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IXYS Corp. (NASDAQ:IXYS)

F4Q08 (Qtr End 03/31/08) Earnings Call

May 22, 2008 5:00 pm ET

Executives

Nathan Zommer - CEO and President

Uzi Sasson - CEO and CFO

Analysts

Todd Cooper - Stephens Incorporated

Vernon Essi - Needham and Company

Sal Kamalodine - B. Riley & Co.

Manoj Nandakani - Chip Investor Group

Christopher Longiaru - Sidoti & Company

John Gordon - Deltec Asset Management

Operator

Welcome to the IXYS Corporation's fiscal year and quarter ended March 31, 2008 Earnings Call. Just a reminder, today's conference is being recorded.

Now at this time for opening remarks and introductions, I would like to turn the conference over to the Chief Executive Officer and President, Dr. Nathan Zommer. Dr. Zommer, please go ahead sir.

Nathan Zommer

Good afternoon and welcome to the IXYS Corporation fourth quarter and fiscal year-end earnings conference call. I am joined by Uzi Sasson, our CEO and CFO. Uzi will lead us through the financial discussion later in the call.

First, to review the formalities, our discussion today contains forward-looking statements including statements related to potential future revenues and earnings. Any statements in this conference call that are not statements of historical fact maybe deemed to be forward-looking statements.

There are a number of important factors that could cause the results of IXYS to differ materially from those indicated by these forward-looking statements including among others, risks detailed from time to time in our SEC reports, including our quarterly report on Form 10-Q for the quarter-ended December 31, 2007. IXYS does not undertake any obligation to update forward-looking statements.

Fiscal year 2008 which ended on March 31, 2008 marked several significant milestones for IXYS Corporation. First, the long patent dispute with IR hit us was in 2000 is likely over. As a result, IXYS is prevailing for the second time in Federal Circuit Court of Appeals in Washington DC.

Second, we also reversed the huge award in the shorter-term lodged case. Thus, we were able to remove two legal risks contingencies that hand over our shareholders for the last eight years.

Third, we closed the year by moving to our owned headquarter building in Silicon Valley which added to our strong portfolio buildings that we own, real estate investment that have increased significantly in volume since we purchased that.

We also accumulated the year with significant cumulative purchases of our stock and still showed strong cash growth in the last quarter. In the March 2008 quarter, our net income was $10.1 million on a GAAP basis or $0.32 per share on a diluted basis, as compared to a net income of $2.2 million on GAAP basis or $0.07 a share on a diluted basis in the same quarter of the proceeding year.

For the fiscal year ended March 2008, annual net income was $23.3 million on a GAAP basis or $0.71 per share on a diluted basis, as compared to a net income of $30.2 million on a GAAP basis or $0.87 per diluted share of the prior fiscal year.

I want to highlight the non-GAAP results since in my opinion they reflect more closely the real operational results without the one-time adjustments, although favorable that occur as a result of prevailing on the legal front in the last 12 months. On a non-GAAP basis, for the March 31, 2008 quarter, we saw earnings per share of $0.17 versus $0.05 in the same quarter of last year, a strong 240% increase.

For the fiscal year ended March 31, 2008 we had non-GAAP earnings per share of $0.46 versus $0.36 last year, a 27.8% increase. We achieved record high revenues in the fourth quarter. Revenues for the fourth quarter of fiscal 2008 were $79.3 million, as compared to $74 million in the last year's comparable quarter.

For the 2008 fiscal year ended March, IXYS achieved record high annual revenues of $304.5 million, far surpassing the $285.9 million of the prior year and thus culminating in two sequentially years with annual record revenues resulting from organic growth.

IXYS has successfully improved revenues over nearly ever quarter for the past two years. This was accomplished in a very volatile market where many of other semiconductor companies could not sustain such growth and actually has a growth in revenues and profits.

Our increase in revenues can be attributed to continuously stronger sales in power semiconductors and RF and system product group. We are seeing increasing power semiconductor sales in renewable energy applications. Our power semiconductor chips are and have been and are still being deployed in power systems in wind mill installation and in solar panel based power generation.

As the cost of energy increases, especially oil prices, with increased demand for electricity globally, we seen increased demand for our products and increased market penetration. The payback on new and more efficient power supplies, UPSs, motor drives and invertors is accelerated and make them more economically efficient.

