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Executives

Dennis Bencala - Senior Director of Investor Relations and Business Development

Dado Banatao - Executive Chairman and Acting President and Chief Executive Officer

Rob Baxter - Senior Vice President

Kanwar Chadha - Co-Founder and Vice President of Marketing

Analysts

Brian Modoff - Deutsche Bank

James Schneider - Goldman Sachs

Sanjay Devgan - Morgan Stanley

Adam Benjamin - Jefferies

Uche Orji - UBS

David Wu - Global Crown Capital

Ramesh Misra - Collins Stewart

Sandeep Aggarwal - RBC Capital Markets

Heidi Poon - Thomas Weisel

Jeff Rath - Canaccord Adams

Tim Lash - Third Point

SiRF Technology, Inc. (SIRF) Q2 2008 Earnings Call Transcript July 24, 2008 4:30 PM ET

Operator

Welcome to today's teleconference entitled SiRF Technology Holdings, Inc. Second Quarter 2008 Financial Results conference call. At this time, all participants are in listen-only mode. Later you will have the opportunity to ask questions during our Q-and-A session. (Operator Instructions). I would now like to turn the call over to Mr. Dennis Bencala, Senior Director of Investor Relations and Business Development. Please go ahead, sir.

Dennis Bencala - Senior Director of Investor Relations and Business Development

Second quarter 2008 earnings conference call. Please see our Q2 earnings release which was issued earlier this afternoon and is also available on SiRF's website. Participating with me today will be Dado Banatao, SiRF's Executive Chairman and Acting President and Chief Executive Office, Rob Baxter, Senior Vice President, and Kanwar Chadha, Co-Founder and Vice President of Marketing. First Dado will provide an overview of the second quarter, then I will take you through the numbers, and finally Dado will wrap with guidance for Q2.

But before I begin, I need to mention this call will contain forward-looking statements which include, among other things, financial projections, statements regarding objectives and future plans of management, future economic and business performance, and the assumptions underlying or related to such forward-looking statements. The forward-looking statements we make on this call are based on current expectations, including changes in our organization and strategic product development and planning and benefits related to these, and assessments relate to revenue, gross margin, operating expenses, litigation expenses, DSO, our 2008 tax rate, earnings per share, our product portfolio, and the strength of our company, among others.

These forward-looking statements are subject to a number of risks and uncertainties, including a risk of adverse changes to the global economy, delays in the release of new products, our ability to keep up with technological change, fluctuations in customer demand for SiRF products, and/or end user demand for our customers' products, competition, customer product cancellation issues or delays, our expense levels, manufacturing delays or inefficiencies, shortage of components used in our customers' devices, fluctuating foundry capacity, and intellectual property litigation which is common in our industry. We ask that you keep these in mind in relying on any such statements of expectations. Information provided here speaks only as of this date and SiRF disclaims any duties to update this information here. For a more thorough discussion of the risks to which forward-looking statements are subject, please refer to our press release from earlier today and to our Form 10-Q for the quarter ended March 31st, 2008 as filed with the SEC.

In addition, on this call and in our press release from earlier today, we will discuss our financials on both a GAAP and non-GAAP basis. The non-GAAP financial measures included in our press release today and discussed on this call are included with the intention of providing investors a more complete understanding of our operational results and trends, which should only be used in conjunction with results reported in accordance with GAAP. The non-GAAP financial measures should enable investors to analyze our base financial and operating performance and to facilitate period to period comparison and analysis of operating trends. Non-GAAP measures presented and discussed today in or our release, presentations, and similar documents issued by us exclude such charges as stock compensation, amortization of acquisition related intangible assets, and certain nonrecurring, non cash and certain nonrecurring, non cash impairment charges. The detailed reconciliation of the adjustments between results calculated using GAAP and non-GAAP have been included in our press release. At this time, I would like to introduce our Executive Chairman, Dado Banatao, to provide an overview of the business for the quarter.

