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Executives

Mitch Gellman - Vice President of Investor Relations

Manouch Moshayedi - Chairman and Chief Executive Officer

Dan Moses - Chief Financial Officer and Director

Analysts

Dan Morris - Oppenheimer

Bob Gujavarty - Deutsche Bank

Doug Reid - Thomas Weisel

Gordon Johnson - Lehman Brothers

Sean Hannan - Needham and Company

Richard Shannon - Northland Securities

[Paul McNulty] - Five Point Capital

STEC, Inc. (STEC) Q1 2008 Earnings Call May 5, 2008 8:30 AM ET

Operator

Good morning. My name is Tennyson, I will be your conference operator today. At this time, I would like to welcome everyone to the STEC Quarter One and Full Year 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I will now turn the call over to Mr. Mitch Gellman, Vice President of Investor Relations. Please go ahead, sir.

Mitch Gellman - Vice President of Investor Relations

Yeah, thanks Tennyson. Good morning everyone. Thanks for joining us today for our Q1 2008 earnings conference call. First of all, I would just like to mention that, we are going to be concluding the call at 6:10 am Pacific Time today. Dan and I here in California (inaudible) in the East Coast and he is going to be have to catch a train. So I hope that you understand and give you plenty of opportunities to ask your questions during the time.

Now please, let me give you an upto date schedule as far as our conference plan coming up and so forth. Next week as many of you know, we will be having our Analyst and Institutional Investor Day in San Francisco that's May 14th in the financial district. Thanks for many of these who have RSVP, if you are so interested in attending please e-mail me at ir@stec-inc.com okay dokey, if RSVP is required, it just kind of helps us on the headcount. After that conference schedule and so forth, Manouch will be presenting at Oppenheimer Technology Conference in Boston in early August; August 5 to 7th and also August 4 to 5th he will be presenting at the Pacific Crest Securities Technology Conference in Vail, Colorado; and August 5 to 7th at RBC Capital Markets Technology Conference in San Francisco; and then on August 11th Oppenheimer will bring their Buss Semiconductor, Southern California Buss Tour Stop to STEC.

And now with me today, for today's discussion and our Q&A session our Chairman and CEO Manouch Moshayed as mentioned in New-York and our Chief Financial Officer and Director, Dan Moses.

Various comments about the Company’s future expectations, plans and prospects made during today’s earnings conference call, including the question-and-answer session constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 as amended, and section 21E of the Securities Act of 1934 as amended, and are based on management’s current expectations. These forward-looking statements entail various significant risks and uncertainties that could cause our actual results to differ materially from those expressed in such forward-looking statements. The risks and uncertainties are detailed under Risk Factors and filings with the Securities and Exchange Commission made from time to time by us, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and our current reports on Form 8-K, including the 8-K filed earlier today for this news release. The filings are available under the category SEC filings in the Investor Relation section at our website www.stec-inc.com.

Forward-looking statements in this teleconference are generally identified by words such as "beliefs" "anticipates" "expects" "intend" "may" "will" and other similar expressions. However, these words are not the only way we identify forward-looking statements. In addition, any statements that refer to your expectations, projections or characterizations of future events or circumstances are forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements, which represents our views only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change and; therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

Thanks again for joining us today. And now I would like to turn the call over to Dan. Dan?

Dan Moses - Chief Financial Officer and Director

Thank you, Mitch, and welcome everyone. We are very pleased to report a better than expected first quarter of 2008, most notably driven by continued strong sales of our ZeusIOPS product line at $7.0 million for the quarter. We believed that ZeusIOPS revenue will continue to growth sequentially into the second quarter of 2008.

ZeusIOPS product qualifications with new customers accelerated during the quarter as well. Our Solid State Drive technologies are comprised of ZeusIOPS for the Enterprise Storage market, Mach8/MLC for Notebook market and Mach8/IOPS for the Enterprise-Server market. We have gained more visibility into the magnitude of SSD opportunities for these product lines, as well as the timeframe for each product to ramp the production volumes. We now expect significant volume and significant revenues for all three of our SSD product lines by the end of 2008.

Our new 2010 square-foot facility in Malaysia now accounts for about 20% of our capacity output. We expect our Malaysia capacity output to continue to grow throughout 2008. Our global tax restructuring and transfer pricing projects will be completed this quarter, the second quarter of 2008 and as result we begin to expect – we expect to begin our 15 year tax-free holiday in Malaysia to begin on July 1, 2008. And as a consequence we believe that our effective tax rate will continue to decline this year and will be significantly lower in 2009.