Worldwide growing wind today is not anymore a new fashion statement. It's a real financial advantage for our customers and their customers. We are investing in new power system, powered by IXYS brings them above average return on investment and makes them use less energy. Thus, we have seen the continuous growth of our products in the industrial and commercial sectors worldwide.

As a percentage of total revenues for the fourth quarter of fiscal 2008, North America represented 27.4%, Europe 42.5%, Asia 25.6% and the rest of the world 4.5%. As we have mentioned in prior conference call, IXYS sells higher margin products in North America and Europe. We are pleased with our concentrated sales efforts has resulted in more sales to these geographies.

Simultaneously, we are successfully competing in the Asian market while expect continued growth as any events in record sales of this fiscal year in Japan.

Our revenues by market segment for the fourth quarter of fiscal 2008 were as follows: industrial and commercial 51%, communication infrastructure 15%, medical and electronic 11%, consumer 8% and others 15%.

We have developed a new generation of leading edge power semiconductors, which are showcased in the PCIM Europe show in Germany next week. Indeed, the magazine for the featured our new XPT IGBTs on its cover. We have developed more IC products and have transitioned some of our ASIC business to more applications specifics under products.

There has been early market acceptance for our display in our HVIC for new lighting applications products, which we expect will result in growth of high margin IC business and will improve our IC wafer fab utilization.

Our revenues based on product groups for the fourth quarter of fiscal 2008 where 79.2% for power semiconductors, 11.7% for integrated circuits and 9.1% for systems and RF.

Importantly, our systems sales are reaching record level of growth by unit and revenues. We continue to see strong demand in our core power semiconductor business and we intend to return to record shipment levels to meet that demand.

IC revenues rose during the quarter. IC's carry a very high margin for IXYS. We continue to aggressively market our IC in telecommunication, medical, security and Voice-over-IP markets.

For the fiscal year ended March 31, 2008, our annual revenues by products were 77.7% of power semiconductors, 30.5% for ICs and 8.8% for system and RF, compared to 72.6%, 19.7% and 7.7% for the respective product lines for last fiscal year 2007.

I will now turn the call over to Uzi Sasson to discuss the financial results in more details.

Uzi Sasson

Thanks, Nathan. Gross profit for the quarter was $24 million as compared to the $17.5 million of the year ago quarter. Gross margin was 30.3% for the first quarter and marked improvement over the third quarter at 28.4%. Much of these improvements can be attributed to sales of higher margin products including those semiconductors targeted through the medical field. In the quarter average selling price has increased.

We were pleased with the strength of this margin growth and intend to continuous increasing margin. To do so, we are working on focusing our product on high margin industrial telecommunication and medical applications developing new distributor and building upon those relationships to offer multiple products, executing our internal policy to meet minimal margin targets and turning down orders that do not meet that level.

Managing the supply chain was more visibility to worldwide operation and increasing our fab utilization and consolidating assembly and testing operations. We are looking at cost savings opportunities in the fab and assembly.

The demand for our products remained high. Backlog was 109.1 million, as compared to the 105.2 million in the respective quarter of last year. For the quarter, the book-to-bill ratio was 0.98 and we are pleased to see the backlog held up, with increase sequentially higher bookings from the third to the fourth quarter of fiscal 2008.

Turning to inventory; net inventory decreased by 600,000 this quarter over the last. In prior quarters, we bought substantial raw material to ensure that we could amply supply products to our customers. We also made this investment to capture cheaper pricing on supply of silicon. As a result, we have substantial inventory in raw material and work-in-process.

In the quarter, we were able to reduce inventory by shipping more products on hand immediately, limiting wafer purchases and shrinking cycle time from order to delivery. We saw some good inventory depletion in a number of our divisions as they improve the stock mix and so strong demand for product.

Regarding capacity, we are excited seeing the opportunity to buy an improved equipment to give us greater capacity to make power semiconductor. We are seeing better utilization of current capacity and existing plant space at IXYS facilities.

Simultaneously, we continue our selective CapEx to improve productivity within our factories. We made investments to improve product technologies and thus we will enroll in the next quarter.

CapEx was $3.1 million for the quarter and $19.1 million for the fiscal year in line with our strategy. The growth was predominantly due to equipment purchases to increase capacity and continue maintenance of our existing equipment.

R&D spending for the quarter was $5.6 million or 7% of net sales, as compared to $5.2 million or 7% of net sales in the prior year quarter. R&D spending for the 2008 fiscal year was $21.1 million, as compared to the $20.1 million for the prior year end.

