Atheros Communications, Inc. Q1 2008 Earnings Call Transcript

Apr.29.08 | About: Atheros Communications, (ATHR)

Atheros Communications, Inc. (NASDAQ:ATHR)

Q1 2008 Earnings Call

April 28, 2008 5:00 pm ET

Executives

Deborah Stapleton – President of Stapleton Communications, Inc.

Craig H. Barratt – President, Chief Executive Officer & Director

Jack R. Lazar – Chief Financial Officer & Vice President Corporate Development

Analysts

Anton Wahlman – Thinkpanmure LLC

Adam Benjamin – Jefferies & Company

Allan Mishan – Oppenheimer

Heidi Poon – Thomas Weisel Partners

Jonathan Goldberg – Deutsche Bank

Quinn Bolton – Needham & Co.

Mark Heller – Merrill Lynch

Ramesh Misra – Collins Stewart

Amit Kapur – Piper Jaffray

Sanjay Devgan – Morgan Stanley

Eric A. Ghernati – Banc of America Securities

Analyst for Romit Shah – Lehman Brothers

Shaw Wu – American Technology Research

Ruben Roy – Pacific Crest Securities

Operator

Ladies and gentlemen thank you for standing by. At this time all participants are in a listen only mode. Later we will open the call to your questions. Instructions for asking questions will be explained at that time. This conference call is being recorded. I will now turn the call over to Ms. Deborah Stapleton who will introduce today’s speakers. Ms. Stapleton you may begin.

Deborah Stapleton

Good afternoon everyone and welcome to the Atheros Communications first quarter 2008 financial results conference call. Leading the call today are Dr. Craig Barratt, President & CEO and Jack Lazar, Chief Financial Officer and Vice President Corporate Development.

Before we begin I’d like to remind you that various remarks that we make on this call including those about our future financial results including revenues, sources of revenues and expenses, are future plans, goals and prospects, market trends, the anticipated benefits of our diversification strategy, our customers, our competitive position, our anticipated growth, profitability and leadership position in various markets and our expected growth drivers in 2008 constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act. These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. We refer you to our annual report on Form 10K for the year ended December 31, 2007 previously filed with the SEC in particular to the section entitled risk factors and to other reports that we file from time-to-time with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as of the date hereof and we disclaim any obligation to update these forward-looking statements.

Atheros reports net income and basic diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis referred to as pro forma. Atheros’ management believes that the non-GAAP information is useful because it can enhance the understanding of the company’s ongoing economic performance and Atheros therefore uses pro forma or non-GAAP reporting internally to evaluate and manage the company’s operations. Atheros has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the company analyses its own operating results. The full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today and we ask that you review it in conjunction with this call. All numbers that are discussed in today’s conference call are non-GAAP unless otherwise noted.

Now, I’ll turn the call over to Dr. Craig Barratt.

Craig H. Barratt

Thanks to everyone for joining us today. The first quarter was our 12th consecutive quarter of growth with revenue increasing to $114.5 million. Net income was $17.2 million or $0.28 per diluted share. Gross margins were again strong at 51.2% and operating profit was 15.3% of revenue. Jack will take you through the numbers in greater detail and discuss guidance for the second quarter shortly.

The first quarter was an important quarter for Atheros in particular our 11n products experienced tremendous revenue traction at our retail partners and we began shipping to carrier customers who are launching 11n in their [inaudible] enabled gateways. We secured 11n design wins with a broad base of PC customers proving that 11n adoption in PCs is accelerating and that 11n will be widely used by mainstream PC platforms in 2008. While we are optimistic about the opportunities for 11n, 11g has been the workhorse that has enabled us to gain share in the wireless LAN market over the past few quarters. During the first quarter our 11g revenue increased yet again demonstrating the elastic nature of the market for low cost wireless LAN products and the appeal of Atheros’ solutions.

Outside of our core wireless LAN products we continue to gain traction with our ROCm mobile wireless LAN solutions. Atheros now has over 30 handset design wins for these products and we remain positive about our 2008 ROCm opportunities in gaming and other consumer electronics markets. We’re also very pleased with the success of our Ethernet business as our fast and gigabit Ethernet products perform well in a seasonally weak quarter. More importantly, we’re successfully diversifying our Ethernet customer base which we expect to favorably impact our Ethernet revenue going forward. We continue to take advantage of the platform synergies that Ethernet provides us across our PC, retail and carrier customers and we believe that this approach will enable the acceleration of our Ethernet client and switching revenue during 2008.

With production shipments of gigabit switches later this year we believe we are well positioned to increase our share of the Ethernet silicon market. And of course, with the addition of our first Atheros GPS revenue in the first quarter and expected Bluetooth revenue for the PCs and headsets later in the year, we are taking more steps towards product line diversification that will also help catalyze our revenue growth in 2008 and beyond. The underlying strength of our products and the success of our efforts to diversify our business and our customer base, are allowing us to achieve our business objectives despite the uncertain economic times.

With these overall comments on the market let’s now look at the channels we serve: PCs; networking; and consumer in more detail. Going in to the first quarter we anticipated both seasonal weakness with PC OEMs in general and the continued reduction of the 11n wireless LAN revenue at one particular account. This did occur and our PC OEM revenue was down sequentially to 34% of revenue. However, we have many reasons to be optimistic about the revenue contributions from our PC customers in the remainder of 2008. We’re extremely pleased with our PC OEM design wins for our single chip 11n solutions which will be a major component of our overall 11n growth in the coming quarters. I announced back in November that Atheros single chip 11n solutions for PCs had the industry’s most integrated 11n solution shipping in volume allowing us to offer our customers a significant cost savings while maintaining best in class performance.

In March we began production shipments of our single band and dual band 11n PCI express AR9280 and 81 that have been designed in to upcoming multimedia platforms at a variety of PC OEMs. We believe that the availability of our cost effective 11n single chips is an important milestone in driving the overall migration of mid and high end PC platforms from 11g and AG to 11n. Simply put, we believe we have the right products at the right time and we will see 11n revenue accelerate as we move through 2008. While 11n is a critical part of our 2008 growth strategy there is also continued strong demand for our low cost 11g products in the emerging value and ultra mobile PC segments. The sub $500 notebook PC market segment is becoming increasingly important to Atheros. Several tier one OEMs are creating laptops for this market similar to the ACER E PC and Atheros is taking advantage of this trend. Our low cost 11g products such as the single chip AR2425 are the ideal solutions for these value oriented laptops that demand reliable connectivity at competitive price points. Moreover, as Intel no longer provides 11g Centrino solutions and customers are demanding wireless land connectivity on these value oriented platforms, Atheros’ products have gained significant traction in the past few quarters and the design win pipeline is strong. We view this as an important growth area for Atheros as multiple PC OEMs introduce new products to address this market.