For the first quarter of 2008 on a continuing operations basis, revenue by product lines were as follows: Flash Memory was $29.3 million dollars or 58% of total revenues, a decrease from $32.7 million in the fourth quarter of 2007. DRAM memory was $19.8 million dollars or 39% of total revenues, which was an increase from $18.6 million in the fourth quarter of 2007. And service revenue was $1.6 million or 3% of total revenue. International sales comprised 21.9% of our total revenues in the first quarter of 2008.

Our average sales price for non-service revenue decreased slight from $37 per unit in the fourth quarter to $36 per unit in the first quarter of 2008. Average shipment density of our memory products is relatively flat decreasing slightly from 1.3 gigabytes in the fourth quarter of 2007 to 1.2 gigabytes in the first quarter of 2008. We shipped 1.4 million total non-service units in both the fourth quarter of 2007 and the first quarter of 2008.

Our GAAP results included several expense items that we do not expect to recur in our long-term operating model. These items are detailed in our first quarter of 2008 earnings release that was issued earlier this morning. The following comparisons are based on non-GAAP operating expenses from continuing operations for the fourth quarter of 2007 and the first quarter of 2008.

Non-GAAP sales and marketing spending decreased from 4.5 million in the fourth quarter of 2007 to 4.3 million in the first quarter of 2008. Non-GAAP general and administrative spending remained flat at 4.1 million in both fourth quarter of 2007 and the first quarter 2008. Our Non-GAAP research and development decreased slightly from 4.1 million in the fourth quarter of 2007 to 3.9 million in the first quarter of 2008.

Our capital expenditures were 3.7 million during the first quarter of 2008 and depreciation expense was approximately 1.9 million during the quarter.

After these comments, I would like to thank you very much for joining us today. This concludes our prepared remarks. And now I am going to turn the call over for questions for Manouch, Mitch and myself. Thanks.

Question-and-Answer Session

Operator

(Operators Instruction). Your first question comes from Dan Morris with Oppenheimer.

Dan Morris

Good morning guys. Congratulations on the quarter.

Dan Moses

Thank you, Dan.

Dan Morris

Yeah, can you first talk little bit about the SSD opportunity in the back half of the year. I think, they originally talked mainly about more than $50 million, which I think was predicated more on the high-end storage. Could you talk little bit about the more, some of those expectations for the back half?

Manouch Moshayedi

Well, that’s for the -- well the MFO storage business as we have today ZeusIOPS as Dan mentioned, we have already done $7 million in the first quarter, we expect that to grow in the second quarter and we fully still expect to hit that $50 million mark on the ZeusIOPS sales for this year. As, we mentioned in our press release also we have several qualification in many of the storage OEMs and we expect them to also ramp up by the end of this year.

Dan Morris

Is there any type of magnitude that we could….?

Manouch Moshayedi

The $50 million would include right now -- at this point $50 million would include all of those opportunities. However, in total SSD again on the Mach8/MLC we are starting qualification, getting qualified at major laptop OEMs. On the Mach8/IOPS the server OEMs have started qualifying also. So we expect the Mach8/MLC to start hitting production somewhere in the third quarter and on the Mach8/IOPS in the fourth quarter.

Dan Morris

Okay. And you had mentioned that you are in qualification with several customers, I mean with those type of launch dates in 3Q, and 4Q, are you talking multiple customers or is that single customer?

Manouch Moshayedi

Multiple customers.

Dan Morris

Okay. I mean, could you talk little bit about the competitive fronts and what you are seeing there and how intend to keep your first mover advantage?

Manouch Moshayedi

Let me start with, ZeusIOPS, we still feel that there is no one that comes close to the speed and the efficiency of our product, and we still think that at least couple of years ahead of the competition, on these ZeusIOPS line of products. On the Mach8/IOPS, I believe that we are about three quarters ahead of the competition and on the Mach8/MLC everyone has already mentioned that they will be coming into that market by the third quarter or fourth quarter of this year, so somewhere around couple of quarter ahead of everyone else.

As you know, MLC pricing is very volatile and it keeps on coming down during the first half of the year and then goes back up in the second half of the year. So we expect to be competitive on the Mach8/MLC side, because the prices that are being offered today are very competitive and very compelling already for us to be able to build a Mach8/MLC. On the SLC side, I think is good, trying to form partnerships with semiconductor manufacturers to service those markets. So we are hopeful that we will be very competitive on the long run in all of these product lines.