We would like to continue spending on R&D somewhere in this range and we are continuing to design new products throughout the entire organization. SG&A expenses were $10.6 million or 13.4% of net sales, as compared with the $11 million or 14.8% of net sales in the prior year quarter.

It is also worth noting that SG&A expenses decreased quarter-over-quarter. For the fiscal year ended March 31, 2008 annual SG&A expenses were $42.1 million, a substantial decrease from the prior fiscal year at $44.1 million. We attribute this decrease to our effort to reduce operating expenses. We are constantly looking at our cost in attempting to scale back where appropriate. We continue to find synergies and shared services among divisions on which we can capitalize.

Turning to the balance sheet, the ratio of current assets to current liabilities was 4.6. The cash balance was $57.2 million, which is an $8.6 million increase from the December 31, 2007.

Accounts receivable at $50.3 million was up substantially, as compared to the $42.5 million as on March 31, 2007. DSO was about 67 days in March 31, as compared to the 54 days at December 31, 2007. Inventory was $86.5 million, slightly decreased from the $87.1 million from the third quarter of 2008. Inventory turn was 2.6 times during the quarter. Regarding our guidance on revenue for the quarter ending June 30, 2008 we forecast revenues to be relatively flat as compared to our record high March quarter.

Now, I will turn the call back to Nathan.

Nathan Zommer

Thank you, Uzi. We would also like to inform and remind you of a few corporate developments. We have entered the bid for ZiLOG, Inc. at $4.50 per share. The complete details about this proposed transaction can be read in the May 19th press release, which can be found on our website www.ixys.com. We cannot shed more light on this proposed transaction at this time.

In February 2008, the United States Court of Appeals of the Federal Circuit dismissed all claims made by IR, International Rectifier and ruled in favor of IXYS. Subsequently, the court also refused to rehear the case. As a result, IXYS reversed $7.1 million of accrued litigation liability in the fiscal fourth quarter of 2008.

Also, we have updated our corporate website allowing our customer sales force shareholders and employees worldwide access to all our products throughout all divisions. This can be found at product portfolio section at ixys.com. In the next month, we intent to have the application for each update and begin functionality with division wide search engines.

We would like to open the floor now for questions.

Question-and-Answer Session

Operator

Thank you, Dr. Zommer. (Operator Instructions)

We will take our first question this afternoon with Mr. Todd Cooper with Stephens Incorporated.

Todd Cooper - Stephens Incorporated

Nathan and Uzi, thank you.

Nathan Zommer

Thank you.

Todd Cooper - Stephens Incorporated

Thank you. Congratulations. Very good quarter.

Nathan Zommer

Thank you.

Uzi Sasson

Thanks.

Todd Cooper - Stephens Incorporated

Nathan, It was clear that your industrial business was up substantially. Can you be more specific with maybe certain applications within that industrial segment that were strong for you?

Nathan Zommer

Well, I would say that there are major three strong dynamics in that section. That, of course, is alternative energy. We tried to bring it out, but as I mentioned in prior calls, its very difficult to convince our customers like GE, ABB or Siemens to break out applications whether its just motor control for a pump or it is a power control for a windmill. So this is one area that the industrial market has been very strong.

The second area is the part of the industrial market that deals with processing of raw materials, mainly mining, chemical industries, the oil patch, coal mining and alike. What we see is dynamic that there is a modernization of all equipments in that sector and expansion of the sector because some old mines and oil wells that were not economical 20 years ago to pump solely become a boon to reopen and pump. In those specific cases, you know, the oil is now deeper than it pumps with higher power capability. So, this is driving demand for motor drives with high power levels.

The third part is classic regular automation industry that deals with expansion of industrial base in countries where you see industrial base expanding. Merely you see in China and India, so this is the classic industrials. We have here three legs: two are driven by the major increase in raw material and energy prices. The third part is the classical regular story of automation, where the industry still is where they are expanding new factory China. They put automation there because even in China cost of labor increases. So, these are the three main forces that drive the growth in the industrial market.

Todd Cooper - Stephens Incorporated

Okay. Thanks for that. In the commercial infrastructure, it slid on your last quarter and I know that you have been integrating your Clare operations, did that integration have anything to do with improvement this quarter or did just demand snap back for you?