Dado Banatao - Executive Chairman and Acting President and Chief Executive Officer

Thanks, Dennis. This is Dado Banatao, Executive Chairman of SiRF Technology. Thank you all again for joining us today as we discuss our Q2 2008 financial results. As we anticipated in our previous conference call, Q2 has proven to be a challenging quarter for SiRF. Our revenues in Q2 continue to be affected by weak demand from certain customers, increased competition and general macro economic uncertainty. Call Since the last call, management has substantially completed its strategic long-term and 12-month tactical operating plan. These plans were designed with a commitment by the management team and the board of directors to continue to invest in advanced technologies, products, infrastructure, and customer support.

Also embedded in these plans is a company commitment to continue to innovate in location technologies and will be the key differentiator in its product. Alignment of our global resources, particularly in engineering, was necessary to execute these new plans in a cost-effective and efficient manner. Earlier today, SiRF announced that it will implement an additional reduction in work force. On our newer products, SiRF Prima and SiRF Star III GW, we are getting increased traction in key customers in the PND and wireless markets. As a result, last quarter we put significant resources on helping customers with design support and productization of these products. Now I would like to turn the discussion over to Dennis to cover our Q2 financials.

Dennis Bencala - Senior Director of Investor Relations and Business Development

Thank you, Dado. SiRF recorded revenues for the second quarter 2008 of $63.1 million compared to revenues of $70.6 million in the second quarter of 2007, a decrease of 10.6% year-over-year. In Q2, SiRF's sales breakdown by product platform was approximately 45% in automotive, 45% in wireless, and the balance in consumer platforms. Q2 revenue was comprised of $1.3 million of product sales, and approximately $1.8 million of license and royalty fees. SiRF's GAAP gross profit for the second quarter was $13.2 million, or 21% of net revenue. Q2 GAAP gross profit includes stock compensation charges of $0.4 million, amortization of acquisition related intangibles, $3.7 million of acquisition-related contingent payments and restructuring charges, and asset impairment charges of 12.5 million.

SiRF's non-GAAP gross profit for the second quarter was $29.8 million or 47.2% of net revenue. Q2 non-GAAP gross profit excludes stock compensation charges of $0.4 million, amortization of acquisition related intangible expenses of $3.7 million, and acquisition-related impairment charges of 12.5 million. Our Q2 gross margin was impacted by a combination of competitive marketing pressures, a shift in product mix, and the write-down of excess and obsolete inventory. On an annual basis, SiRF is required to assess the potential impairment of identified intangible assets, long-lived assets, and goodwill and, more frequently, if events or changes in circumstances indicate that the carrying value may not be recoverable.

In the second quarter of 2008, the company continued to experience a decline in its stock price and weakened customer demand. As a result, the company performed an impairment analysis of its goodwill and acquisition related intangibles. The company also performed an impairment analysis of its deferred tax assets and note receivable. As a result of these impairment analysis, the company recorded the following impairment charges. Impairment of goodwill, $215.7 million, impairment of acquisition related intangibles, $42.9 million, impairment of note receivable of $11.8 million, and the write-off of current and long-term deferred tax assets of $34.2 million, resulting in a GAAP net loss, including impairment charges for the second quarter of 2008, of 332.6 million or a loss of $5.41 per diluted share, based on 61.5 million diluted weighted average shares outstanding. Second quarter loss includes $10.3 million of stock compensation expenses, $6.2 million in amortization of acquisition related intangibles, $0.1 million of acquisition-related contingent payments and restructuring charges and asset impairment charges of approximately $305 million. This compares with a Q2 2007 GAAP net income of $2.1 million, or $0.04 per diluted share on 56.5 million average shares outstanding. Second quarter 2007, GAAP net income includes $8.8 million of stock compensation expense, $1 million in amortization of acquisition related intangibles, and $0.7 million of acquisition related contingent payments.

We recorded a non-GAAP loss in the second quarter of fiscal 2008 of $11.4 million, or a loss of $0.98 per diluted share as compared to non-GAAP income of $12.7 million, or $0.23 per diluted share for the second quarter of fiscal 2007. Litigation continued to be a significant expense in Q2, 2008, at approximately $7.3 million. These charges were primarily related to our ITC patent litigation. Non-GAAP net loss for the second quarter of fiscal 2008 excludes $10.3 million in stock compensation expense, $6.2 million in amortization of acquisition related intangibles, $0.1 million of acquisition related contingent payments and restructuring charges, and asset impairment charges of 215.7 million for goodwill, $34.2 million for impairment of current and long-term deferred tax assets, $42.9 million for impairment of acquisition-related intangibles, and $11.8 million for impairment of a note receivable.

