But it was relatively small. But most of it was relative. Basically what we do Ryan is when we build the inventory we build the finished goods to the backlogs in most cases and only start the wafers out to forecast.

Brian McDonald

The portion that we built the forecast represents the new part numbers that are in all the new models like the Soul. So we do not believe that that represents a stale inventory or exposure, because it is actually the parts that are coming that we built ahead on. So we feel confident that as soon as those models ramp that inventory will be burned down.

The other thing as more of our products are now having onetime programmable memory, OTP, and that allows us to customize certain features like voltage options after the product has been packaged. So that means that the risk of getting inventory because we have the wrong voltage option or the wrong slew rate or whatever the feature that is customized is less because we actually do that on an as ordered basis just before we ship the product out.

Ryan Goodman - Merrill Lynch

Okay. And then another one. I am not sure if this is really a big piece of revenue yet, but could you talk a bit on the wire business; you mentioned that briefly in the comments earlier?

Richard K. Williams

Okay, so VIA is a ruthless design of a chip that goes in; it's a companion chip to the new VIA CDMA chipset. And VIA has been sampling their chipset and is starting to get its own design wins and when those design wins occur then that's where we will get our opportunity to serve that business very much like the way we did the Broadcom business. So none of the POs comes from VIA, they come from the customers of VIA using their chipsets. And the technical evaluation has been very favorable.

So now what we're doing is we're waiting on VIA to get its traction and we know that they are quoting a number of suppliers everywhere from Nokia to Samsung in China and even Taiwan. So we'll see how the new VIA chipset succeeds, but if it does then we believe we have the right product to participate in that market.

Ryan Goodman - Merrill Lynch

Okay. And then the last question, just housekeeping. Do have a operating from cash flow number and a CapEx number.

Richard K. Williams

Yeah the CapEx was 1.2 million and the operating cash flows was 900 plus.

Ryan Goodman - Merrill Lynch

Okay, thank you

Operator

Thank you and at this time we have no further questions in queue, I'd like to turn the conference back to management for any concluding comments. Please go ahead.

Brian McDonald

I think that was it. Thank you for participation in the call.

Richard K. Williams

Okay, thank very much.

Operator

Ladies and gentlemen does conclude the AnalogicTech first quarter 2008 earnings conference. If you would like to listen to a replay of today's conference, you may dial 1-800-405-2236 or 303-590-3000 and use pass code 11111974# to access the conference. Thank you again for your participation today and you may now disconnect.

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Source: Advanced Analogic Technologies, Inc. Q1 2008 Earnings Call Transcript
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