Nathan Zommer

Well, it is both of these things. On the financial side, we enjoy the integration. Uzi and operational team did a fabulous job in integration there, Clare operations and products into IXYS and within the Clare group, Clare Micronix. However, we have suddenly seen there is some of the decline of the telco market and we start to see that, indeed they are starting to build up demand for the telecom infrastructure.

So those two combinations give us at least a stop of the bleeding and start to see maybe a position of for surgeons of the telecom infrastructure business worldwide. However, I want to make a point, what we are see laterally in other companies that are telecommunication centric, that they are still suffering tremendously. The telco market is by far not what it used to be five or eight years ago. It had a surge of coming back two years ago and there is stagnation.

So, it is yet to be seen, but we are at least happy that with integration of Clare into IXYS, there are synergies that took the Clare products not just in the data transfer play, but also in the telecom infrastructure alikes.

Todd Cooper - Stephens Incorporated

Okay. A question for Uzi, if I may? You said the bookings were up sequentially, was your book-to-bill in the quarter above one?

Uzi Sasson

No, the book-to-bill ratio for the quarter is 0.98 as I mentioned.

Todd Cooper - Stephens Incorporated

Okay. Your backlog ending the quarter relative to last quarter, is it flat, up, down?

Uzi Sasson

Flat.

Nathan Zommer

It went down a little bit. However, on an annual basis when we look now at the fiscal year end, it is a record annual ending quarter. AND you have to remember also Todd that usually March is a very strong quarter in deliveries and billings, so usually I will do our sales in billing versus booking because of the scenario of the last quarter, the holiday season. So, its natural, but we are very happy to see that this is a second consecutive record annual ending backlog.

Todd Cooper - Stephens Incorporated

Which is really the combination of those two items and other market intelligence had lead you to the guidance of relatively flat revenue in the first quarter?

Nathan Zommer

As always, as you know, we are super-conservative on guidance.

Todd Cooper - Stephens Incorporated

Okay. I will get back in queue. Thanks very much.

Nathan Zommer

Thank you, Todd.

Operator

We will go next now to Vernon Essi with Needham and Company.

Vernon Essi - Needham and Company

Thank you, congratulations.

Nathan Zommer

Thank you, Vernon.

Uzi Sasson

Thank you, Vernon.

Vernon Essi - Needham and Company

Nice performance here. Just to elaborate a little bit more Nathan and I am following up on Todd's questions here the industrial segment. Is there any indication of what, Another way to ask this is how much of that content really is alternative and then within your alternative, even if you do not have an exact number, are we talking still more of this being turbine based, I know for some applications you do ship some components in the solar infrastructure, but are we still basically talking primarily about turbines in that context?

Nathan Zommer

Yes. Vernon, thanks for the question. With our intelligence, we are seeing now that alternative energy application unrelated that probably out of the 51% of the industrial market I can say it is maybe between 7% and 10%.

Vernon Essi - Needham and Company

Okay.

Nathan Zommer

Now indeed the products we shipped to the alternative energy sector is more in the turbine side, yes.

Vernon Essi - Needham and Company

In that market, what is the function of your, obviously when the market is doing very well, I do not think anyone is going to dispute that. Is it more a function of how you captured business, a response to short lead time or long lead time at your competitors or are you actually getting designed in from the ground floor at some of these applications. How was the most dynamic shaping out there?

Nathan Zommer

In the turbine industry, it is from the ground floor. We are involved in the early phases of the design. In the solar inverter the same case. We have scenarios where what adds to that is what you described where the industry the windmill industry and the solar industry starts to be matured in the sense that they now demand do all sourcing. This opened up another market share that initially was not available for us vis-à-vis if Mitsubishi put turbine system somewhere, they ultimately use Mitsubishi's semiconductors. Well Mitsubishi have the industries as an independent part of Mitsubishi wants now also two sources and that is how we suddenly get invited into that application.

Vernon Essi - Needham and Company

Okay.

Nathan Zommer

So it is a combination of what you mentioned.

Vernon Essi - Needham and Company

Let me shift gears to the medical side, I think you made a comment that came in nicely, I think on an ASP basis. Has there been any changes in the end market applications for your products there, or should we expect that to be growing more near term?

Nathan Zommer

Well, I think that it is stable, the best I can say it is stable near term, but there are no medical application that require high voltage and it builds on the success of the defibrillator sector.

Vernon Essi - Needham and Company

Okay. So it is still defib based in those part?