Our Ethernet buy and long solutions are also gaining great attraction in the laptop market as we continue to cost down our Ethernet family of products. Our solutions have become even more competitive and will help drive our overall growth this year. We are benefiting from the aforementioned success of sub $500 notebooks such as the E PC which employees Atheros’ Ethernet. In the second quarter we expect to see increased volumes of our AR8000 series of Ethernet products as they have been designed in to a variety of models from tier one laptop manufacturers.

Our networking business which includes our retail and carrier products with a gain strong in the first quarter representing 59% of revenue up over 14% sequentially. Sales of 11n and 11g products to networking products were particularly robust in the first quarter and we’re seeing increased revenue from our AR8216 10/100 Ethernet switch as part of our low cost 11g access point and router reference designs. With the networking business retail was particularly strong in the first quarter driven primarily by a large increase in 11n shipments to customers such as D-Link have brought to market compelling 11n solutions that range in price from $50 to $200. With the availability of Atheros’ old 11n chip set at attractive ASPs, OEMs are aggressively rolling 11n in to a wide variety of access point and router solutions furthering the ongoing adoption of 11n by the consumer. Late in the first quarter we began shipping our highly integrated AR9001 APSOC to a variety of customers and we’re encouraged by the design wins to date. These types of products help accelerate the adoption of 11n in the consumer marketplace by enabling low cost access point and router designs which can be sold at prices approaching currently available 11g solutions. We are now shipping our 11n products to every major retail customer further increasing our footprint in this market.

The carrier portion of our networking business was also strong in the first quarter up 80% year-over-year. The design wins of the past year are now providing us additional revenue as broadband gateways both in the US and abroad increasingly employ Atheros wireless LAN. The next big step with our carrier customers is the adoption of 11n in broadband gateways. Customers such as ADM are at the forefront of this transition and we are working with a variety of other customers on designs that will be available in the market later in 2008. Our single band and dual band 11n PCI single chip [climb] products the AR9220 and 23 are ideally suited for the demands of this market.

The transition to 11n in the carrier segment is occurring rapidly especially in Europe, Korea and Japan where carriers are interested in video distributions using wireless LANs. Carriers are also looking at new applications for wireless LAN as a distribution mechanism for media, telephony and other services for their customers. We continue to believe that our carrier business will be an important revenue growth driver in the quarters to come.

As expected, our consumer business was up significantly, more than 40% sequentially in the first quarter representing 7% of our total revenue. This growth was driven primarily by the addition of revenue by our GPS product line. Today, we were pleased to announce a new member of our ROCm family of GPS solutions a hardware and software GPS combination that targets mobile phones, PNDs and PMPs. This solution consists of our second generation single chip GPS receiver the AR1511 and companion Orion 3.0 software suite. The combo is ideally suited for integrating advanced navigation functions in to mobile devices with state of the art assisted GPS technology, advanced parallel search capability and industry leading tracking sensitivity of -160 DVM which together enable the most rapid and accurate location determination while conserving battery power. Unlike some competitors our newest GPS solution has been designed to support standalone as well as hosted applications providing significant design flexibility to enable a wide variety of location aware devices in form factors.

In February our Bluetooth 2.1 plus EDR or enhanced data rate solutions for headsets was certified by the Bluetooth qualification body. Our Bluetooth technology exceeds the performance requirements of the latest industry specifications which features improved device pairing, enhanced power utilization and advanced security. We continue to be very excited about the prospects for ROCm mobile wireless LAN products in 2008. Just last month Atheros and Infinium announced a jointly developed dual mode GSM Wi-Fi phone design which offers user friendly features and is extremely cost effective. This unprecedented design will enable Wi-Fi which to date has been increasingly popular in Smartphone market to become a mainstream offering in feature phones. At this year’s mobile world congress we demonstrated our ROCm mobile wireless LAN implementation on the Nvidia APX 2500 development platform, a breakthrough applications processor designed to enable advanced multimedia features in a new breed of Smartphones and consumer devices.

As I mentioned earlier, we now have over 30 handset design wins for our AR6000 series products many of which are combined with baseband solutions from our partner Corcom. As we move through 2008 we expect a significant revenue increase from customers using our ROCm solutions with a wide variety of design win for handsets, gaming devices, media players, personal navigation devices and other consumer electronics products, we are confident ROCm will be an important growth driver for many years to come.

Overall, we’re very pleased with our performance in the first quarter and our outlook in the future. We continue to gain market share in our wireless LAN business and our investment in a variety of product lines is paying dividends. As a reminder, I would like to reiterate our expected growth drivers for 2008. First, the migration to 11n is happening now and we expect our 11n business will be our number one growth driver for 2008. Our ROCm solutions for the mobile wireless LAN market represent the second biggest growth driver for 2008 with revenue coming from high volume markets such as gaming, handsets, cameras and PMPs. Third, our Ethernet business is strong. Although a new market for us, it is one in which we are taking meaningful share and adding new products such as fast and gigabit switches. As a recent addition to the product portfolio, GPS is already providing additional revenue diversification. And finally, Bluetooth will also provide us with another revenue stream as we progress through 2008.

At our analyst day back in November we spoke to you of the increasing tam Atheros is addressing and the opportunities for us in 2008 and beyond. Our view has not changed, indeed the trends we anticipated are in fact taking place in the market. We are confident that we can successfully execute on the opportunities in front of us while still investing in the development of new product line that are required to build a world class diversified semiconductor company.

With that, I will hand it off to Jack for a detailed revenue of the financials.

Jack R. Lazar

Thanks all of you for joining us today. First I want to outline our financial results for the first quarter ended March 31, 2008 and then I’ll provide our second quarter guidance. While Q1 is generally a seasonally soft quarter and we, like others, faced a variety of macro headwinds. Atheros once again delivered results that were in line or above our Q1 guidance. Q1 was our 12th consecutive quarter of revenue growth and our fourth consecutive quarter of revenue above $100 million.

Revenue, gross margins and operating expenses each came in slightly above our guided range, an EPS of $0.28 was at the high end of January guidance. As a reminder, our Q1 guidance was for sequentially flat revenue, gross margins between 50 and 51%, operating expense of between $40 and $41 million and EPS of $0.27 to $0.28. Q1 revenue increased .2% sequentially and net income was $17.2 million or $0.28 per diluted share. Revenue was a record $114.5 million up $200,000 from $114.3 recorded in the fourth quarter of 2007. Revenue in Q1 increased 20% compared with the $95.5 million recorded in the prior year comparable quarter.

Based on product mix data the breakdown of revenue for our wireless LAN chipsets was as follows: 11 AGU was 15% of the wireless LAN revenue versus 16% in Q4, 11g was 69% compared with 67% in Q4 and 11n was 16% compared with 17% in Q4. We reported record revenue from our 11g products in Q1 due primarily to the strength in both our retail and carrier networking customers partially offset by an expected softness in PC OEM revenue due to seasonality. 11n product revenue at 16% was in line with our expectations going in to the quarter and down sequentially. The decline in PC OEM 11n revenue was largely offset by very strong 11n shipments to retail and to a lesser extent our carrier networking customers.

