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Integrated Device Technology, Inc. (NASDAQ:IDTI)

Q4 FY08 Earnings Call

May 1, 2008, 4:30 PM ET

Executives

Clyde Hosein - VP and CFO

Ted Tewksbury - President and CEO

Analysts

John Barton - Cowen & Co.

Glen Young - Citigroup

Allen Mishan - Oppenheimer & Co

Joanne Feeney - FTN Midwest

Sandy Harrison - Signal Hill

Tim Luke - Lehman Brothers

Tayyib Shah - Longbow Research

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Integrated Device Technology Fiscal Fourth Quarter and Year-end 2008 Financial Results Conference Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session, instructions will be given at that time. [Operators Instruction]. As a reminder, this conference is being recorded.

With that said, here with opening remarks is Integrated Device Technology's Chief Financial Officer, Clyde Hosein. Please go ahead sir.

Clyde Hosein - Vice President and Chief Financial Officer

Thank you Mary. And welcome to our fiscal fourth quarter and year-end 2008 earnings conference call. I am Clyde Hosein, IDT's Chief Financial Officer. And presenting with me on the call in Ted Tewksbury, our President and Chief Executive Officer. Also in attendance on the call are Chad Taggard, our Knapp, our Manager of Investor Relations. We will all be available during the Q&A portion of this call.

Our call today will include remarks about future expectations, plans and prospects for IDTI, which constitutes forward-looking statements for the purposes of the Safe Harbor Provisions under article of Federal Security Laws. Actual results may differ materially from our forward-looking statements as a result of various important factors, including certainty risk which are detailed in IDTI's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q as filed with the SEC.

IDTI does not intend to update the information provided in today's call and expressly disclaims any such duty, except as required by law. In addition, pursuant to Regulation G, any non GAAP financial measures reference during today's conference call can be found on our press release posted on our website at www.idt.com, including a complete reconciliation to most directly comparable GAAP measures.

Now I will turn the call over to Ted who will report on the overall quarter, and then I will return to give you more specifics about our March results and our outlook for the June quarter. Ted?

Ted Tewksbury - President and Chief Executive Officer

Thanks Clyde. First I just like to start by saying how excited I am to be a member of the IDT team. Even though I have been here for a very short time, it's clear to me that IDT's mixed signal expertise, strong customer relationships and product pipeline position the company to deliver increased value for shareholders in fiscal year 2009.

I will begin today with the brief discussion of our fiscal fourth quarter and year-end 2008 results. Both top and bottom-line results came in better than expected as strength in our communications end market and sales of our PCI Express devices partially offset expected weakness in our computing and consumer end markets. EPS was above the high end of our previous expectations due to higher than expected revenues, gross margin expansion, stock repurchases, and expense management, including some one-time benefits from annual true-ups.

To recap, we finished our fourth quarter with $177.1 million in revenue, non-GAAP EPS of $0.24 per share, and non-GAAP gross margin of 53.3%. We also generated about $45 million of free cash flow. Clyde will elaborate on the financial results a bit later. You can also refer to our press released and associated tables for details.

Next, I would like to discuss some of the trends we saw in our end markets during the March quarter. Sales into our communications end market were stronger than expected during the quarter, increasing to about 39% of revenue, up from about 32% in the December quarter. We experienced a significant increase in demand in our wireless subsegment, primarily in Europe and Japan for 3G networks.

In the wireline subsegment, we continue to benefit from the ramp in our communications clocks business. However, this growth was partially offset by our enterprise subsegment, which experienced weaker order patterns.

In computing, we saw strong sales growth in PCI Express switches, which nearly doubled sequentially. However, anticipated declined in our PC end markets and server memory devices more than offset the growth in PCI Express products sales. This decline in the PC segment followed two strong quarter of growth in September and December, during which OEM and ODM customers ordered our products ahead of seasonal strength in PCs.

Sales of advanced memory buffers also declined as customers tightened inventory. As a result, [indiscernible] end market declined to 41% of total revenue from 43% in the prior quarter.

As anticipated, our consumer and other segment declined in the March quarter following seasonally strong September and December quarters in gaming platforms. Primarily as a result of the decline in gaming platforms, the consumer and the other segment represented approximately 14% of our total revenue, down from about 19% in the prior quarter.

SRAM revenue was also down slightly during the quarter-over-quarter, but increased slightly as a percentage of total revenue from 5% to about 6% of total revenue.