Nathan Zommer

Defib-based imaging, a laser application, laser and medical.

Vernon Essi - Needham and Company

Okay. Lastly, if you could share with us any anecdotal commentary you had with one of your potentially larger customers, the consumer area usually had a good read on how things might shape out, we are wondering if this consumer season we are going to see more production ahead of that or a things relatively consistent with what you are seeing prior years. Do you have any color on that? I appreciate it.

Nathan Zommer

Well the only thing I can say is that plasma is still there as a television and what we can see is a lot of dynamics in the battle between plasma plus LCD and we are attacking both sides.

Vernon Essi - Needham and Company

Okay. Do you expect to see a pronounced ramp earlier this year in anticipation of what the game, there has been a discussion about that in the background? Or do you think when it is also done in 2009, units will basically grow, absolutely it will grow above in 2008 but is it going to be ahead of forecast, or do you see any slipping going on there, any thoughts?

Nathan Zommer

Well, as you know, I have the great policemen here, Uzi Sasson and he mentioned that he will not allow us to take it to going to the market that wants to beat margins. So, and all of you out there, our shareholders and analysts like higher margin. So, as you can see, even if there will be a high demand coming to us, we will be very selective.

Vernon Essi - Needham and Company

Okay. Thank you.

Nathan Zommer

Thank you.

Uzi Sasson

Thank you.

Operator

We will go next now to Sal Kamalodine with B. Riley & Co.

Sal Kamalodine - B. Riley & Co.

Hello. On the litigation front, with the complete reversal of the reserve here, you are signaling that you do not have any more economic exposure to the lawsuits. I am just wondering what is left in terms of milestones and court completely put this to rest? Would you then give me a sense for whether or not getting this behind you, or have any impact on your revenue and that maybe you were not getting business because of litigation stuff was not dealt with just yet?

Nathan Zommer

Well, the first comment I would say, it is a legal question. So I might ask Uzi maybe to comment on that.

Uzi Sasson

Yes. So in terms of the options that IR has from the date of the reversal at the Federal Court of Appeal, they had 90 days to file an appeal to the U.S. Supreme Court. We believe that that the 90 days will expire early July. Our outside legal attorney is telling us that chances are that the U.S. Supreme court will hear that case are close to zero, but one never knows. So those are the options that they have. I hope I am answering your question.

Sal Kamalodine - B. Riley & Co.

Yes. So, basically, it sounds like their last option is to take it to the Supreme Court, but your sense is that that is highly unlikely to go through and after that it is over?

Uzi Sasson

Well, you see I can not speak for IR. They might very well pursue that, however, our legal team is telling us that even if they were to go and ask the high court to hear the case, chance is that the U.S. Supreme Court will issue cert are very close to zero. Now, with regard to LoJack I believe that that issue is behind us.

Sal Kamalodine - B. Riley & Co.

Got it. Thanks. Then with respect to revenue it is putting IR case to rest, does that help business in anyway or did that not really have any impact on your current business?

Nathan Zommer

Absolutely, we stayed there guarded. We tried not to compete with IR, because if you have exposure to damages and patterns they can claim and took business away from them. So we never took them on seriously as they compete with that. Now, it is all the flood gates are open and that is indeed we have an upside opportunity of revenues and we will go an attack them in the market.

We have the better technology. They were protected four years by this court, but we will go there and open up products. We are not any more harmful to those who buy interest, pending interest that we have to accrue on royalties or whatever. So, indeed, it is good news for us and operational freedom to grow into markets that in the past we did not like to go, not to compete with them. It gives us a scenario. We are not paying royalties or growing for its better profitability.

Sal Kamalodine - B. Riley & Co.

Can you give us a sense for what that annual opportunity might be in terms of your annual run rate, that you are not competing for right now, that you will be able to go after now.

Nathan Zommer

Well, I can give you breadth, backhand of calculations I have done. If we take 10% of their market share and since IR for the last year and a half been disclosed revenue numbers, we do not know what their net revenues now. However, based on revenues from two years ago, if I look at swag at their $700 million of revenues in power semiconductors, I just take 10% of that, its $70 million a year.

Sal Kamalodine - B. Riley & Co.

You are currently not in a position to compete for because of the litigation.

Nathan Zommer

That is correct. I have refrained myself from attacking that.

Sal Kamalodine - B. Riley & Co.