Dan Morris

Okay, thanks. And, just one last one for Dan. What type of tax rate should we be using next quarter and throughout '08?

Dan Moses

Yeah, I think I can weave it pretty steady in the kind of 35 to 37% for this year, although I think that there is some upside there. There is lot of variables that go into us decreasing our tax rate, which includes the speed of ramp in Malaysia and also us being able to convert some of our US customers to take title overseas with product of Malaysia. So some of those things are not 100% clear today, they will probably be more clear in three months or so. So, I think it's probably safe for this year to kind of keep it where it is and hopefully we will be able to bring it down throughout in the back after this year, if I am optimistic. For next year, it's kind of difficult, because there is a lot of variables that go in. But you know, long-term I think we get into at least by second half of next year. I would be surprised if we are not you know at least 20%.

Dan Morris

Okay, great. Thank you.

Operator

Your next question comes from Bob Gujavarty with Deutsche Bank.

Bob Gujavarty

Hey guys, congratulations. Nice quarter there. I was just curious, you mentioned the MLC pricing and did you use the low pricing in 1Q to make maybe some opportunistic Flash purchases in the market in anticipation prices might go up?

Manouch Moshayedi

We have some pre arranged contract with some of the MLC manufacturers and we think that will be pretty competitive in the second half this year.

Bob Gujavarty

Okay. And just, I know you mentioned it Dan but what was the CapEx in the quarter?

Dan Moses

I think, it was 3.6

Bob Gujavarty

Okay.

Dan Moses

3.7.

Bob Gujavarty

Okay, 3.7. And then just finally, if I look at kind of your year-on-year comparisons, there is really nice leverage you saw on the top line I think for net additional 3.4 million of revenue. The incremental gross margin was more than 60%. Should we kind of think about your business by the way in terms of the top line leverage that kind of incrementally 60% of your top line kind of flows through?

Dan Moses

Yeah, absolutely. As revenue goes up, we are targeting a long-term operating model where if we can get up to high 30% gross margin at somewhere between 100 to 125 million a quarter I believe, we can get close to 20% operating margins. The G&A is a pretty much fixed budget, don’t expect that to move around too much especially now that we are through some of the bigger G&A expense items like the arbitration over the consumer division. We will still have a little bit of these in for summing up this tax structure, but that will end this quarter. So we shouldn’t have anymore fees for that starting in third quarter. So G&A should be pretty flattish moving forward. And then as you look at R&D that’s a fixed budget. We do expect it to increase a few hundred thousand each quarter as we continue to try to hire Flash controller engineers and firmware and hardware engineers, but it's a slow ramp there. And then sales and marketing you will get some increased variable cost for internal commissions and some third party commissions, but a big part of the sales and marketing is also kind of fix pay salaries as well. So as you see sales ramp up, you are going to have a tremendous amount of leverage and will be able to bring much higher percentage to the operating margin line.

Bob Gujavarty

Great. And then just a final question if I can really quick one, but how is your - I expect you guys are just buying or taking share, so the macro economic issues and order linearity, any of those things not really a concern for you, if you can just address some of those macro issues that we are hearing?

Manouch Moshayedi

For now, I think we are not too concerned about that. As you can see few million dollars added to our revenue will make a big difference to our bottom line. So we are not after trying to do a few billion dollars a quarter for the sales right now. So the macro issue should not be that big of a issue for us, at this point in time.

Bob Gujavarty

Okay, great and congratulations again.

Manouch Moshayedi

Thank you.

Operator

Your next question comes from Doug Reid from Thomas Weisel.

Doug Reid

Thanks. Congratulations on the quarter. First question concerns the ZeusIOPS. I am wondering, if you could share any increased visibility you have into the end user applications the product is going and thinking that with each additional quarter you get better visibility into where end demand actually rests to help give you better sense of what the real opportunity is. So where are you seeing the greatest amount of usage?

Manouch Moshayedi

At this point, our customers are sending these products into the financial institutions and I don’t think that this very moment they have sent it to anybody else besides the financial institution. But I think as we go forward in the second half of the year, we will see more and more applications coming up. The quantities of these drives that we have shipped out even though the revenue is significant, the quantities are very small numbers at this point. So they are not able to ship it to every single customer base out there. But today some tremendous amount of applications for this product including for example online shopping and people who provide you information online.