Now I would like to take a moment to briefly recap our fiscal year 2008. As we had anticipated, fiscal 2008 was a challenging year for us following an extremely strong fiscal 2007. Our communications end market remained sluggish until the fourth fiscal quarter.

AMB sold out after a strong ramp in fiscal year 2007 and one of our customers took their demand captive. Our PC businesses remained strong. We maintained our significant market share in PC timing devices, in addition to expanding our PC audio portfolio. Demand in our consumer end market was also solid in fiscal 2008.

We made significant strides in new product areas in fiscal 2008, which we believe will lay the foundation for the next leg of growth for IDT during fiscal year 2009 and beyond. I would like to take a moment to highlight some of these new product achievements. First, we continue to extend our PCI Express switch leadership by offering optimized solutions for targeted applications, which led to a number of design wins, including NEC's NX7700i Enterprise Server. In addition, we are now sampling the industry's first PCI Express switching family specifically tailored to meet the requirements of demand in communications applications.

We are also shipping production volumes of PCI Express clocks that are both Gen 2 and Gen 1 compatible. This one-two punch of switches and clocks is unique in the industry and enables our customers to rapidly prototype, validate, and go to market. We estimate that we have won more than three-quarters of the new design win opportunities for PCI Express switches in the last nine months. Based on the increased design activity we are experiencing with multiple customers, we anticipate that revenue from PCI Express will continue its rapid growth throughout fiscal 2009.

In our audio division, we introduced a number of new products in fiscal 2008, including a significant upgrade to our proprietary advanced software graphic user interface or GUI. The GUI ships with many of our PC audio codecs and allows end-users to customize their PC interface while allowing OEMs and ODMs to include their own branding information, all the while supporting the high definition audio experience. Revenue growth from our audio products will be closely tied to the ramp of Intel's Montevina platform. We currently anticipate growth in this product line to continue through rest of calendar 2008.

For advanced memory buffer or AMB, we maintained our approximately two-thirds market share in fiscal 2008. During fiscal Q4, we commenced production shipments of our low power AMB plus devise and expect the majority of our customers to qualify this product in the June quarter. We anticipate AMB revenue to remain stable for the remainder of the current year.

Our industry-leading network search products continue to win sockets by providing the highest performance and lowest power per search in the industry. These products are enabling next generation voice, video and data services and they are enabling time to market advantages for our customers.

During our fourth quarter, we announced that H3C Technologies, one of the leading global IP technology and solution providers, had selected IDT network search solutions for their current and future networking, wireless and storage products. We currently project that our enterprise subsegment will grow in fiscal year 2009 as we continue to gain traction in the merchant market, though macro economic environment may temper that growth.

In fiscal 2008, we also received very favorable initial customer response for the launch of our new DisplayPort receiver and timing controller device. This new product family, which we trademarked PanelPort increases performances while reducing power and cost in flat panel displays for notebooks, monitors and LCD TVs. It is slated to be integrated into a number of flat panel products currently in development and is expected to ramp during the second half of our fiscal 2009.

We are also proud that we won several prestigious awards during fiscal 2008. Our serial switching leadership is recognized by the editors and ENgenious networks with the Product of the Year Award in the category of Best PCI Express Bus Product. In, addition we are recognized for our quality and service. First, IDTI received Intel's 2007 Preferred Quality Supplier Award for outstanding performance in providing products and services deemed essential to Intel's success. Secondly, we received the 2008 Gold Award from Stack International. This award recognized IDT for its commitment to our customers by maintaining high performance standards and driving continuous improvement through our operations.

Given the positive momentum we are currently seeing in our new products and our core businesses for June quarter, our first fiscal quarter of fiscal 2009, we are projecting revenues to be approximately $184 million plus or minus $4 million. At the midpoint of the range, this represents growth of about 4% sequentially from the March quarter. Clyde will go into more details on outlook in a moment.

In fiscal 2008, strengthened our core businesses, increased attraction with new products and tight cost controls allowed us to weather boarder economic weakness. We reinforced our position as the leader in silicon timing, as we saw revenues for our clocking products grow in communications, computing and consumer end markets. In addition, we introduced several new products including a number of serial switching devices, network search solutions, PC Audio Devices and DisplayPort solutions.

We will continue to focus on delivering innovative products to our customers that will enable top line growth. We are confident that the strong design activity we are experiencing across a number of these product lines combined with improvement in our core businesses should put us in a solid position to deliver increased shareholder value in fiscal 2009 and beyond.