Right. Okay. Got it. Thanks. Uzi, I think, you said you were walking away from some business out that was not meeting your margin goals. Can you just help me understand what business that would be and then what hurdle it is that you are not going to go beyond if it does not meet your business model objectives?

Uzi Sasson

Sal, we know that we have been judged not only by revenue growth and profitability but also with margins. If you look, perhaps three years ago our consumer market was, I do not know, close to 20% of our revenue. In the consumer market what happened typically, there is a price pressure on product and therefore suppliers and we had to reduce and reduce our pricing. There were more competitors coming into door at entering that market. Therefore, our margin deteriorated and we suffered because of that. So one area that we are going to be very carefully is consumer market.

Sal Kamalodine - B. Riley & Co.

Okay. Thanks.

Uzi Sasson

I hope that answer the question.

Sal Kamalodine - B. Riley & Co.

Yes, it does. Thanks. Finally, can you just cover your capacity utilization at your various foundries?

Uzi Sasson

Sure. If I look at our foundries, we are getting to a very -- and couple of them, we are -- I do not know that you can say a 100%, but very much reaching that limit and therefore we are invested in CapEx maintaining our existing equipment that we have an increasing capacity. I think that the teams in the geographic locations are doing a phenomenal job at times running 24 hours, six or seven days a week.

Nathan Zommer

Let me just add. As you know, today more than 60% of our business is supported by our own wafer fab. The founders we use externally are limited now. It is one Samsung, one in Japan and few other European foundries. However, the majority of our business is in our own fab and Uzi refers to own fab, where in our own fab we are running except the Clare fab. The fab in the UK and the fab in Germany is running in full capacity. The Clare fab is much lower their full capacity. Now we started loading up also for power semiconductors.

Sal Kamalodine - B. Riley & Co.

Okay. What would be capacity expansion as a result of your current capital expenditures like exiting this calendar year, how much an incremental capacity are you adding with your current CapEx budget?

Nathan Zommer

We want to double our capacity in the next three years.

Sal Kamalodine - B. Riley & Co.

Okay, great. Thanks.

Nathan Zommer

You are welcome.

Uzi Sasson

Thank you.

Sal Kamalodine - B. Riley & Co.

Thank you.

Operator

We will take our next question now from Manoj Nandakani with Chip Investor Group.

Manoj Nandakani - Chip Investor Group

Hi. Good afternoon and congratulations on solid results, excellent execution.

Nathan Zommer

Thank you.

Manoj Nandakani - Chip Investor Group

Let's just talk a little bit more about capacity so with the existing capacity in different fab than your foundries and across different product lines. What maximum revenue rate quarterly run rate can you support at present?

Nathan Zommer

Well, we can squeeze more output 20% higher. So, we can reach close I would say to $90 million or $95 million of revenue with the existing installed real estate. However, the bigger upside we have is using external foundries and that can double without any major investments with the external foundries. So, this is that I would say the pull and push that we have here, how much we install internally and how much we will externally?

Manoj Nandakani - Chip Investor Group

Out of the majority of your product that you make in-house, are they qualify at Samsung or at other places?

Nathan Zommer

No, 60%, these are very highly proprietary processes that we have in-house. The high voltage bipolar process that does the very high voltage devices and XPT IGBT, we are doing our fab internally, very proprietary process and this product, new product we installed in the Clare fab. That has an upside of about $50 million to $200 million of annual revenue as it grows. The products that Clare makes, the silicon and insulator is also very proprietary HVAC and we indeed plan to expand the Clare fab capacity on that. Also with that, we are working with one of our foundries to be able to take extra processing of integrated circuits to offload from the Clare fab because we want the Clare fab to do more and more of our power semi.

Manoj Nandakani - Chip Investor Group

Okay. Now I have a few questions for Uzi. What was your cash flow from operations for the March quarter?

Uzi Sasson

For the March quarter my cash flow from operation was $11.5 million and for the year it was $39.5 million, all of which is going to be reflected on the cash flow statement as we are going to be filing with the Form 10-K.

Manoj Nandakani - Chip Investor Group

Okay. So that $11.5 million includes release of funds you had for the legal proceedings?

Uzi Sasson

No, we did not have any funds aside for legal.

Manoj Nandakani - Chip Investor Group

So this is $11. 5 million for the quarter was all operational?