The percentage breakdown of revenue by channel based on the data supplied by our OEMs was as follows: networking was 59% which compares with 52% in Q4; PC OEM was 34% and that compares with 43% in Q4; and consumer was 7% compared with 5% in Q4. Revenue in units shipped to our networking customers increased to record highs in Q1. Strength in 11g, 11n and Ethernet shipments to retail, enterprise and carrier customers resulted in an $8.4 million sequential increase in our networking revenue. PC OEM revenue and units decreased sequentially due primarily to an expected decline at a particular PC OEM and to a lesser extend seasonality related to 11g shipments. PAS revenue was in line with our expectations and our mobile wireless LAN revenue grew in Q1. In the first quarter our GPS products were a strong contributor to the 42% growth in our consumer channel revenue and in Q1 Hon Hai Precision Industry was our only 10% customer.

First quarter gross margins were 51.2%, 20 basis points above the high end of our 50 to 51% guided range. Our gross margin strength was due to favorable product mix and continued supply chain efficiencies. Atheros now ships over 60% more chipsets quarterly than we did just a year ago. Total operating expenses were $41.2 million an 8% increase from Q4 due primarily to the cost related to the addition of the u-Nav personnel. Operating expenses were slightly above the high end of our $40 to $41 million guidance. Operating income in the quarter was $17.5 million and in line with our expectations and operating income increased 26% from Q1 of 07. Interest income declined more than anticipated in our guidance due to continued reductions in the Fed funds rate. This was offset by a lower than expected tax rate in Q1.

Net income was $17.2 million or earnings of $0.28 per diluted share for the quarter compared with net income of $21.4 million or earnings of $0.36 per diluted share in Q4. Average fully diluted shares outstanding were 61.4 million in Q1 and 60.3 million in Q4. GAAP net income for the first quarter was $3.4 million or $0.06 per diluted share. This compares with GAAP net income of $13.4 million or $0.12 per diluted share in the fourth quarter and $7.6 million or $0.13 per diluted share in Q1 of 2007. A full reconciliation of GAAP to non-GAAP financial measures can be found in our press release.

As of March 31st, cash, cash equivalent and marketable securities were $255.6 million up $5.6 million from December 31st. Included in this balance is $25.4 million of auction rate securities. As we discussed in our Q4 conference call and in our 10K filed in February, these investments have been negatively impacted by uncertainties in the credit markets and their exposure to the financial condition of bond insurance companies. In Q1 the value of these securities declined further and as a result we believe it was prudent to record an additional other than temporary impairment charge of $5.1 million to reduce the value of our auction rate securities to their estimated fair value of $25.4 million as of March 31st. This impairment charge is recorded as a non-operating loss which impacted GAAP fully diluted earnings by $0.08 per share. Because it represents future expected capital losses for which we currently do not have available capital gains to offset, no tax benefits were recorded with this impairment. We continue to classify these securities as long term investments as of March 31st. In future periods the estimated fair value of our auction rate securities good decline further based on market conditions which could result in additional impairment charge which may be substantial. While our overall cash position and cash flow remains very strong we continue to aggressively evaluate all potential means to remedy the situation.

Turning to the remainder of the balance sheet, DSOs were 57 days in Q1 an increase of 46 days in Q4 as Q1 revenue was less linear. Inventory turns for the quarter were 5.9 times compared with 6.2 times in Q4 while days of inventory increased slightly from 60 to 61 days. Inventory turns were at the high end of our target at five to six times. The company continues to have no debt. Total liabilities at the end of Q1 were $132 million. During the first quarter of 2008 our capital expenditures and depreciation were approximately $2.1 million and $1.5 million respectively. Overall, our cash flow as strong once again in Q1. As of March 31st we had 933 full-time employees, up 55 from 878 at the end of Q4. The substantial majority of the additions were engineering related.

I’ll now move on to our guidance for the second quarter. We anticipate our networking business will once again be the strongest with much of the projected increase coming from sales to our carrier customers. We also anticipate growth in our PC OEM channel driven by sales of our 11n and ethos solutions. In terms of products we expect strong growth from the sale of our 11n solutions and that they will make up at least 20% of our Q2 wireless LAN revenue. In addition, we anticipate strength from our Ethernet solutions as new PCs and wireless LAN networking products begin shipping our ethos solutions. Based on these favorable trends we currently anticipate revenue growth of between 4 and 6% sequentially. We anticipate that gross margins will once again be above our target model range and at approximately 50 to 51%.

We will continue to invest in the people, product tape outs and infrastructure necessary to support our continued growth and entry in to new markets. In the second quarter we anticipate a total sequential change in operating expenses of between 0 and 2.5%. Our estimated pro forma tax rate for Q2 is 15% and we anticipate EPS to be approximately $0.29 to $0.30 based on fully diluted shares outstanding of between 62.5 and 63 million. Q1 was another successful quarter for Atheros and we are quite optimistic about the remainder of 2008. With the expansion of our tam opportunities and the introduction of industry leading solutions such as our single chip 11n family of products which are now in volume production Atheros is very well positioned for growth. We expect our investments in diversification will continue paying dividends throughout the year and we will invest prudently in further efforts which we believe will help position Atheros for ongoing success and increase shareholder value in 2008 and beyond.

With that, let me hand it back over to Craig.

Craig H. Barratt

We are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) One moment please for the first question. Our first question comes from Anton from Thinkpanmure.

Anton Wahlman – Thinkpanmure LLC

I have a question here simply on the ROCm you talked about going from some Smartphone down to so called feature phones. In terms of the applications driving this could you discuss are these mostly designed for voice handoffs or are they more designed for sort of Internet access offload down to the handset? There are different philosophies taken by handsets, I know some handsets will have richer browsers, others are just meant to augment voice quality over Wi-Fi.

Craig H. Barratt

These phones are really targeted outside of the feature phone type of feature set which means primarily voice so the Wi-Fi application here far and away is a voice application based on voice over IP rather than a richer set of data services. Certainly, we provide data services would be possible but the price point for these phones definitely means it’s really a voice entry feature phone.

Anton Wahlman – Thinkpanmure LLC

And you would say that the vast majority of your design wins in this regard is as a result of your publically announced relation with Qualcomm.

Craig H. Barratt

Certainly the majority, not necessarily the vast majority, we have wins with a number of customers separate from that relationship but certainly the majority is with the relationship we have with Qualcomm and historically they have been more focused on Smartphone type products. The Infinium partnership is definitely targeting our feature phones.

Anton Wahlman – Thinkpanmure LLC

But you do have some instances of design wins on the GS7 side of the fence as well?