In closing, I would like to reiterate how excited I am to be here to drive the next phase of growth for IDT. I believe that my strong analog and mixed signal background will help IDT to expand its reach into customers applications and become an even more important solutions provide than it is today. I look forward to meeting with many of you in the near future.

With that, I will turn the call back to Clyde to expand on our financial results and outlook.

Clyde Hosein - Vice President and Chief Financial Officer

Thanks, Ted. I will start by reviewing the non-GAAP results for fiscal Q4. Revenues of $177.1 million came in above the midpoint of the range we provided during our Q3 earnings call. As Ted indicated, increased demand in our communications end market drove revenues above the midpoint of our previous forecast, while declines beyond normal seasonality in our computing and consumer end markets resulted in overall revenues declining about 12% sequentially.

Fiscal Q4 gross margin was 53.3%, an improvement of 100 basis points sequentially and above the high end of the range of our previous forecast. As we have indicated in the past, products in our communication end markets typically have the highest gross margins than products in other end markets we serve. So it is logical that the strength we experienced during fiscal Q4 in our communication end markets resulted in improved gross margins.

Our fab utilization for the March quarter was 65%, essentially flat from the prior quarter. Our overall operating expenses decreased by about $5 million from the December quarter due to declines in the investment portfolios of our deferred compensation plan along with other one-time benefits related to the annual year-end true up of certain expenses, offset by the recess in payroll taxes, typically in the first calendar quarter.

R&D expenses during fiscal fourth quarter were about $33 million, down from approximately $36 million in the prior quarter. SG&A expenses were about $22 million, down from approximately $25 million sequentially. This resulted in operating margins of 22%, which was flat from last quarter, despite lower revenue and at 22% remains amongst the highest in our payer group.

Interest income and other was about $2.3 million, down from $3.4 million in the December quarter, driven by lower cash balances resulting from our share repurchase activity, decline in interest rates and losses on investments in our deferred compensation portfolio. Tax expenses, or essentially our estimated cash tax for the quarter was a credit of about $1.4 million.

During the quarter, we signed an extension to an existing agreement in one of our operating jurisdictions that essentially keeps our tax expense at about zero in that country for the next couple of years. Signing this agreement in fiscal Q4 allowed us to reverse out expenses we accrued prior quarters due to the uncertainty at that time of up to an [ph] index extension. This contributed $1.7 million of tax benefit to the quarter's results. In addition, we continue to offset tax expenses with NOLs accumulated in prior years.

Net income for the March quarter was approximately $42.7 million, or 24% of revenues, while EPS was $0.24, a penny lower than last quarter. Our EPS was above the high end of our prior forecast, primarily due to the increase in gross margin, one-time benefits in expenses, and some impact from our share buyback program.

For the full fiscal year, our revenues were about $781 million, gross margin was 52.2%, while operating margins were 21.6%. We earned $0.96 per share and generated about $169 million in free cash flow, about 22% of revenues, pretty impressive all things considered.

Now let me summarize our results on a GAAP basis. We are pleased to report GAAP net income of approximately $17.1 million or $0.10 per share in the March quarter. The difference between our GAAP and non-GAAP results during the March quarter nets out to about $25.6 million or about $0.14 per share. We recorded acquisition related charges of approximately $24.7 million or about $0.14 per share, down from $24.9 million in the December quarter. These charges are primarily from the amortization of intangible assets recorded in conjunction with our merger and acquisitions.

In addition, we recorded approximately $8.2 million or about $0.05 per share in stock-based compensation expenses, down from $9.4 million in the prior quarter. We also recorded tax-related benefits of $8 million, or $0.04 per share in connection with extension of an agreement in one of our jurisdictions and the settlement of a tax audit. Because these tax benefits related to intangible assets from the ICS merger, we exclude them from our non-GAAP results.

Full fiscal year 2008 results and additional information including a detail reconciliation of non-GAAP and GAAP results is provided in the financial tables of today's press release and can be found on our website at www.idt.com.

Now turning to our balance sheet, cash and investments totaled approximately $239 million at the end of the March quarter. We generated approximately $45 million in free cash flow during fiscal Q4. In addition, we generated about $3 million in share purchases under the company's ESPV program. We spent about $5 million in CapEx during the quarter.

We're active again in our share repurchase program during the March quarter as we repurchased approximately $94 million of our common stock. Over the past two fiscal years, we have repurchased approximately 36.7 million shares or about 18.5% of our outstanding stock. Our Board earlier this week approved a $100 million increase to our existing share repurchase program, which brings the total amount currently available for repurchases to $140 million.