Uzi Sasson

That is exactly right. If you want to talk about the cash, I mean let's talk about it. As we have mentioned earlier, we spent $15 million plus during the year to buyback our own shares. We spent about $0.5 million this quarter to buy back our own shares. So, in the last two years, we spent over $30 million, I remind you it is all from operations, everything is from operations here. Yes, It is $11.5 million for the quarter and $39.5 million for the year.

Manoj Nandakani - Chip Investor Group

Okay. In fact my next question was going to be about stock buyback, now you are about to complete the previous authorizations, so do you have any plans to increase buyback?

Uzi Sasson

Our current plans is to evaluate those managements, I am not ready to stick about it, right now we have I think a 139,000 shares, 139,000 less on the old plan and if and when we do something, we will come up with an announcement.

Manoj Nandakani - Chip Investor Group

All right. For the June quarter, what are your expectations for gross margins and also SG&A and R&D?

Uzi Sasson

No, those are forward-looking statements. We do not guide on any of that other than the comments that I have made with regard to revenue relatively flat to the March quarter and we are working on increasing margin. However, in terms of numbers, I am not prepared to coach it was a number here.

Manoj Nandakani - Chip Investor Group

Okay. Fair enough. Again congratulations.

Uzi Sasson

Thank you very much.

Operator

We will take our next question now from Christopher Longiaru with Sidoti & Company.

Christopher Longiaru - Sidoti & Company

Congratulations gentlemen.

Nathan Zommer

Thank you very much, Chris.

Christopher Longiaru - Sidoti & Company

Okay. First talk about IC revenue came back and I think that was one of the big reasons why the margins were up. Can you just give us a little idea of where the margins could go with this product mix and the IC revenue coming back?

Nathan Zommer

Well, I can tell you just, as you know we are not relying only on that, as a qualified statement the integrated circuits products by themselves carry intrinsic margins of 40% to 60%, and the question is just to accelerate the growth so we can get the manufacturing overhead absorb, that is the issue.

Christopher Longiaru - Sidoti & Company

Okay.

Nathan Zommer

Uzi, any comments on that?

Uzi Sasson

No. I think you said it well. I think it is a well said comment. If you think about the IC predominantly the Clare Micronix business and some of our Santa Clara business, they are carrying a high margin business and you know the idea is to make sure that the unabsorbed manufacturing cost is not hindering our ability from delivering on high margin product.

Christopher Longiaru - Sidoti & Company

Got you.

Uzi Sasson

Yes.

Christopher Longiaru - Sidoti & Company

Okay. AND just could you give us stock-based comp number or stock-based compensation for the quarter?

Nathan Zommer

It is a $1.5 million.

Christopher Longiaru - Sidoti & Company

Okay. All right. That is all I have for now. Thank you.

Nathan Zommer

Yes. Thank you.

Uzi Sasson

Thank you.

Operator

(Operator Instructions)

Next, we will go to John Gordon with Deltec Asset Management.

John Gordon - Deltec Asset Management

Thank you very much for a very nice quarter, Nathan and Uzi.

Uzi Sasson

Thanks

Nathan Zommer

John, we started to worry, where are you?

John Gordon - Deltec Asset Management

I am here in New York, and I was able to get through a phone fortunately, because I have been traveling. However, again, thank you for a very nice quarter. I have just a couple of smaller questions but to begin with a bigger macro question. I appreciate that you gave guidance with respect to revenues for the next quarter. However, what I would love to just get from both of you, if I might, is a general tone of your markets as it relates to the next 12 to 18 months.

I would be curious whether you see the marketplace in which you are selling your products as being fundamentally healthy and robust, or are you feeling cautious about them as a general matter? I would love to just get some longer term color.

Nathan Zommer

Well, John, the beauty of our business and we try to give this guided sense in our press release and in my script here that we are very elated. It is very high quality of revenues that we have. It is not the product that is applied by night, it is not a game, its not a cell phone fab, this is industrial base that have long life.

All our chips go to the industrial market to products and have a long life anywhere between 5 to 20 years. So we are very optimistic on the market dynamics. It is unfortunate to see for the rest of the world, how the oil prices go up, but whenever you see an uptick in oil prices, we see an uptick of business for IXYS. So the long-term outlook is phenomenal for IXYS, its execution.

As we stated before, in some sectors of the products we were too conservative. It is good to be conservative and good to be in a position where the demand is bigger than the supply. However, nonetheless, we could have had higher revenues if we would have had the higher capacity or the higher rate inventory.