Craig H. Barratt

Yes.

Operator

Our next question comes from Adam Benjamin with Jefferies & Company.

Adam Benjamin – Jefferies & Company

Just a couple of questions here, first some of the dynamics Craig talked about in the PC OEM market. It seems to be some dynamics that are share shifts way from Intel. You historically talked about a 70/30 split with Intel 70 and the remaining 30 between yourself and Broadcom. Can you talk a little bit about that market and the dynamics you’re seeing both in the low cost fee side as well as you move to end and how you expect that share to kind of play out going forward?

Craig H. Barratt

Well, I think as we reflected in our comments the value segment area is one way we’re seeing tremendous elasticity in growth and all of those are 11g connected devices and of course the Centrino brand doesn’t extend down to those platforms nor does the technology availability since Intel is really just providing 11n solutions going forward. So, I think on an aggregate basis I think that’s definitely the split that you described perhaps use to be 70/30 certainly has moved down substantially so that means the non Centrino part of the market has become significantly larger. And of course, we all know the overall laptop market is enjoying a very good annual growth rate as well. So compounding those two factors is really one of things that’s created a huge opportunity for us. If you look back a couple of years the PC business was a much smaller percentage of our overall revenue and of course our overall revenue was substantially lower too so our PC business in dollars has grown many times over just the last two to three years for exactly that reason. And, the 11n area we expect the whole scenario to repeat again I think by having highly integrated solutions with differentiated capabilities we’ll be able to stake a very nice footprint even though there are Intel Centrino 11n platforms too and we’re going to do in 11n exactly what we’ve done in 11g which is to drive performance, to drive parts, to drive integration and power so that we can capture overtime more and more platforms. That strategy has worked well for g and we expect it to also work well for 11n.

Adam Benjamin – Jefferies & Company

Jack, I know you don’t typically give any specific pricing detail but can you provide some commentary on the quarter?

Jack R. Lazar

I think as far as SPs they were pretty much in line with what we expected going in to the quarter. I think over the last several quarters we haven’t seen any significant out buyers and pricing declines so I would say we certainly experienced price declines in the quarter but nothing that was unexpected or abnormally large.

Adam Benjamin – Jefferies & Company

Then just on ROCm as you guys look out right now with your current design wins if you look out for the second half of the year do you expect to be shipping in material volume to multiple customers? And maybe when I say material volume, in excess of about $5 million for the second half of 08?

Craig H. Barratt

Well, we’re not going to refer to a particular threshold. I think compared to our current revenue run rate in the ROCm area we expect multiple customers to provide significant revenue opportunities in the second half of this year.

Jack R. Lazar

Craig pointed out in his prepared remarks at the end when we talked about the growth drivers for the company ROCm is the number two growth driver this year. And, right now it’s obviously ROCm is a subset of the consumer business for the most part and cleared up 7% of our revenue for the first quarter. Obviously, we’re expecting those numbers to increase pretty significantly as we move throughout the year.

Adam Benjamin – Jefferies & Company

Right. I was just trying to get the size of some of those handset wins. Obviously you had a lot of them but the question is how many materially will there be? So I was just trying to see if you could give some clarity on how significant you expect them to be in the second half.

Craig H. Barratt

I think that’s actually difficult to tell. I think we have some very exciting wins as we described before. We do have wins in three out of the top five handset OEMs. But the thing we can’t predict is whether a particular model will be taken up by [inaudible], Verizon or AT&T so it’s hard for us to access whether a particular win will turn in to a tier one carrier footprint of substantial scale. Phones that do of course will enjoy much higher volumes and phones that don’t will perhaps appear in some second tier markets and the volumes will therefore be lower. So, that’s difficult for us to influence. Clearly, it’s a numbers game now with in excess of 30 wins we hope and we expect that we will have some platforms that will actually ramp in quite attractive volumes so I think that will make the cellular area quite contributive to our ROCm growth this year.

Adam Benjamin – Jefferies & Company

Great. Just one last question on GPS, you guys have had an acquisition for about a little over four months now. As you look out, when should we be expecting some tier one wins? Should we really be thinking about the fall refresh at this point? Or really the spring refresh of 09?

Craig H. Barratt

We’ll announce wins as the end products start shipping so we tend to announce wins quite late in the cycle of those products. And because of the design end cycles I think it’s something that will likely be in to next year.

Operator

Our next question comes from Allan Mishan with Oppenheimer.

Allan Mishan – Oppenheimer

Can you dig in a little bit more in to what happened with the DSOs specifically? I mean you mentioned linearality. Is there any more details you can give us behind that?

Jack R. Lazar

No, it’s pretty much all linearality. We had more of backend loaded quarter than we had in Q1 so obviously the receivables themselves were very clean and we’ve never had a historical problem with that but just based on the actual numerical calculation given the back end load we had a higher DSO. I think it really relates to part of it being that February is Chinese New Year so you need to get it in or you’re going to be less likely to collect it before the end of the quarter.

Allan Mishan – Oppenheimer

What I was trying to get at was, was there anything in terms of new customers or new programs that may have started at the end of the quarter that influenced that?

Jack R. Lazar

No, I don’t think it was any customer specific issue, I think it was just more in terms of the overall linearality for the quarter Allan.

Allan Mishan – Oppenheimer

Okay. Then, if you look at the entire consumer wireless LAN business for you including the gaming, the handset, cameras, etcetera, should that be greater than 10% of revenue exiting the year?

Jack R. Lazar

I don’t think we’ve given any guidance on that and I think as we move forward throughout the year and start seeing significant volume from some of the design wins that we have there I think that’s when it will be more appropriate to actually talk about the volumes. But, up until this point what we can tell you is that our expectations, our internal expectations have not changed at all. We are very confident in what’s going on in our mobile wireless LAN business and we see a lot of reasons to be optimistic as we move through the year.

Allan Mishan – Oppenheimer

Okay. Great. Last one for me, how do you expect the single chip 11n to impact margins for you guys? Is that positive because it’s a lower cost or is it negative because you pass that on to the customer? How does that play out relative to your existing margins for the total company?

Craig H. Barratt

I think in general I think of it being pretty much in line with our overall corporate margins. Just like we did with 11g, really our goal is to exploit share gains by delivering products at very competitive prices and we think we can do that in a way that allows us to maximize the total contribution margin dollars we can achieve from a product. So, we certainly want to use the availability of that product as a competitive weapon and we think we can do it in ways that will allow us to increase our share of the market at margins that are in line with our overall corporate targets.