Doug Reid

Okay. And then shifting over to the Mach8/MLC opportunity. I'm just trying to get a sense and you touched on this earlier, but I am trying to get a better sense I suppose of what STEC's special [sauces] if you will in the much more competitive environment that is that area, it's clear we have wildly over in ZeusIOPS, but I am trying to get a better sense of the point of differentiation that you bring to the table and competing in that much more aggressive and I suspect larger market?

Manouch Moshayedi

Right. First of all, we think that MLC will be at a pretty low price where we can still compete, but even if we can't compete on the overall price of SSD MLC in the long run. We think that we can partner up with either the laptop OEMs to build them the SSD and just capture the service revenue, the way that we are doing today on some of our DRAM business or partner up with some semiconductor manufacturers, we don’t have that technology and enable them to get into that market.

So the three different ways that we could be selling that Mach8/MLC; one is going to [echo] ourselves and building a finished product and capturing all of the revenue for the product; two is selling it to the -- selling the services to the laptop OEM; and three is selling the services to the semiconductor manufacturers.

Doug Reid

Okay, that’s helpful. Thanks.

Manouch Moshayedi

Okay.

Operator

Your next question comes from Gordon Johnson with Lehman Brothers.

Gordon Johnson

Thanks and congratulations on a good quarter guys.

Manouch Moshayedi

Thanks Gordon.

Gordon Johnson

I guess a lot of my questions have been answered, but I guess just kind of piggybacking on some of the previous questions. Just the competitive front from the I guess MLC SSD opportunity, Mach8. Can you talk a little bit about, I guess, looking beyond next quarter until maybe the fourth quarter in 2009 what the competitive landscape will be because I thought that you guys had said or that the focus would be on enterprise opportunity versus retail opportunity?

Manouch Moshayedi

It is and we are not trying to get into the retail market. As I mentioned on the previous question, we would look at the Mach8/MLC today as a opportunistic type of product for the next few quarters until we have competitors in that market, number one. Number two, at that point we have to worry and see whether or not it can be competitive on the MLC front. We believe that we could be competitive on MLC front simply because MLC is being sold at such a low premium compared to the cost of building the MLC. So the opportunities for the actual semiconductor manufacturers who dropped their pricing below where ours is, is really not -- we don’t think it's going to be there. However, even if it was there and we wouldn't be able to compete on the finished project on the MLC side, we are planning to also offer laptop OEMs to build up SSD so they could basically buy the MLC component from their own vendors, consign them to us the way that we are doing it on DRAM and capture service revenue on that front. Or on the other side, there are still several MLC manufacturers out there who don’t have the technology for SSD and are not planning on building a controller or SSD and we can provide that service to those guys also.

Gordon Johnson

Thanks for that clarity. And then I guess given that we could see this potentially move towards service based revenue structure, would we still expect the same I guess margins in that business that you had seen previously in your past cycle?

Manouch Moshayedi

Usually on our service revenue we actually make pretty good margin because today even our service revenue I think is in the high 50s, low 60s percent base, so service revenue is a pretty good profitable business for us in terms of gross profit margins.

Dan Moses

Yeah, and other thing also Gordon is that the number of SSDs being sold in the laptop market today with current pricing of flat here around $3 a gig and they are probably being sold to OEM at $5 a gig, it's compelling when there are certainly units being sold. But as the price of MLC over next year or two continues to come down then just sheer number of units of notebooks that are going to be using in SSD are going to grow extremely fast. So the market opportunity a year from now, two years from now is going to be huge compared to where it is today.

Gordon Johnson

Okay. Just a couple more for me. I guess when we look at this MLC opportunity, would you guys say it's fair to say that you didn’t expect the demand from an MLC perspective heading into the year that you are seeing now for your product given that you guys are the kind of first movers first to market that will be fair?

Manouch Moshayedi

I think it is unexpected that the MLC SSDs are now outperforming the existing SSDs that are being shipped into US market using SLC. But again, there is a lot of press releases out of the competition that they are coming out with a SSD using MLC. So even though are seeing good traction on the SSD MLC, we expect it always that we would have good sized comparatives in that market. So and as you mentioned yourself on the -- our focus is on the very high end. We know that we do have quite a good technology on that front and we were far ahead of the competition on that front. So we are pushing very hard on that side. The MLC, the Mach8/MLC and the Mach8/IOPS product line is just a product that we will be working on for long time and now we are just hitting qualifications and production hopefully by the end of this year.