The non-GAAP net income for the second quarter of fiscal 2007 excludes $8.8 million in stock compensation expense, $1 million in amortization of acquisition related intangibles, and $0.7 million of acquisition related contingent payments. The combined chip set volume increased approximately 10% during the second quarter of 2008 as compared to the second quarter 2007, while ASPs declined approximately 20% over the same period. The combined chip set unit volumes in Q2 2008 increased approximately 3% from Q1 2008 while ASPs declined 1%.

SiRF had two 10% or greater customers, a direct customer at 24% and Promate, our Taiwanese distributor, which supplies TomTom's contract manufacturers, as well as MYTECH and other Taiwanese OEMs. Promate accounted for 22% of our revenues. Head count at the end of the first quarter was 710 employees versus 719 at the end of Q1 2008. The reduction in head count was primarily a result of employee attrition and does not include the planned reduction in force. Q2 DSO was 45 days compared to 33 days in Q1. The increase in DSO is primarily due to a timing of shipments in the last half of Q2. We expect DSO to remain in a similar range in Q3. Inventory turns in Q2 were at 5.9, an improvement from 4.2 in Q1 as a result of inventory reduction.

SiRF had cash, cash equivalent, and short term investments of approximately $106 million as of June 30, 2008, compared to $120.5 million at March 31st, 2008.

The graphic revenue for the quarter by region was Asia Pacific at 55%, US and the Americas at 23%, Europe at 17%, and the rest of the world at 5%.

We are forecasting a 2008 pro forma effective tax rate of approximately 3% of the year, and anticipate operating expenses to be relatively flat in Q3 compared to Q2 2008. Now I will turn it back over to Dado to go over the closing comments and the outlook for the third quarter.

Dado Banatao - Executive Chairman and Acting President and Chief Executive Officer

Thanks, Dennis. As I mentioned earlier, Q2 proved to be a challenging quarter for SiRF. Although we have increasing traction for our newer products, we remain cautious in our outlook. As a result, we are guiding Q3 revenues in the range of $60 to $64 million on non-GAAP EPS from a loss -- And non-GAAP EPS from a loss of $0.07 to $0.21. This assumes a 3% pro forma tax rate for the year. Although we do not provide specific gross margin guidance, we expect our Q3 non-GAAP gross margins to be flat or slightly lower than our Q2 2008 non-GAAP gross margins. At this time, we will open it up to questions from callers.

Question-and-Answer Session

Operator

Certainly.

Dado Banatao

I should point out there are certain issues of legality relating to various customers or partners that are -- that we are required to respect, and this may limit how completely we are able to answer your questions. We'll take the first question now.

Operator

Certainly. Please limit yourself to one question and one follow-up. We will take our first question from the site of Brian Modoff of Deutsche Bank. Go ahead please.

Brian Modoff

Hi guys. A couple questions. First, on the PND side of the market, what do you think's happening with your market share in that side? Do you see any deterioration in your market share in the PND side specifically with domestic customers such as Garmin? Second, on traction in the handset side, when could we see your volumes step up with some new customer wins on the handset side? Thank you.

Rob Baxter

Okay, Brian, this is Rob Baxter. I'll take the first question, and I'll hand the second one to Kanwar. We talked about the market share issue before in PNDs. As we said before, at the major suppliers, they typically are multisource, their platforms. There are many platforms that they produce. And we are heavily engaged in many of those platforms, and we're also not engaged in some, in the largest suppliers. The revenue and the production volume we get depends on which platforms end up getting sold. That's been the case for the last year to 18 months, so that's not changed. What is very positive from our point of view is our traction that we're getting in new designs with the new products that Dado mentioned, the Prima SSC which is the most integrated entertainment and navigation platform for this industry. So that is gaining a lot of traction at the design level. Also III GW, which is the highest performance discrete GPS device. So it swings around. We win some platforms, we lose some platforms, Brian. We expect, and our focus is really on winning the majority of those platforms going forward with the new products that we're developing.