We currently anticipate that we will continue to be active with our share repurchase program at current trading levels. Net inventory increased about 600K from the December quarter to $80 million in March. Days of inventory increased 88 days, primarily reflecting the lower demand in some of our businesses. Our trade account receivables decreased approximately $11 million to $82 million in March, while DSO increased to 42 days.

I'll now turn to our forecast for the June quarter. As Ted indicated, we currently project revenue for the first fiscal quarter of 2009 to be in the range of $184 million, plus or minus $4 million or sequential increase in the range of 2% to 6%. On a non-GAAP basis, we currently project gross margin to be in the range of 53.5%, plus or minus 50 basis points dependent primarily on the revenue range and product mix. While we may experience the highest mix of more computing products in the June quarter, our fab utilization expected to improve slightly to about 68%. These effects offset each other resulting in essentially flat gross margin for the quarter.

We currently project operating expenses in the June quarter to be about $62 million plus or minus $1 million, up about $6.5 million from the March quarter and lower by about $1 million from the same period a year ago. The sequential increase in part reflects the one-time benefits we experienced in the March quarter as we reset certain expenses at the beginning of our fiscal year, an increase in product development in some areas, and increases in compensation expenses.

R&D is expected to increase to about $38 million, while SG&A is expected to increase to about $24 million. We currently project operating margins to be about 20% plus or minus a percentage point, primarily dependent on the revenue range. We currently anticipate interest and other income to be about $1.5 million, a decline from the last quarter, primarily reflecting lower interest rates. We expect our taxes during fiscal Q1 to be approximately $1 million as we continue to benefit from NOLs accumulated in previous years.

Exclusive of any additional repurchases under our share repurchase program, we project a share count to be at about 172 million on a diluted basis, down from the prior quarter, reflecting the full quarter benefit of our fiscal Q4 repurchase activity. We currently project EPS on a non-GAAP basis to be about $0.21 per share plus or minus a penny, dependent primarily on the actual revenue range and product mix.

On the balance sheet, we currently expect to generate approximately $35 million in cash during the June quarter, which would result in a quarter ending balance of approximately $275 million. This projected balance excludes the impacts of any share repurchase or M&A activities. We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.17, plus or minus a penny. Most of the difference between GAAP and non-GAAP projections, or about $0.12 per share, is related amortization of intangibles, primarily as a result of the ICS merger. We project stock option expenses to be about $0.05 per share in the fiscal first quarter of 2009.

Despite economic softness in a broader market, we have seen a number of positive trends in our businesses. With the decline in some of our core businesses behind us in the last quarter, and there are new product cycles beginning to ramp, we believe we are well positioned for fiscal year 2009.

With that summary, I will turn the call over to Mary for the Q&A portion of the call. Mary?

Question And Answer

Operator

Thank you. [Operator Instructions]. And our first question comes from the line of John Barton with Cowen, please go ahead.

John Barton - Cowen & Co.

Thank you very much. Ted you'd made reference to display port or panel port, design wins starting to show up and growth in the back half of this year. Could you give us a feel for what you think the potential revenue contribution could be in the back half and then looking out into calendar '09 please?

Ted Tewksbury - President and Chief Executive Officer

I don't know as we've actually, talked about the revenue projection for display port, Clyde can comment on that. What we are seeing right now is that the whole ecosystem for display port is coming together as you probably are aware. We sell our timing controllers and our display port interfaces directly to the glass manufacturers who in turn sell to the OEM that developed the desktops the PC's and the LCD TV's. So, there is a whole ecosystem that has to come together and where we are out right now is that we have sampled of number of these customers and we got feedback from them, products are being taped out and as we speak. And we expect that to start to ramp in the second half of the year. But the bulk of the revenue of will come in our fiscal year 2010.

John Barton - Cowen & Co.

Clyde did you want to make any comments with respect to potential magnitude at the end of year.

Ted Tewksbury - President and Chief Executive Officer

You are persistent John.

Clyde Hosein - Vice President and Chief Financial Officer

As, Ted pointed out a lot of it depends on the ecosystem if that plays out according the way some participants and some customers we could see few million probably single digit numbers but a few million dollars in the second half of a fiscal year.

John Barton - Cowen & Co.

And Ted I believe you made the statement and correct me if I am quoting you wrong that you don't expect AMB to be consistent through the year. Does that mean basically flat or growing with end market seasonality and if you could also just comment on any changes in the competitive dynamics for AMB?