Gordon Johnson

One more for me. Can you guys frame me revenue opportunity ZeusIOPS, can you frame what you are expecting for the Mach8 line of products this year?

Manouch Moshayedi

No, that is a completely wild card. I mean, we are treating all of that market business on the MLC side or on the Mach8/IOPS side has a total upside to our SSD business. So the revenues could be huge. We don’t know when they are going to go into production. We don’t know if they are going to go into production. So all of those things are still pretty much unknown and we are treating those types of revenue opportunity as total upside and then we will go ahead and update the streets based on what we see on a month to month basis or quarter by quarter basis, but right now what you are seeing is very very encouraging for us.

Gordon Johnson

Actually one more if I could, Dan this one is for you. Could you just update us on your largest two customers, what percentage of revenue they were this quarter and then last quarter?

Dan Moses

Sure. We are not naming customers by quarter, we are only required to for the year, but we did have two 10% customers, one that was in Q1 about 43.5% and then the second largest customer is about almost 13% to 12.6, we had two 10% customers in the quarter.

Gordon Johnson

And what were they last quarter?

Dan Moses

We only had one, I believe, last quarter. I don’t have in front of me, but the top customer was also 10% customer last quarter, but the second one was not.

Gordon Johnson

Thanks and congratulations guys.

Manouch Moshayedi

Thank you, Gordon.

Operator

Your next question comes from Sean Hannan with Needham and Company.

Sean Hannan

Yes, thank you. Good morning.

Dan Moses

Good morning.

Manouch Moshayedi

Good morning, Sean.

Sean Hannan

So a question for you, now there was significant announcement much earlier on in the year with one of your major customers and a specific product line around the enterprise IOPS. Now that this the DMX4 is shipping, can you talk a little bit around the average deployment size in terms of how many SSDs are actually going into a pro-product basis at the customer end?

Manouch Moshayedi

Sean, we really don’t want to comment on our customers business. This is something that’s very very sensitive for us. All we can say is that we shipped out $7 million of ZeusIOPS, but I don’t want to -- that’s the information you have to get from the storage guys out there.

Sean Hannan

Okay. From an ASP standpoint, I think that there was different commentary at times of roughly around 10,000 and that ultimately and obviously this begins to tick down. At what point or basically what type of ASP should we assume now in these early shipments and when does this begin to start ticking down closer to kind of the $5,000 level.

Manouch Moshayedi

Our assumption for the year is that overall the price of this product line will keep on coming down and -- but the number of units that we will be shipping out will be a lot higher. So our assumption was 10,000 units for the year at 5 grand a piece. But you saw, we expect these things to keep going down as we go into major production we can cut some of our basic cost now in terms of everything that we are doing in terms of building when the number of units go up, so we can definitely transfer some of those savings to our customers and hopefully we can get to that $5,000 mark by the third or fourth quarter.

Sean Hannan

Okay. And then I suppose lastly in terms of competition with some of the other Flash producers on SSDs, can you talk about how your current supply agreements are in place? So, for example, the security around these agreements and you begin to take business away from some of your competitors on SSDs, does this ultimately or could deploy your supply at risk for Flash?

Manouch Moshayedi

I think our suppliers are looking at this thing in a different way that we are not just taking market share from them. In fact, we are not taking market share away from them, but some of the competitors were getting into the same business. I think our semiconductor vendors are very happy with what we are doing because we were adding to their share of that business. So as that market grows, not only they would be able to sell their own SSDs into these types of markets. None of these OEMs are exclusive in terms of Mach8/MLC or Mach8/MLC for us or for anybody else. So I think our vendors appreciate the fact that not only they get some of the market share of selling their own SSD into these type of customers, but they will also get some market share through us by selling components to us. So I don’t think that that is really a -- and that has worked this way for DRAM for a very long time now. Even though we compete with some of our semiconductor vendors than a standard, we are just increasing their market share into those customers.

Sean Hannan

Okay, that’s very helpful. Thank you.

Manouch Moshayedi

Okay.

Operator

Your next question comes from Mr. Shannon with Northland Securities.

Richard Shannon

Hi guys. How are you?

Manouch Moshayedi

Great. How are you doing Richard?

Richard Shannon

Doing well. Thank you. A question for Manouch first and I think this was -- you partly addressed this in the previous response, but related to the Mach8/MLC, are these designers, do you expect them to be sole source immediately and/or for some period of time?