Dado Banatao

On the wireless side, as you have seen, wireless is becoming an increasing part of our product mix, and it is one of the segments which is still showing growth. The new handsets which some of our customers have launched, clearly are starting to ramp up, and we see the positive impact of them in the next few quarters. But the wireless market overall for us is becoming a bigger part of our revenue mix.

Operator

Thank you. We'll take our next question from the site of James Schneider with Goldman Sachs. Go ahead please.

James Schneider

Good afternoon and thanks for taking my question. First of all, could you give us an update on the timing for when you plan to break even, and is that required revenue run rate still around $60 million? Secondly can you give us an update on the implication of the ITC's determination in the Broadcom case and how much you'll to have continue to spend on legal expenses for the remainder of the year. Thank you.

Dennis Bencala

Yes, James this is Dennis. So, as I said, we are now forecasting our op expenses to be relatively flat from Q2 to Q3. Our break-even point, due to some of the changes that Dado had announced in terms of our commitment to R&D and long-term growth, our break-even point is going to be approximately $75 million on a quarterly basis going forward.

Dado Banatao

On the ITC side, as you know, we have two cases at ITC. There is an initial determination which has come out in the first case, and we are asking the Commission to review it as it goes to the Commission from the judge. The second one, an initial determination is expected in August, and that's where we stand with both those two cases.

Operator

Thank you. We'll take our next question from the site of Sanjay Devgan from Morgan Stanley. Go ahead please.

Sanjay Devgan

Thank you for taking my call. Just briefly, as I look at your business, given the expected ramp-up in the wireless area, can you tell me roughly how penetrated do you estimate that that market is, and what are your projections when you look at that market going forward?

Kanwar Chadha

This is Kanwar. In the CDMA side, clearly there is very, very high penetration, especially in US which is the largest market, probably, in the CDMA space. It's almost 100% penetration in the US. In the non-CDMA side, the WCDMA or the III G networks have good attach rates. I would say that GSM itself, those assets are still very low. If you listen to some of the leading handset vendors and the projections they are making for this market, and what we are seeing with some of the customers who have launched GPS enabled handset, clearly the pickup for location in the handset market is showing good growth, and we expect that trend to continue. And we expect the attach rate in the III G and smartphones will be very high,but attach rates in the GSM and the low end phones will be relatively low for the next two years.

Sanjay Devgan

Thanks, Kanwar. Just as a quick follow-up, in the non-CDMA market, as you try to win sockets with existing handset customers, can you talk to your design win success rate versus other competitors that have GPS solutions but may also have other pieces of silicon within the handset? How are you funding your success rate vis-a-vis competitors whereas, like I said, that can offer multiple solutions versus just your standalone GPS? Is your technology lead still a differentiating factor? Can you just talk about your strategy there?

Kanwar Chadha

Sure. Our focus is in providing end-to-end location capabilities. We believe we have leadership position there. Clearly, as you said, there are other players who compensate for that with some of the other offerings they have. Today, in the handset space what we see is key customers are driven by quick time to market and meeting some of the key operator compliance metrics like PGBB compliance in terms of performance, as well as delivering solutions which give good consumer experience at the location application level. And we believe in those areas SiRF maintains, and we will continue to maintain, leadership position. In the long run, people are looking at combining multiple radios together, and we have announced that we will be playing in that in market as those multifunction radios start gaining penetration. But today I would say most of the battles are still fought at location level. As you have seen with some of the new handset announcements, the consumer experience at location is visible, and I believe that one of the reasons our new products are gaining more traction is because our customers are realizing that consumers' experience is very important.

Operator

Thank you. We'll take our next question from the site of Adam Benjamin of Jefferies. Go ahead please. Go ahead, please.