Jack R. Lazar

Remember, our number one focus is always to increase our market share and so to the extent we can use price as a weapon, we use price as a weapon. [Inaudible] we don’t have to use price as much as a weapon we benefit from it in the form of additional gross margin and over time that’s – if you just look at the history of our wireless LAN gross margins essentially over the last couple of years is clearly played out advantageous to us so we’re going to continue that approach. One of the other things the 11n does bring us though is obviously a multiple on the ASPs and while that doesn’t have a direct effect necessarily to gross margins it certainly does help with driving revenue growth as we move through the year.

Operator

Our next question comes from Heidi Poon from Thomas Weisel Partners.

Heidi Poon – Thomas Weisel Partners

Can you actually give a little bit of color on regional strength, especially for the retail channel? And secondly, you commented earlier that pricing really hasn’t been out of the ordinary but as more competitive solutions for 11n comes out and you also traditionally take advantage of the elasticity in this market. So, can you give us a sense of what you anticipate in terms of a potential ASP erosion in the segment?

Craig H. Barratt

I think we saw among our customers some customer perhaps with more exposure in the US and more exposure to the consumer markets have seen some headwinds and challenges. But, a key thing for us is that in each of our market segments we have quite a broad international footprint. So, for example, one of our largest retail customers historically has been D-Link whose international presence is quite strong. Another interesting point is that a customer like D-Link is very focused on providing value segment products in to the marketplace so they’re one of the price leaders in the end markets that they serve and that elasticity I think is something that becomes more important when consumer spending is challenged. People will be more focused on value type platforms. Another example of that trend is in PCs as we mentioned also where laptops at sub $500 price points will enjoy tremendous growth in spite of the more difficult economic times. In fact, because of the more difficult times we think the growth of that segment will actually be enhanced. So clearly, it’s the sum of a lot of ins and outs but on a net basis the diversification of our business, our growth in market share has really allowed us to continue to achieve our business goals in the face of some real economic headwinds that we’re seeing broadly.

Jack R. Lazar

I think you had also asked about ASP erosions, is that correct Heidi?

Heidi Poon – Thomas Weisel Partners

Going forward with your 11n what you see there with the more competitive solutions on the market?

Jack R. Lazar

Yeah. I think it’s really driven by – I’ll say this, we have a lot more flexibility now than we’ve had in the past. So, by having single chip products in the marketplace it’s a pretty significant advantage as we move in to the second half of this year. And, like I said we’ll use that as a means to compete in the marketplace. So, if we have to lower the prices we will lower the prices if it means we’ll get the market share gains. Now, frankly we can’t look in to a crystal ball and say where the ASPs are going to go, what we know is that we can control the costs and if we design a cost competitive product that we think will compare favorably to other people in the marketplace we by definition will benefit more than others and historically we’ve been able to do that at a pretty good margin. So, I know I’m not giving you an exact answer to what kind of ASP erosion we expect. What I’m telling you is we can certainly endure a fair amount of ASP erosion but we also have the flexibility to give some of it to the customers, take some of it on our own and really end up in a good position in the long run.

Craig H. Barratt

Continuing that point, actually gross ASPs are certainly something we have used as a competitive weapon so they’re more something we’re doing to the marketplace rather than something that happens to us. Generally, the strong gross margins we’ve had gives us significant flexibility in really driving prices to leaves that can allow us to command the key wins and shares we need to grow our business.

Heidi Poon – Thomas Weisel Partners

I wondered if you could also comment on as ROCm becomes a higher mix of the second half do you anticipate any margin profile change?

Craig H. Barratt

We think most of our businesses including ROCm will generally be in line with our gross margin profile for the company. So, we don’t think any particular segment is going to skew that significantly.

Jack R. Lazar

But, let’s keep in mind that we are running above our target gross margin model and I’m not saying that ROCm business will come in above, below, at we’re not guiding on that but I don’t want people to get too focused on the 51/52 point margins that we’ve had over the last couple of quarters. We need to use that as a weapon as we move forward so that we can gain more market share. Overall, we really feel strong that we have to have a commanding lead in wireless LAN because it’s the foundation of our business and without that it makes it harder to grow in some of the other areas. So, we strive to keep the margins up as high as we can but in the end we’re going to really try and focus on the market share.

Operator

Our next question comes from Jonathan Goldberg from Deutsche Bank.

Jonathan Goldberg – Deutsche Bank

First, just a clarification on your relationship with Infinium, is this reference design that you won, is this for feature phones only or does it also include their full line of products?

Craig H. Barratt

Since it’s a complete design we have to target a particular product family from Infinium so this is based on the ULC2 platform their ultra low cost GSM platform and that means that it’s really optimized the total costs and [lexo] has a platform for adding a lot of new rich features so it’s really a cost optimized platform and as you know the ULC2 platform from Infinium is the lowest cost GSM solution in the market.

Jonathan Goldberg – Deutsche Bank

Then, do you have a shot at getting in to other designs with them?

Craig H. Barratt

We think there are a number of semiconductor companies including Infinium that can represent a rich set of opportunities for us in the form of partnerships because more and more we have strong offerings but they are complimentary to the offerings of these players and clearly Infinium is in that category. Certainly, we see opportunity for expanding our relationship. We already have a strong relationship with Infinium on the DSL side of the business where we similarly have a reference design opportunity across a family of their products for delivering carrier class solutions that have world class Wi-Fi solutions from Atheros with Infinium’s own DSL products.

Jonathan Goldberg – Deutsche Bank

Okay. Then, can you just talk briefly about how you see the market for low cost PCs developing this year? What kind of ramping trends should we expect? Is it going to be a seasonal as other products? Do you think it will be linear?

Craig H. Barratt

The seasonality is very hard for us to predict. I think there are other companies that would probably have a better insight to that. I mean our goal is simply to capture a growing share of the market that’s available. We think the overall laptop market and you can see the [Alice] reports yourself, will enjoy significant unit growth this year and next year and we hope that the non Centrino part of that market grows in fact at a higher rate than the overall market as well. So, of the trends we’re trying to exploit it’s difficult for us to give color or discuss whether in any particular quarter where the overall market will be up or down or how the mix will change.

Operator

Our next question comes from Quinn Bolton with Needham & Company.

Quinn Bolton – Needham & Co.

I just wanted to see if you guys could give your perspective on the competitive landscape related to the 11n especially on the single chip. Are you seeing other single chip solutions out there in the market? I know some have been announced but I’m wondering if you’re seeing them actually in the market? As your single chip end products come to market do you think the competitors are typically still shipping two chip? Or do you think you will see other single chip platforms ramping in the first round of Montevina notebooks later this quarter and in to the third quarter?

Craig H. Barratt

I think it’s a great question, certainly there are other companies, competitors who have announced single chip products but we’re certainly the first to sample and the first to have production quantities shipping of the single chip 11n product. So, certainly we’re behaving in the marketplace as though the competitor solutions are ready to go and we’re making sure that we have a strong position at our key accounts. But, in general the availability of these products has been later than the competitors’ expectations and that window is something that’s created a significant opportunity for us for 11n wins especially in the PC market this year. So, I think that trend is favorable, certainly we have a very strong roadmap of additional products that we expect to be launching and announcing through the rest of this year and I think that will give us an increasing footprint and strength in the 11n market.