Ted Tewksbury - President and Chief Executive Officer

Well as you know AMB peaked about a year ago and I think we are aware of the dynamics. One of our customers brought that captive and so what we have seen now is that AMB has stabilized and we do expect it to be roughly flat for the remainder of 2007 fiscal 2008.

John Barton - Cowen & Co.

And then Clyde just last question tax rate and you talked about the June quarter what should we be thinking about the tax rate you looked through the balance of this fiscal year?

Clyde Hosein - Vice President and Chief Financial Officer

Yes I think we are getting closer to that point John when we will flip to a full tax rate and to the benefit of... looking at something in probably 16 to 18% range when we do that, as usual its hard to predict exactly when. So, I recommend that investors model you know 16% this is starting in the September quarter it could be another quarter before we actually get there but that's probably a safe bit.

John Barton - Cowen & Co.

Okay thank for your time.

Unidentified Company Representative

Thanks John.

Operator

And our next question comes from the line of Glen Young with Citi. Please go ahead.

Glen Young - Citigroup

Thanks. I wonder Ted or Clyde if could be more explicit about what there expectations are for Q2 in the wireless infrastructure side of the business as well as the networking side?

Clyde Hosein - Vice President and Chief Financial Officer

Yes Glen, wireless after... very good growth in March we expect to be flattish maybe a bit worse than that, I know that may surprise some people. I think that's probably conservatory where you sit today, we aren't seeing the seem level activity in March falling through. And so we are little conservative by the rest of the quarter given where we see. On enterprise I think that we will grow this quarter the question of how much it will grow, I think still needs to be determined but that should be up a couple percentage point, this quarter, I am going to see how it goes through. That's probably one of the areas that I am more concerned about from a boarder economic impact.

Glen Young - Citigroup

And then Clyde just back on the issues of wireless is your sense that you are well exposed to the broad improvement in wireless. Or do you think that you guys are more specific distortent [ph] projects?

Clyde Hosein - Vice President and Chief Financial Officer

I think we are more specific, I don't think you know every customer are there that's how they use these all of our technologies they may use some of our technologies but I don't think we are broad in everyone

Glen Young - Citigroup

And then sort of bend [ph] question if you see any and this actually is not specific wireless or though if use to internet. Just any thought you have on the geographic demand for your product whether now you are seeing any noticeable trends, we are hearing a lot for example that Europe is weak and how you see in your business?

Unidentified Company Representative

No, not seen anything, particularly any geography that's weak. So I wouldn't collaborate that Europe I any particular weak. Back to the communication part last quarter the increases we saw primarily in Japan and rest of Asia, although Europe was fairly descent. So I don't think we've seen anything particularly in any given geography for the June quarter.

Glen Young - Citigroup

And specific to the PC Clock business you are looking to the second quarter you sense for how that business is expected to progress relative to what you were considered to be normal seasonal recognize there is been some inventory push and pull over the last couple of quarters. Do you think now your back at a point where you can get in line with normal season and if you are potentially inline that you actually think you going to get that?

Clyde Hosein - Vice President and Chief Financial Officer

Glen, its high to say what's seasonal in this environment anymore.

Glen Young - Citigroup

Yes.

Clyde Hosein - Vice President and Chief Financial Officer

But I do understand what you are asking. I think we'll see increases in June quarter some of that arguably after lower March quarter. But I think its get back to the normal levels is my guess. And I think with the Montevina platform in particular I think we set for what looks like, or be it early, Glen, what's look like the normal September quarter.

Glen Young - Citigroup

Okay.

Clyde Hosein - Vice President and Chief Financial Officer

Which is probably what 10% of that was in September in PCs.

Glen Young - Citigroup

Yes. So... just to be fair it sound like your June quarter because of the weak March quarter may compare favorably?

Clyde Hosein - Vice President and Chief Financial Officer

Well, June is up, and at absolute levels, I don't think its way-off what you have normally seen.

Glen Young - Citigroup

Okay, that's helpful. Last question is I know you don't want to answer the question about, display port, specifically. But if we just sort of lump together, new products and think HD Audio PCI Express display port are all in this bucket. Is your sense that the new products ramp that would... the potential exist in the back half of this year, early for the year? How does that compare with the way AMB ramped. I think I asked you this question last quarter, but I just wanted to see a quarter later, whether not anything has changed.