Adam Benjamin

Thanks, guys. First off, on just the gross margin, a follow-up there. From industry contacts I've heard that pricing in the back half on the chip side is going to be significantly lower. Can you just talk about how you continue to expect gross margin to hang in the range that you recently just reported for the June quarter?

Dennis Bencala

Yes. This is Dennis. So we do -- as we said, we do expect to still have competitive pressures both on the ASP and from competition which will affect our gross margin. From an operations point of view, we continue to work with our suppliers in terms of packaging, in terms of process improvement, cost reductions, a combination of those all fit into the gross margin. We do expect to continue to have gross margin pressure into Q3 and beyond. But again, we believe that we'll be able to maintain our gross margins at or slightly below current levels for next quarter.

Adam Benjamin

And then maybe a question for Kanwar on the wireless side. You've been successful penetrating Motorola and RIM. Outside of those two customers, should we be expecting any other wins from the tier ones specifically?

Kanwar Chadha

As we indicated in our press release, there are two tier one customers who have launched handsets, newer handsets, with out technology in last quarter or so. Clearly we have announced one of them, but the second one has launched a handset. Going in the future, we are getting very good traction from a design perspective at both tier ones and other handset vendors, especially with the self-start CDW product line, and we believe that with the end-to-end solution we are providing to the marketplace, and the confidence level we are delivering to our customers in terms of getting them to the market quick, that we will continue to keep that momentum going.

Adam Benjamin

Got you. Thanks a lot, guys.

Operator

Thank you. We'll take our next question from the site of Uche Orji with UBS. Go ahead please.

Uche Orji

Hi, this is (inaudible) for Uche. Just a top level question. Could you remind us what is your specific plan for turning the company around. And also if you could provide some milestones and time lines as to when we can see some changes in the revenue and profitability?

Dado Banatao

Yes, this is Dado. That is a fairly complex question, as you can imagine, because in any company execution you deal with is strategic long-term direction and, of course, your annual operating plans. What we, did as I mentioned earlier, this quarter was to look at our overall product road map and looked at what made sense for the kinds of platforms that we were looking at. Mainly those are two. That's the PND and the handset market. So those two platforms vary slightly, in terms of strategies. This conference call is way too short for that. The summary of it is that we are bringing back the company to a cycle that we believe should work over the long term in terms of what we call leap frog products. I also mentioned that we will continue to make location technologies. And they come in many forms, as you can imagine. GPS is just one of them. And so we he will continue to make that the key differentiator of our products, and we see SiRF Prima and SiRF Star III GW gaining traction, and that's just the beginning of some of the things we have started to do in our strategic replanning here. On the more tactical side, as you know, we are a global resourced company, and we have aligned all of our resources globally to make sure that there is efficiency in taking advantage of our resources outside of the US, and within the US, of course, aligning a lot of our three major operations in San Jose, Phoenix, and in Orange County. So it's a lot of details, as you can imagine, but the team here has been intense enough the last two-and-a-half months to get it done. And, in fact, we are ready to go in terms of real tactical execution now. And so the results will be seen in time, but I think it's aligning a lot of our convictions and commitment into what makes sense for this platform and for our customers.

Uche Orji

Okay. And coming back to your restepping efforts, you have been reducing your workforce, how much more reduction can you make without hurting your (inaudible)?

Dado Banatao

Except for normal business attrition and other circumstances that the company will initiate, in terms of the restructuring we are complete and final today.

Operator

Thank you. We'll take our next question from the site of David Wu of Global Crown Capital. Go ahead please.

David Wu

Yes, good afternoon. Dado, can you give a little bit more color on the kind of leapfrog products that one can expect from you, starting with? When I look at Star III it's been around for four years, so is Star IV a key to recapturing the leadership in the GPS technology? I was also interested in your competitors coming out with these combo chips, from the looks of T.I. and Broadcam that have GPS as part of the total solution. How does – or how soon will SiRF have an answer to that? I know Prima is one of them.