Quinn Bolton – Needham & Co.

Then just a sort of follow up question on Montevina as we see the 802.11n notebooks ramp are these mostly going to be won by two configurations? Can you just give your sense to how it splits between the lower transmit functionality versus say a full 3x3 implementation?

Craig H. Barratt

Another great question. I think that’s something where we don’t know the exact split. Certainly, as we discussed there’s a significant component that will still be g and then n which historically has only been a high end solution will definitely split in to a high end and a mid range. So, 11n will definitely move in to the main meat of the market this year and as you point out that likely will be differentiated or segmented through feature differences. There’s also a single band versus dual band distinction as well. Certainly, the high end product will definitely be a dual band product, it will at least be a 2x2 solution and the mid range product could be single band, might be 2x2 or 1x2, I think there’s some flexibility in the makeup of that mid range product and certainly our goal and our product strategy is to cover very successfully as many of those configurations as possible. So, I think each PC customer will take a potentially different approach to their platform configurations but our goal is to very much be the one stop shop, no matter what platforms they decide to launch.

Quinn Bolton – Needham & Co.

Okay. Then just lastly, Craig on the networking business can you sort of give a rough sense what percent of that business is the sort of single chip access point? Are you selling a lot of just the big band MAC radios in to that with discreet networking and network processing? Or, is that mostly now integrated?

Craig H. Barratt

It very much varies by segment and by customer. So, on the retail side for 11g, the vast majority of our shipments are our single chip router solutions. Remember of course, with 11n our most integrated solution that is shipping today is actually a two chip solution, this is the AR9001 which is a network processor combined with our 11n solution with an external radio and we’re seeing significant uptake of that in the retail area. So, 11n is today mostly two chip solutions. In the carrier market the architecture of the products is different and in most cases the platform and network processor is provided by the DSL or broadband technology so our solutions there are generally single chip climb type solutions whether they’re 11g or 11n. Now, I think going forward in both markets, in both carrier, retail and in fact additionally enterprise, I think we’ll see price points in 11n that will really enable end current 11n operation in both the 5 gigahertz and 2.4 bands and I think that will be an exciting area just because with single chip 11n solutions we can get to attractive price points to really enable those platforms.

Jack R. Lazar

To just add one other thing on top of that, when we do move to those dual band concurrent type solutions, you’re looking at a multiplier of chips for Atheros. So, you’re now looking at probably up to four chips and a platform which will include a CPU, an Ethernet switch and of course two concurrent lines of wireless LANs running 11n. So, obviously we’re very excited to see a trend like that start to emerge and we’re starting to see some interesting indications from some of the retail folks that-that’s something they’re going to aggressively go after in the second half of the year.

Operator

Our next question comes from Mark Heller from Merrill Lynch.

Mark Heller – Merrill Lynch

Jack, given your commentary maybe I’m just misinterpreting but on Bluetooth and the gigabit switch I guess I was expecting some contribution in the second quarter but it sounds like that might be pushed out to the second half of the year. Can you just provide an update on those two products?

Jack R. Lazar

Sure. On the gigabit switch we are still sampling, we will be having revenue whether it’s the end of this quarter beginning of next quarter. It will come in some time over the next six months here. I would same the same thing frankly for Bluetooth. We mentioned that we had the BQB certification completed this last quarter. There’s a lot of good things happening there but things just take a little bit of time.

Mark Heller – Merrill Lynch

On GPS, maybe if you could just provide your updated review on the GPS market? It seems like the market leader is having a lot of troubles. I’m just wondering if your view of GPS has changed recently? And also, I was wondering if you could provide the GPS revenue in the first quarter?

Craig H. Barratt

First up on the GPS revenue we don’t break out the individual segments, it’s part of the consumer segment which overall was about 7% of our Q1 revenue. Overall, I think the GPS is a great market opportunity. Certainly, when you have a small revenue base we’re a lot less concerned about the overall challenges that the market might face perhaps economic reasons or whatever but I think it’s a market that is undergoing a significantly heightened competitive phase with the entrance of ourselves and several other players in the market. I think they’ll be significant competition, I think this is a game that we very much enjoy playing. We’re very familiar with this game in the Wi-Fi business and also Ethernet as well and I think that will serve us well for providing very low cost solutions that have significant performance and provide significant value to our customers. GPS not only will find its way in to a vast range of consumer devices but it will also be a necessary component in multi function solutions which we believe will become more important in the marketplace in the next one to two years. So, not only do I think it will be a good standalone market but it’s also a very important building block that we need to address future needs in the consumer market.

Operator

Our next question comes from Ramesh Misra, Collins Stewart.

Ramesh Misra – Collins Stewart

My first question is related to 11g, it definitely seems like the energizer bunny, it keeps on going. When do you see the crossover happening from 11g to 11n? Or, do you really see the wireless LAN market with longer term basically being a two pronged kind of product line?

Craig H. Barratt

Well, I think the crossover will vary by segment and in fact even by customer. We have one extreme, some customers are only shipping 11n through to others that are almost completely shipping 11g so I think in the retail area it will tend to happen a bit earlier than the PC market and I think the carrier and enterprise market will tend to happen later. So, while we refer to 11n as our number one growth driver for 2008 I do want to mention that we do expect 11g overall to certainly not go down this year either. We think there’s an essential overall expansion in the market where certainly both 11g will be strong and 11n will grow. Next year I think we’ll definitely see 11g be more and more displaced by 11n because across more and more of our product families 11n will be at price points very comparable to g and that will make the transition accelerate and be more inevitable .

Ramesh Misra – Collins Stewart

Okay. What about the revenue crossover? You were talking about the unit crossover potentially sometime next year?

Jack R. Lazar

I think that it’s very hard for us to sit here and look in a crystal ball in that one. All we can do is drive that crossover to happen. So by putting out single chip products, by integrating the access point products down in to two chips today and certainly moving forward to single chips those are the things that help push 11n to be the volume skews both on a dollar and unit basis as we move forward. If we can price them at attractive price points with features that are wanted or required by the customers then the crossover is just going to happen. So frankly we don’t care as much, what we want is to sell wireless LAN chips and to the extent that they’re 11g so be it, we can make good money on 11g. If it’s 11n, that’s good too. We talked about two years ago how we took a hedged approached tool up then. How we cost down all of our 11g products pretty significantly has we entered in to what was going to be the big 11n transition back in 2006 and that hedge has paid off quite well for us. As you see today 11g was growing yet again in Q1 so as long as we build the right products and expand the markets correctly, I think the company’s going to benefit either way.