Clyde Hosein - Vice President and Chief Financial Officer

Yes, AMB ramps very rapidly, but at the same level. That we were today. I... couple of quarters out, from Displayport ramp and a couple of quarters outback from when AMB ramped. I think we have seen the same thing, but two quarters end, AMB took off like a rocket. So, I think you had asked us that question, two quarters from now, it's still too early to predict that is going to be same as trajectory.

Glen Young - Citigroup

Okay, fair enough, thanks Clyde.

Clyde Hosein - Vice President and Chief Financial Officer

Thanks.

Operator

And our next question from the line of Allen Mishan with Oppenheimer. Please go ahead.

Allen Mishan - Oppenheimer & Co

Hey guys and Ted welcome to you. First it's been a while, since we have seen a jump in the OpEx. How should we think about that going forward? Have we sort of reset to a level and are fully in jump from there? Or should we come off for this 62 level at some point?

Clyde Hosein - Vice President and Chief Financial Officer

No it think it's the March was indicated early are abnormally low. That's fine, we'll have some fluctuations what we have tried to do in our expense profile is to have some variability, with it, rather in the SP [ph] or fixed cost, high definition, then you'll see some volatility as we have. But second part of the question, at 62 million levels, I think it's probably more stable around there, while we may see some increase in R&D as Ted looks to invest in some areas. We are looking at other areas where we could be more efficient. So, I think 62 million level, plus or minus I think would be probably more stable.

Allen Mishan - Oppenheimer & Co

Okay, great, and then in terms of the increase you're expecting for the June quarter on revenue, what are the key products you're expecting to increase quarter-over-quarter?

Clyde Hosein - Vice President and Chief Financial Officer

I think PCs, as I described in the last question Allen should grow. Consumer should start growing, PCI Express had a really good quarter, we'll see some growth in that as well. Our com clocks and enterprise would also experience some growth. So, there is as we've seen some sluggishness is probably is probably more in the wireless area. We are not seeing the same level of increases we saw last quarter, may be that might decline a little bit. But other than that, most areas look like they'll improve.

Allen Mishan - Oppenheimer & Co

Okay, and then at the business unit level, computing in consumer up and comp sound like it's flat roughly?

Clyde Hosein - Vice President and Chief Financial Officer

Yes. I'd say flattish.

Allen Mishan - Oppenheimer & Co

Okay, great. That's it from me. Thank you very much.

Clyde Hosein - Vice President and Chief Financial Officer

Thanks Allen.

Operator

Thank you. And our next question comes form the line of Joanne Feeney with FTN Midwest. Please go ahead.

Joanne Feeney - FTN Midwest

Yes, hi guys, I wonder if you could give us a little bit more clarity on your view, sort of generally of the economic situation, you talked about some of uncertainty and how its affecting the forecast. Can you perhaps give us a differentiation between, say the... the computing and consumer end market and perhaps that versus the enterprise and let us know where you think we're seeing strength or seeing still continue to weakness.

Ted Tewksbury - President and Chief Executive Officer

Well, I think in consumer, you probably understand that much of our business is linked to Play Station3, so we're tied, pretty tightly with Sony on that one, and then in the PC clock area as Clyde mentioned earlier. Our revenue depends very strongly on the ramp up of Montevina this year and then Capello [ph] the year after that. So, we are seeing expecting good growth in both of those areas of where we are today. But we have dependencies on some of those consumer and computer manufacturers which presumably will be affected by the macro economic situation.

Joanne Feeney - FTN Midwest

How much is the thoroughly [ph] delay affecting you guys?

Ted Tewksbury - President and Chief Executive Officer

Are you talking about thoroughly or do mean how long?

Joanne Feeney - FTN Midwest

Yes I mean how long along the quarter.

Ted Tewksbury - President and Chief Executive Officer

Yes, I don't see any impact in this fiscal year from that either positive or negative if that's the platform you are talking about.

Joanne Feeney - FTN Midwest

Yes Okay. Alright that's it from me. Thanks.

Ted Tewksbury - President and Chief Executive Officer

Thanks Joanne.

Operator

And our next question comes from the line of Sandy Harrison with Signal Hill. Please go ahead.

Sandy Harrison - Signal Hill

Thanks. Good afternoon guys.

Unidentified Company Representative

Hi sandy.