Dado Banatao

Let us divide up your question into two. I think the latter part of your question had to do with combo, and to us that strictly a silicon play. The bigger picture for us, when we talk about leapfrog, has to do with truly understanding the platforms we are in and adding the proper functionality. As you can see, our SOC products are making a huge impact in the marketplace. Not that that is rocket science, but clearly a lot of the services that one can derive from locations, it still has to be figured out by both platforms. It is really at the very early stage today. And so while we cannot reveal these strategies and technologies here, suffice it to say that the root of a lot of these innovations will come from what it takes to make these devices really usable.

On the combo chips that you mentioned, there are two approaches to that, not only from silicon providers but also from the handset providers. Two diverging views is that, one, you combine baseband and RF and so on, and of course with all its attendant issues in designing. And, as I said, that's a very silicon play. And then there's the other side of really integrating the digital side and separating it from the analog side. I cannot reveal to you, obviously, our approach, but keeping in mind you've got to be efficient in how you do those things. I'm not under-valuing, of course, the complexity of some of these RF devices, but, at the end of the day, analog and digital sometimes just do not mix well. And that's our view on how we will implement these combo chips.

David Wu

So a two-chip solution could be better than a one-chip solution.

Dado Banatao

In many case it makes sense.

David Wu

Thank you.

Operator

Thank you. Our next question from the site of Ramesh Misra of Collins Stewart. Go ahead please.

Ramesh Misra

Good afternoon, gentlemen. I might have missed this but, the little bit of bookkeeping, did you say anything about unit trends and ASP trends in the quarter?

Dennis Bencala

We said in terms of ASPs for the quarter that we had approximately a 1% ASP reduction Q1 versus Q2 and a 3.5% unit increase from Q1 to Q2.

Ramesh Misra

And what does that correspond on a year-over-year basis?

Dennis Bencala

On a year-over-year basis, we had approximately 20% ASP reduction Q2 ’07 to Q2 ’08 and a 10% unit increase from Q2 ’07 to Q2 ’08.

Ramesh Mishra

Okay. And did you mention your split by markets?

Dennis Bencala

Yes, we said that, in terms of major markets, 45% of our platform sales were in the automotive, 45% in wireless, and the balance 10% in consumers. Approximately.

Ramesh Misra

Okay. Can you provide us an update on what's happening on the silicon side on your work on the Android platform and when can we expect any real products coming out of that?

Dado Banatao

As we have announced, we are part of the Android platform from a location technology standpoint. We are not in a position to pre-announce the deployment of the Android platform and our location technology in that platform. As our customers start announcing their products, we will be able to give you a better picture on that.

Ramesh Misra

Okay. And finally, do you have any other litigation underway versus either chip company or a systems company?

Dado Banatao

Our main litigation, as you know, is with Broadcom, and there are multiple cases there, some with ITC, two of which we just finished off in terms of the trial. Then there are some other in the other courts.

Operator

Thank you. We'll take our next question from the site of Mahesh Sanganeri of RBC Capital Markets. Go ahead please.

Sandeep Aggarwal

This is Sandeep calling in for Mahesh Sanganeri. My question was relating to your $75 million break-even number that you quoted. I just wanted to check whether this includes a certain amount of legal expense and also what sort of gross margin assumptions you are making for this break-even number.

Dennis Bencala

Hi, Mahesh. This is Dennis. Yes, it does include the forecasted legal expenses in our op ex, and, as I said, we were expecting or forecasting gross margins to be relatively flat, or slightly down from Q2 to Q3.

Sandeep Aggarwal

And just to follow up to that, do you have a sense of when your legal expenses would go down? What is the time frame for the legal expenses to come to an end?

Dennis Bencala

We had originally hoped that at the end of the ITC trials our legal expense would start ramping down. We still do expect legal to start declining in Q3 and Q4.

Sandeep Aggarwal

Okay, but you expect them to continue for some time, then.

Dennis Bencala

Yes.

Sandeep Aggarwal

Thank you.

Operator

Thank you. We'll take our next question from the site of Heidi Poon with Thomas Weisel. Go ahead please.

Heidi Poon

Hi. Based on current ASP trends, it looks like your Q4 might be an even lower quarter than what Q3 would be. So do you think that wireless might, given the positive surprise or basically provide some support to that quarter's revenue, given the new model launches?