Manouch Moshayedi

We don’t know if it’s going to be sole sourced, I think the OEM customers, the laptop customers, we are talking to large enough that they wouldn’t want to have a sole source on anything that they are selling. So maybe for a quarter or two, we might have advantage in terms of being able to offer a pricing that’s a lot lower than a SLC based SSD, but we fully expect to have competitions somewhere around the fourth quarter on the MLC based SSDs also. So maybe sole source for a quarter for during third quarter.

Richard Shannon

Okay, great. And also on the Mach8, you mentioned a number of design wins. Can you talk about how many we are talking about here, is this a dozen or half a dozen or how many we are talking about?

Manouch Moshayedi

Yeah basically on the Mach8/MLC, what we see is about four, five very large laptop OEMs in the US whom we are talking to and also few laptop OEMs in Asia. So it’s less than a dozen total customers in that front. We are only trying to outsource still largest of the OEMs because the amount of engineer effort that it takes just to get these products qualified and make them work perfectly with the systems of our OEM customers is a huge effort. So we are just approaching the very largest guys right now. Maybe a year from now, we will be going down the list, but right now we are just going with less than a dozen customers on both fronts.

Richard Shannon

Okay, great. Related to ZeusIOPS, there was a previous question talking about vertical market segmentation, you talked about largest selling in the financial services customers thus far. To reach the $50 million number that you are hoping to reach this year, do you need to sell outside of that verticals to achieve that or can you do it just with financial services?

Manouch Moshayedi

I don’t think so. I think there is enough SSDs going into everyone of the systems and the amount of advantage that the end use of customers are seeing rather these ZeusIOPS, SSD is tremendous we think that just in financial services alone, we'll be able to achieve that number.

Richard Shannon

Okay, great. And then one last question for Dan on the financial side. In terms of your EPS projections for the second quarter, what are you assuming for shares outstanding? And also what is the level of the non-GAAP expenses that you are excluding to get to your non-GAAP EPS number?

Dan Moses

It should be pretty comparable to what we had in Q1, so I mean the shares, we don't expect major changes in share count from the Q1 level. We did a buyback in Q4 and early part of Q1. That's been inactive for a couple of months so probably we wouldn't expect major changes there. Non-GAAP, it's going to be probably pretty comparable. We'll probably have a little bit more in Malaysia, a little bit more to finish off this tax setup. So it might be a little bit higher, maybe a couple of 100,000 higher but it should be pretty comparable. But then we expect, when we get into third quarter that one Malaysia will come off the books as a non-GAAP item and we'll count all those costs as GAAP items and then we expect no more further costs on the global tax setup because we'll finish it here in the next couple of weeks. And we've already taken off the first year Sarbanes-Oxley, so it'll be down just one or two items I think, starting in Q3. So, it should get much more simple as far as the non-GAAP items.

Richard Shannon

Okay, great, and congratulations on a good quarter guys.

Dan Moses

Thanks.

Manouch Moshayedi

Thanks.

Operator

Your next question comes from [Paul McNulty] with Five Point Capital.

Paul McNulty

Hi. Can you get me okay?

Dan Moses

Yes.

Paul McNulty

Just a couple of questions, you are talking about Malaysia, but do you have any target of kind of the percentage of manufacturing you'd like to see shipped over to Malaysia by the end of the year, ballpark?

Manouch Moshayedi

We think that by the end this year will be over 50% in Malaysia.

Paul McNulty

Okay, great. And secondly, thinking again by the end of the year, would you give me ideas of where you'd like to be in terms of Flash versus DRAM because the DRAM is still a big part coming out of Q4 and the Q1 but obviously your SSD parts are going to grow much faster?

Manouch Moshayedi

We expect SSD business to keep on growing faster than our DRAM business. So, as we go forward, we think that we're going to get to that magic number is 70-30, 30% DRAM, 70% SSD in the next year or so. So, that's our goal.

Paul McNulty

All right, thanks Manouch, and again great quarter guys.

Manouch Moshayedi

Okay.

Dan Moses

Thank you. I think that's the last one.

Manouch Moshayedi

All right. Thank you very much for joining us everyone and we hope to see you soon on the next call and the next road shows.

Mitch Gellman

And once again, if you are on the institutional side interested or have an RSVP for Analyst Day next week, May 14 in San Francisco, please call me or e-mail as I mentioned earlier we'll be glad to see you and it should be very interactive, very interesting. Thanks again for joining us.

Operator

This concludes today's conference call. You may now disconnect.

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