Sandy Harrison - Signal Hill

Looks like the PCI Express business has taken for a lack of better terms another inflection point. On prior calls you guys had talked about it probably picking up or hitting another inflection point exiting this year '08 calendar year '08. What's caused what many might think as a earlier than expected pick up was it one customer was it one market was it a product introduction. Just trying to get my hands on understanding what is it that's caused this to get ahead of its get ahead of what expectations were.

Ted Tewksbury - President and Chief Executive Officer

Well I think it's a couple of things first of all it has been the case with display towards the entire ecosystems got to be in place before one of these new standards launches and starts to ramp in volume and that certainly happening in the case of PCI Express. The other factor, which I mentioned in my prepared remarks was that we are doing very well with design wins. We were in over three quarters of the sockets that came available over the past three months, so we've been taking lot of share, we also shipped the first PCI Express Gen 2 part and so we do expect very solid double digit sequential growth throughout the remainder of 2000... fiscal 2009.

Sandy Harrison - Signal Hill

And when you look at that product and you look at the flavors of it on a switching does your switching product give you suitable advantage on the competition, what sort of lead here and what do you feel is the competitive landscape looks like from maybe bridging products and other folks out there?

Ted Tewksbury - President and Chief Executive Officer

Our part has lower power that its one of the primary advantages to our offering relative to competition. And then we have a very targeted portfolio as opposed to some of the competition which is going after more general purpose kind of set of applications. We've been very targeted, we get close to our customers understand the details of their systems and our offering is as highly optimized for those application. So that's really given us an advantage.

Sandy Harrison - Signal Hill

And then you talked about it as far as revenues I think last year is about $2 million a quarter and then it sort of hit at inflection point I think around $4 million to $5 million at the end of last year, what sort of run rate are you looking at or would you expect to see this somewhere around of 5 or 6 going forward or --?

Ted Tewksbury - President and Chief Executive Officer

We didn't quite... I don't think we said 4 or 5.

Clyde Hosein - Vice President and Chief Financial Officer

I don't think we published numbers by the product line, I think that's what we say as we expect this product line to probably grow rapidly in fiscal '09 probably double digit sequentially for probably every quarter this year?

Sandy Harrison - Signal Hill

Great.

Ted Tewksbury - President and Chief Executive Officer

So I think the number we did put out there was $10 million towards the end of the year which I think is still a fair estimate.

Sandy Harrison - Signal Hill

$10 million for all of last year.

Clyde Hosein - Vice President and Chief Financial Officer

For the end of year as we exit this year.

Unidentified Analyst

Got you I got you. Okay. All right thanks guys appreciate it.

Ted Tewksbury - President and Chief Executive Officer

Thanks Sandy.

Operator

And our next question comes from the line of Tim Luke with Lehman Brothers. Please go ahead.

Tim Luke - Lehman Brothers

Thanks very much. Can you hear me Clyde?

Clyde Hosein - Vice President and Chief Financial Officer

Yes we can hear you.

Tim Luke - Lehman Brothers

Could you just give me color... forgive me if you touched on this earlier about why the wireless will come out somewhat stronger this quarter and why you think its wireless [ph] is not going to sustain any of that improvement? And then do you have any color just on enterprise networking and what you see in there in the coming quarters?

Ted Tewksbury - President and Chief Executive Officer

The wireless strength came from two places really one was in base stations primarily in Japan and Europe. And then the other place was portable wireless devices. We have a design win in the handset I don't know if it's been officially announced to the customers, so I want to mention that, but we have one of our dual ports in the portable handsets so that's been very successful.

The question is to next quarter I think you know why last quarter not obvious to the net [ph] I still think its still new. So number of people in the last couple of months so I still think we are trying to figure out what is this a trend I think the basis of your question is this a trend or not then I think its still early at least for us to tell.

Tim Luke - Lehman Brothers

And do you have any color on the wireline arena kind of how you perceive trends there?

Clyde Hosein - Vice President and Chief Financial Officer

I will take that Tim. I think for us in the wireline area particularly with our com clocks [ph] we will see sequentially increases probably for most quarters going forward. I think we had sequential increase almost every quarter last year. I think that's more for us more share gain than broad. We have seen some descent stuff in wireline broadly speaking, but most of our strength is coming from share I think the com clocks area.

Tim Luke - Lehman Brothers

And could you just give some framework expectations in consumer after obviously challenging first quarter calendar quarter second calendar quarter it seems like you are saying it will be flat, should we expect back-to-school or seasonal product improvement in the calendar third and fourth quarter. How are you framing expectations?

Clyde Hosein - Vice President and Chief Financial Officer

This quarter was low due to seasonality and we do expect good healthy double digit growth in the next quarter.