Ramesh Misra – Collins Stewart

In regards to your Bluetooth products, do you anticipate introducing integrated products as well possibly this year along with your wireless LAN products? Or, is the focus really going to be just standalone Bluetooth solutions for now?

Craig H. Barratt

I can say exactly the same things for Bluetooth as I just said about GPS. I think Bluetooth is enjoying tremendous penetration and growing in many different consumer electronics products and I think the standalone opportunity is significant but overtime I think it will also be a very necessary and important building block in multifunction products. So, I think it’s critical that we ramp and prove our solutions on a standalone basis just as we’re doing with GPS and then use those world class building blocks to build very, very compelling combo products in the future.

Operator

Our next question comes from Amit Kapur from Piper Jaffray.

Amit Kapur – Piper Jaffray

Just a quick question in terms of ROCm I’m looking at the design wins that you got during the quarter, can you provide any color how much of those were with new ROCm customers versus existing ones?

Craig H. Barratt

It’s actually both. We got additional wins at some of our top cell phone customers, we got new wins with new customers so it’s actually both.

Amit Kapur – Piper Jaffray

In terms of inventory it looks like inventory days were reasonably flat from Q4 to Q1. Can you talk a little bit about how your managing your own inventory levels? How you view them and kind of what you’re doing to try and control inventory given some of the macro headwinds you’re seeing?

Jack R. Lazar

I think first and foremost we have a target of five to six times inventory turns and we came in just at the high end of that at about six times 5.9 this last quarter. So, obviously that translated in to roughly 50/51 days of inventory which was flat. We believe that we should hold – we believe we’re a well capitalized company and holding some inventory is a good thing because it really provides us opportunity to jump on potential revenue opportunities as they come to the forefront. So, we never want to get that call from a customer that says, “Hey you don’t have product and we’re switching to somebody else.” So we definitely err more towards that side of the business and using working capital to support that. I think our attitude isn’t really changing, we do a very detailed forecasting process on a monthly basis and we spend a lot of time with customers and so far we’ve not really gotten caught with any significant inventory levels over the years and I think we’re being prudent but at the same time we want to make sure we address all the opportunities that are out there.

Operator

Our next question comes from Sanjay Devgan from Morgan Stanley.

Sanjay Devgan – Morgan Stanley

Just a quick question kind of following up on the ROCm products, I believe last quarter you noted something north of 20 design wins, in this quarter you noted greater than 30 design wins. Briefly if you can just kind of comment on some of the factors that have allowed you to grow that business or grow the number of design wins. Then also, if you could follow up to that, if you could kind of comment and tell us how you feel you are doing relative to your competitors given that it’s kind of hard to see where the revenue growth will be because you’re not sure which [inaudible] will ultimately use these products. So, if you can just kind of tell us how you’re doing in relation to your competitors and what’s kind of driving those design wins?

Craig H. Barratt

Well first off the design wins just in endured more cell phones, this excludes other areas we’re also trying to secure wins. In a number of cases these are follow on platforms at existing customers. Clearly, there’s a lot of relationship investment and software investment that allows the incumbent some advantage in securing additional platforms. But, in other cases, as we reflected earlier where we’ve actually secured new customers we just have a phenomenally compelling product family and story to tell our customers particularly around power consumption. The product we announced last year and we’re demonstrating in November at our analyst day has 70% lower power consumption than one of the top selling products from a competitor and that translates directly in to a much better user experience, much better talk time, much more time surfing the web or downloading applications or sharing media and content. So, it’s the combination of those things. I think we’re very focused on making our customers successful so our application engineering and support is a real differentiator as well. So all those things together I think is serving us well. I think competitively we are doing quite well. We’re definitely winning key designs head-to-head with some of the biggest competitors in this space.

Sanjay Devgan – Morgan Stanley

Just a quick follow up maybe for Jack if I may, I think you guys have previously talked about the PAS business as possibly generating $10 to $15 million in revenue this year, is that still a reasonable assumption for us to make?

Jack R. Lazar

Well thanks, it’s nice to know somebody actually wanted to know about the PAS business. The PAS business actually as I mentioned in my comments that the PAS business was in line with our expectations which was actually down and going in to next quarter we actually view it that it will go down a bit more. So, I think that $10 to $15 million range is still one that we think we can hit probably more towards $10 than $15 but either way it’s not a material part of our overall revenue growth obviously any more.

Operator

Our next question comes from Eric Ghernati from Banc of America Securities.

Eric A. Ghernati – Banc of America Securities

First a quick one for Jack, the tax rate this quarter and your forecasts for the remainder of the year, I understand you’re forecasting 15% for June?

Jack R. Lazar

Yeah, we forecast 15% pro forma tax rate for June and that’s roughly in line with where it was this last quarter. Looking forward for the rest of the year I think that’s probably a good rate to use but offsetting that obviously the return on interest income – or interest income returns is obviously coming down. So, the two kind of wash each other out a bit.

Eric A. Ghernati – Banc of America Securities

Then just for Craig, if you could just give us an update on a) winning back some PC OEMs that you lost or ones that you don’t have. And two, your diversification efforts in the Ethernet business. Thank you.

Craig H. Barratt

I think in the PC OEM space we have some terrifically competitive products in the form of our single chip 11n products and I think that does present some opportunities for us this year but in general of course, we only discuss products when they actually ship from our customer. We’ll keep you up to date on any changes there but we think we have a very competitive position and it’s clearly a major area of focus for us this year. Then on the Ethernet side I think we’re really seeing some nice growth. We reflected in our last call that we exited 2007 with 20 Ethernet customers, obviously up significantly from a year earlier and a number of those customers are on the router side either retail or carrier using our switch products but we’ve also expanded our Ethernet footprint now in to tier one PC OEM laptops and that’s all an exciting development too because our existing base of revenue is largely in white box motherboards so I think diversifying into those additional customers will definitely allow us to grow the business this year.

Jack R. Lazar

Another way of looking at it too Eric is while the number of Ethernet customers increased significantly going in to this quarter for example, the revenue from those customers will become more diversified as we move in to the upcoming quarter. So, what we’re seeing is kind of the perfect situation which is we’re getting more customers and now we’re getting more revenue from each of these customers and reducing the reliance on the largest customer that was in there before.

Eric A. Ghernati – Banc of America Securities

One last quick one, you’re forecasting your 11n business at 20% while [inaudible] up sequential up 20% plus, of that should we assume that carrier is the number one contributor or retail or PCs? I mean if you could just rank them.