Dado Banatao

Heidi, as we have indicated, we have multiple products, not just in wireless, even in the PND ramping up. But in today's market environment we are taking a cautious stand and really are not in a position to provide guidance for Q4.

Heidi Poon

Okay. In terms of gross margin, do you think that even though you're guiding for slightly lower for Q3, what do you have in the bag of tricks that would hold that range? Are we going to see maybe 43 to 45 or even lower range longer term?

Dennis Bencala

Heidi this is Dennis. So we are forecasting relatively flat gross margin from Q2 to Q3, and we believe that, again, through a combination of our operations manufacturing group, in terms of cost savings and packaging improvements, testing improvements, the combination of those, despite the ASP pressures in competition, again, for Q3 we're forecasting relatively flat to slightly lower gross and we're not really giving guidance yet out to Q4.

Operator

Thank you. We'll take our next question from the site of Jeff Rath of Canaccord Adams. Go ahead please.

Jeff Rath

Thanks. I have a couple questions. The first one is for Dado. Dado, in your first conference call you discussed some of your priorities as the interim CEO and they were really focused on getting SiRF back on more stable operating footing, and talk about goals to return to break-even, and reinvesting in R&D and product innovation and some streamlining there I guess that's clearly been the priority, and it seems like you're supporting that here. I just wonder if could you give us your views how you're thinking about the strategic side of the opportunity here. Clearly that's probably -- that is the way to go, make sure the business is stable, but, I mean, the business -- your industry is consolidating rapidly around you. And there is clearly market share loss in several of your core markets. Your margins are under pressure. Have you considered strategic alternatives for your business, and if could you share with us how you think about that. Thanks.

Dado Banatao

Sure. When I talk about strategic plans we have, I only talk about strategic product directions. I do not imply a strategic financial way of planning the company. So what we have done is the normal process of any other company or semiconductor company specifically in looking at how our products long term can be differentiated, starting from what we have today, which I can say is superior to most of what you see out there. So we are trying to increase our diversity in technologies, even in location, but clearly in other aspects of the platforms, whether it is derived from usefulness or performance or par consumption, and things like that. That's the work that we have done here. To us, there is no other strategic element beyond looking at products.

Operator

Thank you. Our final question comes from the site of Tim Lash of Third Point. Go ahead please.

Tim Lash

Thank you for taking my call. Give us a little bit of insight on the note receivable. I know you made the loan last quarter and it seems like a quarter later you're writing it off. What happened there?

Dennis Bencala

Hi Tim. This is Dennis. Yes, we did make the loan in Q1. As I said, at the beginning of the call we're required to do an impairment analysis of all of our assets, and in this particular case, here in Q2, based on a variety of factors and analysis we came to the conclusion that we were going to need to write the loan down.

Tim Lash

And when you say break even at $75 million is that on a non-GAAP or GAAP basis?

Dennis Bencala

That's on a non-GAAP basis.

Tim Lash

So on non-GAAP your break even is at $75 million.

Dennis Bencala

Yes.

Tim Lash

Great. Then with respect to the business as it moves forward, should we not -- I know you only give fourth quarter guidance but should we expect no seasonal benefit in the fourth quarter or some?

Kanwar Chadha

A lot will depend on how the holiday season turns out, right? If the holiday season is good, there will be seasonal benefit. In terms of design wins and new customer product launches, the traction is good. But we don't want to make a call on the holiday season at this stage.

Operator

Thank you. And that concludes the Q-and-A portion of today's call. I would like to turn the call back over to Mr. Dado Banatao for any closing remarks.

Dado Banatao

Okay. Well, let's see. Notwithstanding the challenges we have experienced in the first half of '08 and the cautious outlook that we are reporting today, we believe that the fundamental opportunities in our markets are still intact and will be there for the long run. This reorganization – not reorganization but as we implement this restructuring, especially in engineering and product development, we will begin to benefit from these results and it will only strengthen our product portfolio. And ultimately we believe SiRF will emerge as a stronger and more successful company. Thanks for joining us today. See you guys next time.

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Source: SiRF Technology, Inc Q2 2008 Earnings Call Transcript
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