Tim Luke - Lehman Brothers

Ted just on as you bring new eyes to the R&D investment choices and obviously you are stepping up the R&D sequentially where is the focus there and where are you in likely to be most rated in terms of investments going forward?

Ted Tewksbury - President and Chief Executive Officer

Good question, one of the reasons that was attracted to IDT is because this company has very strong foundation and it has made a lot of progress in transforming from commodity SRAM and logic provider into a mix signal company. And I think the next phase of growth for the company will be at least in part due to analog. And my background being analog and mix signal that's certainly an area where I will want to focus some investment in order to increase the reach of our solutions into customer applications and to provide more content in the application that we are talking about.

Tim Luke - Lehman Brothers

Okay. Lastly if I may, Clyde how do you see general channel inventory levels and inventory is trending for you guys? Thank you.

Clyde Hosein - Vice President and Chief Financial Officer

In the March quarter I think it was fairly lean, I didn't see anything that was concern me excessively. So I don't see any build up there through much. And quite frankly through now.

Tim Luke - Lehman Brothers

Thank you so much. If I may just squeeze in one last thing, how come the PC has guided up in a seasonally slower quarter for PCs often and obviously with somewhat weaker than you'd expected in the calendar first quarter when other PC data points, didn't or perhaps suggest some slowing like that?

Clyde Hosein - Vice President and Chief Financial Officer

Yes. I think it's a function of the March quarter be in still low Tim. This quarter we should start seeing some PC audio shipments and some early Montevina platform. So that also helps.

Tim Luke - Lehman Brothers

Excellent thank you for your help.

Clyde Hosein - Vice President and Chief Financial Officer

Thanks Tim.

Operator

Thank you. And our next question comes from the line of Tayyib Shah with Longbow Research. Please go ahead.

Tayyib Shah - Longbow Research

Hi, guys when your PC business weaker than the rest of the industry in the March quarter you talked about inventory absorption. Was there any market share issue in PC clocks as well?

Ted Tewksbury - President and Chief Executive Officer

No we don't see any change in that market share. It's some of the issues that Clyde, has already talked about. Some of our... in the PC clock area lot of the manufacturers they elect to buy the clocks in advance of the microprocessors and build motherboards and advance it when they see the demand coming. So we had higher shipments in the PC clock area last quarter and we are down a little bit this quarter because of that there is a slight lag between the microprocessor vendors and the clock vendors.

Tayyib Shah - Longbow Research

Okay and Ted, do you have a sense of where your PC Audio share is right now and once Montevina is fully ramped, where do you think your share can be exiting calendar '08?

Ted Tewksbury - President and Chief Executive Officer

On PC Audio, I think we're probably in the 20ish range, it's going to hard because they are under lot of broad data available, but yes correct, on Montevina we should be shipping. We have the some content and some mobile platforms in that space. So, as that ramps, we should get better share in that space.

Tayyib Shah - Longbow Research

Any sense of where that share can grow by the end of the year?

Ted Tewksbury - President and Chief Executive Officer

I think a lot of has to do with how successful Montevina is Tayyib. So I think you need to wait and see how that shapes out. The designs we have at that fairly solid, so it's a question of layering all those designs and how the transition plays out.

Tayyib Shah - Longbow Research

Okay, and then if you could just update us on your competitive position within the search engine space, that business has been weak for a while, so if you can just talk about where you stand versus your main competitor in the current generation search engine, that would be helpful.

Ted Tewksbury - President and Chief Executive Officer

Right, well, I can that one, so you're right, it has been a little bit weak for a while due to the overall weakness in the enterprise networking area that we talked about. There are basically three competitors in this space. There's NetLogic, RENISYS and IDT. We have not seen any change in our share.

Tayyib Shah - Longbow Research

Okay, thank you.

Ted Tewksbury - President and Chief Executive Officer

Thanks Tayyib.

Operator

Thank you. And we have no more questions in the queue at this time.

Clyde Hosein - Vice President and Chief Financial Officer

Well thank you very much for joining us today. We appreciate your interest in IDT and look forward to meeting with you on our marketing trips this quarter and on our next call. We will be attendant the Lehman and Cowen conferences in May, and then Oppenheimer conference in Boston in June. I look forward to see you there. Good bye.

Operator

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Source: Integrated Device Technology, Inc. F4Q08 (Qtr. End 03/31/08) Earnings Call Transcript
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