So we try to really to be in the business of supplying customers where they were not. A lot of our customers as good as they are, they keep their forecast close to their chest. They want to push the inventory on us, but we will have the inventory. However, it looks very optimistic in quite few products. We cannot meet the demand. So this tells me that there is a base of high quality revenues and high quality customers.

Another comment, you have to look what happens with our competition. The doors are still swinging in one of our major Darth Vader, International Rectifier. We loved to see what is happening to them. A similar story what is happening in the Vishay.

John Gordon - Deltec Asset Management

Right.

Nathan Zommer

So we are left with opportunities now and up to prevailing so well in the legal battle, I can now go after International Rectifier business which is also Vishay business. So we have tremendous opportunity of upside and its execution. At the same time, we also expand their wafer foundry capacity to larger diameter wafers to reduce the costs and increase the capacity. So at end of the day, it is a $20 billion market out there and the finger is on us to take market share and execute it.

John Gordon - Deltec Asset Management

Terrific. Thank you, Nathan. If I can just ask a couple of more specific items, the first of which is there anything that you could tell us that would help us just as it relates to how you are dealing with currency issues and are you doing anything differently with respect to hedging now than you have done in the past? Is there anything with respect to either the dollar weakness or the potential for the dollar strengthening that you would like us to know about as it relates to how it affects your business?

Uzi Sasson

John, I will take that question. Yes, we bought a couple of options contract here or we are hedging. Predominantly, on the fronts that we have in Germany, we came about that conclusion. This is relatively a new policy for us in IXYS. We came to that conclusion the quarter before last and that we needed to do something. We saw the result of it in the December quarter and we will see it right now. Just that really helped us. That strategy helped us to the extent of close to $0.5 million eliminations or of gains, if you will,...

John Gordon - Deltec Asset Management

Right.

Uzi Sasson

…because of that. So yes.

John Gordon - Deltec Asset Management

Right. Good. Terrific. Thank you, Uzi. Nathan, you had mentioned in the prior call or maybe in a couple of prior calls that there was some possibility of having some of your products outsource in terms of manufacture to Russia. Has anything happened with respect to that?

Nathan Zommer

Yes, absolutely, we started to ship products that we produce in the wafer fab in Russia.

John Gordon - Deltec Asset Management

AND this is a wafer fab that is owned by a third party where you have contracted for production?

Nathan Zommer

That is correct. As I mentioned we have foundries in Asia and in Europe and Russia is Europe, but again it is a very favorable condition for us and that has been the trend and we are planning to use more and more the opportunity in Russia.

John Gordon - Deltec Asset Management

So you have been happy with the quality of the product and with the timeliness of the deliveries?

Nathan Zommer

I would say that it is not like the experience we had with Samsung or our own fabs, but relatively speaking I must give them a lot of credit they improved significantly and the quality, we control the quality. They do 80% of the process and the last 20% of the wafer fab processing between in-house not to lose our proprietary position.

John Gordon - Deltec Asset Management

Right.

Nathan Zommer

These are the last 20% that is really dictated the quality of the vapor. So indeed, they have been leapfrogging in advance but they are not up to snuff as the wafer fab to the quality we are used to, so that is why we keep 20% of the processing in-house.

John Gordon - Deltec Asset Management

Terrific. Nathan and Uzi, thanks very much and keep up the great work.

Nathan Zommer

Thank you John.

John Gordon - Deltec Asset Management

Thank you.

Operator

Gentlemen it appears we have no further questions this afternoon. I would like to turn the conference back to you for any closing or additional remarks.

Nathan Zommer

Thank you. As there are no more questions, and in closing the conference call, we need to remind you that our discussions contained forward-looking statements and that there are number of important factors that could cause our results to differ materially from those indicated by these forward-looking statements, including among others, risks detailed from time-to-time in our SEC reports including our quarterly report on Form 10-Q for the quarter ended September 31st, 2007. We do not undertake any obligation to update forward-looking statements. Thank you all for your time this afternoon. We also would like to thank our suppliers, customers, employees and stockholders for the support of IXYS. Thank you.

Operator

Again, that will conclude today's IXYS conference call. I would like to thank you all for joining and wish you all a good afternoon. Goodbye.

Nathan Zommer

Thank you very much.

Uzi Sasson

Thank you very much.

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Source: IXYS Corp. F4Q08 (Qtr End 03/31/08) Earnings Call Transcript

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