Jack R. Lazar

When you look at 11n there’s some interesting things happening in the 11n world. Obviously our 11n revenue was down just a bit this last quarter. That was clearly due to PCs being particularly weak and then that being offset by primarily retail. In fact, we know we’re doing particularly well in retail. When we look at a variety of sources out there such as say MPD data, when we look at the MPD data for this most recent quarter 11n which, keep in mind, MPD is focused on North America, it’s very retail oriented, 11n was up about 13% in dollars. I can tell you that our 11n retail business was up a multiplier of that in the most recent quarter. So, when we look forward we see continued growth in the retail business probably being the biggest driver for 11n but also the PC. Now that we have single chip 11n products coming out here we expect to see a significant increase in 11n for the PC market. Carriers probably the last one on that list although we are seeing some nice applications through we mentioned AVM in our prepared remarks. I think all of them are going to increase pretty significantly as we move through the year and clearly if we’re expecting 20% of the wireless LAN revenue to be 11n next quarter we must have pretty positive feelings about where it’s going.

Eric A. Ghernati – Banc of America Securities

One last one, how should we think about your consumer business in the second quarter following the 30% jump in Q1?

Jack R. Lazar

I don’t think we gave any real color on it and so we’re going to just kind of leave that one where it is for right now.

Operator

Our next question comes from Romit Shah from Lehman Brothers.

Analyst for Romit Shah – Lehman Brothers

My question is on the networking business can you talk ether qualitatively or quantitatively about your success with bundling your Ethernet chip with Wi-Fi attached networking boxes?

Craig H. Barratt

Clearly, in the retail segment where the customer relay on our reference designs to a very high degree the bundling is certainly very successful because customers just take a reference design form us which includes a complete router design and of course, we’ve obviously refreshed our reference designs to include our Ethernet switch so that’s definitely creating a very easy attach in to the retail segment. In the carrier segment we do have wins there also for our Ethernet there but as I mentioned earlier mostly in those products the platform is usually the broadband silicone platform so our Wi-Fi and Ethernet pieces don’t logically fit in to the same part of the design and there we have to win clearly on the competitiveness of our product which we have been able to do as well. So, I think in both segments we’re definitely seeing attach and it comes from kind of two different mechanisms.

Analyst for Romit Shah – Lehman Brothers

So, if you could characterize your greatest opportunity for bundling Ethernet would you say that would be in the notebook market?

Craig H. Barratt

I think there are different opportunities in both the networking and PC markets and I think both are significant.

Analyst for Romit Shah – Lehman Brothers

Okay. Then with respect to the Montevina ramp in the second half for the overall Wi-Fi market would you expect the majority of those Montevina notebooks to be shipping with single chip 11n or multi chip solutions?

Craig H. Barratt

Are you asking which competitors have single chip solutions for Montevina?

Analyst for Romit Shah – Lehman Brothers

Well yeah you could say that implicitly.

Craig H. Barratt

Unfortunately, I don’t exactly know at my fingertips what Intel’s configurations are. They have a variety of product offerings for Montevina and its really hard for us to tell what the mix of those will be. Certainly, I can assure that all of Atheros’ wins in Montevina platform will be single chip solutions.

Analyst for Romit Shah – Lehman Brothers

I’m going to ask you another way, how competitive will your other non Centrino competitors be if they don’t have a single chip solution for Montevina launch?

Craig H. Barratt

I think the single chip solution certainly conveys a much more favorable cost structure. That doesn’t determine what price a competitor is willing to sell their product for so I think that’s difficult to judge but as we’ve experienced with 11g, while from time-to-time there might be competitors really wanting to win this business at very, very low price points, usually that’s not sustainable and so it’s difficult for them to keep it up even if they might win a few designs here and there.

Operator

Our next question comes from Shaw Wu from American Technology Research.

Shaw Wu – American Technology Research

Just two questions related to ROCm, just could you comment on when do you expect a stronger trajectory there? You seem pretty excited about that business overall but just wondering any comments on Q3 or Q4? Then, related to that what do you see as a bigger driver for that? Is it cell phone wins or other consumer electronics?

Jack R. Lazar

First of all, as far as Q3, Q4 we really only give outlooks for the quarter in front of us so I think it’s not appropriate for us to talk about Q3/Q4 at this point. As far as the overall drivers what we’ve said is that clearly we’ve got a lot of handset designs and there’s risks and opportunities with each of those but obviously we have gaming wins, we have other consumer electronics wins, I think there’s a variety of things that could really push the revenue forward, gaming is probably the more significant piece of it as we move forward throughout the year but each of them are all important for us and it continues to be the number two growth driver for the company and we’re very optimistic that it will deliver quite well this year.

Shaw Wu – American Technology Research

Can I ask the first question a little differently? Do you have more confidence – I mean you still have confidence in that being obviously a key driver this year, you named it as your number two driver. I’m just wondering do you see that more as a yearend phenomenon or could it come sooner?

Jack R. Lazar

We’re not going to comment on timing there.

Operator

Our last question comes from Ruben Roy from Pacific Crest Securities.

Ruben Roy – Pacific Crest Securities

Craig, you mentioned Bluetooth later this year, headsets and PCs, are they going to ramp at the same time? I’m wondering because your PC Bluetooth chip was out a couple of quarters before the headset chip and I’m just wondering if the design cycle is different or if you’re seeing better traction on the headset side, etcetera, any comments?

Craig H. Barratt

Well first up I’d just say this is one area where we have been a little bit later than our expectations between middle of 06 through end of 07 we were really pealing resources off from around the company and really devoting them to 11n which I think has really paid off in terms of leadership in our core business. So, that said we are moving forward with our Bluetooth products, we’re very happy with the progress. We’re definitely increasing our investment levels in these teams so we can deliver some more cross products. That said, the design cycle on the PC side is certainly quite a bit longer than the headset side so I think if I gave you some color it would be that we probably expect some headset revenue to lead and then some PC revenue to follow. Certainly, our plan still is to have revenue from both product families this year.

Ruben Roy – Pacific Crest Securities

Jack, on the back end loaded question, I think you mentioned there wasn’t a new customer but was that kind of across the board demand coming in later in the quarter? How would you assess how that kind of followed through in April?

Jack R. Lazar

A little bit of demand but a lot of it was just scheduling. I think again, you play havoc with Q1 when you’ve got Chinese New Year in there and there just was more demand requirements post Chinese New Year then there was pre so we definitely saw a stronger March than in January and February and that just plays itself out in to the DSOs.

Craig H. Barratt

I’d like to thank all of you for joining us today. Next month marks the 10th anniversary of Atheros founding and we would like to recognize all of our employees for their continued dedication and hard work especially the earliest employees who continue to be key leaders of the company. We will be attending several investor conferences during the second quarter including the Merrill Lynch Technology Conference May 7th in New York, the 36th Annual JP Morgan Technology Conference May 20th in Boston, the Cowen & CO 20/20 TMT Conference May 28th in New York and the Lehman Brothers Worldwide Wireless and Wired Line Conference May 29th in New York. We thank you for your interest in Atheros and we look forward to speaking to you along the way. Good bye for now.

Operator

Thank you for participating in today’s conference call. You may disconnect at this time.

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