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TriQuint Semiconductor, (NASDAQ:TQNT)

Q2 2008 Earnings Call Transcript

July 23, 2008 5:00 pm ET

Executives

Steven Buhaly - CFO, VP - Finance

Ralph Quinsey - President, CEO

Analysts

Nathan Johnsen - Pacific Crest Securities

Aalok Shah - D.A. Davidson & Co.

Stephen Ferranti - Stephens Inc.

Edward Snyder - Charter Equity Research

Venk Nathamuni - JP Morgan

Drew Burke - Century Hills Advisers

James Faucette - Pacific Crest Securities

Operator

Good afternoon. My name is Robert, and I will be your conference operator today. At this time, I would like to welcome everyone to the TriQuint Semiconductor Second Quarter results 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. Mr. Steve Buhaly, you may begin your conference call.

Steven Buhaly

Thank you. Good afternoon, and welcome to our second quarter 2008 conference call. This call will include forward-looking statements about TriQuint's projected financial and operating results and the financial impact of the WJ Communications acquisition, among other things.

Results could differ materially based on various factors, including those variables and risk factors described in TriQuint's reports on Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission, and in the case of the WJ Communications acquisition, our success in integrating the acquisition and realizing the expected results.

This presentation also includes non-GAAP financial measures which exclude equity compensation charges and charges associated with the acquisition of WJ Communications. These non-GAAP measures are provided to enhance the user's overall understanding of our core operating performance. A full reconciliation of these non-GAAP measures and a reconciliation of TriQuint and WJ Communications results, to the results of the combined Company can be found in our press release. Ralph will now provide an overview of the quarter.

Ralph Quinsey

Thank you, Steve. In Q2, TriQuint continued our trend of growing revenue and improved gross margin. Our core revenue, which is revenue excluding all WJ Communications results was $121.4 million. Revenue including WJ was $127 million.

Our core revenue was down slightly from our original expectations primarily due to delays in key product ramps. However, bookings were strong for the Company, and indicate solid sequential growth in the third quarter. Our GAAP gross margin at 34.6% includes both the revenue and acquisition-related charges associated with WJ. Excluding these items, our core gross margin was 35.1%, which is quite healthy and up 0.5% from last quarter. This margin is up nearly 3% compared to Q3 of 2007, when we had similar total revenue. Our non-GAAP gross margin was 37%. This includes WJ operating results, but excludes stock-based compensation charges and charges associated with the acquisition.

Our core operating expenses, at $39 million, were up approximately $3 million sequentially primarily in R&D and selling expenses as we continue to invest in new products. Including WJ, our GAAP operating expenses for the quarter were $41.8 million. Steve will detail the accounting impact of the WJ acquisition shortly.

For the quarter, we generated GAAP earnings of $0.02, and non-GAAP earnings of $0.07. New product revenue, defined as revenue from products introduced within the previous two years, was up to 45%. Steve Grant, a 27-year veteran of Intel, has joined TriQuint as our Vice President of Worldwide Operations. In his new role, Steve will lead all aspects of our manufacturing operations and supply chain focusing on operational improvements in support of our 40% gross margin target.

Steve has extensive manufacturing experience managing multiple sites and a track record of success. I am delighted to have Steve as part of our team.

WJ integration activities are on track with full integration expected by the end of 2008.

WJ accelerates our strategy of bringing module solutions to the infrastructure market and expands our RF product development capabilities. This acquisition secures our place as the number one provider of RF products for non-handset markets. We expect cash synergies of approximately $8 million per year in 2009, primarily from G&A.

Our markets remain strong. Third generation cellular handsets or 3G phones have three to four times the RF content of previous phone generations, and WiFi, particularly 802.11n, expands laptop RF content two or three times. These multi-band and multi-mode applications are accelerating RF demand and creating growth opportunities for TriQuint.

In Q2, we began to ramp new products for 3G and 802.11n. While the profile of this ramp was slightly delayed compared to my original expectations, it is best described as the swell before the wave as my enthusiasm and excitement for the second half of 2008 remains very high. All of our markets had strong order activity with our book-to-bill ratio reaching a very strong 1.29. These are record bookings and backlog for the Company.

Handset revenue was up slightly in Q2 2008 as compared to Q2 of 2007. Our revenue in 3G grew 75% sequentially becoming the largest portion of our handset business. Our TRITIUM 3G PA duplexer modules have enjoyed tremendous success, with revenue up 85% from the same quarter a year ago.

These complex, highly integrated front-end modules offer better efficiency, enabling longer talk time for our customers. Our recently announced HADRON 5012 Polar EDGE module has claimed design wins at 15 customers, including phones for four of the top five phone suppliers. This strong design win momentum is in part due to our primary reference design position with Qualcomm for this device.

Our HADRON family of modules can be used in EDGE-only phones or in 3G phones, which incorporate HADRON for voice and TRITIUM for data. Often two or three TRITIUM modules are used in each phone.

Total RF content in a 3G world phone is approximately $4 to $6. The key innovations in our TRITIUM modules are high levels of integration enabling smaller handsets and higher efficiency, enabling longer talk time. Our HADRON and TRITIUM modules are the next generation solutions for 3G phones. Previous generation products were designed with discrete components such as power amplifiers, duplexers, detectors, couplers and interstage filters.

The TriQuint solution, by integrating all of the RF complexity, helps our customers realize simplified RF design, faster time to market and a longer battery life. Our revenue in the networks market was up approximately 20% in Q2 of 2008, as compared to Q2 of 2007. This is excluding WJ revenue. The increase was driven by strength in wireless LAN and optical product sales.

Wireless LAN revenue within networks doubled as compared to the year-ago quarter and was up 42% sequentially following a strong Q1. RF for laptop data is a fast-growing market for TriQuint, estimated to be $300 million in 2008. We believe annualizing our Q2 wireless LAN revenue places TriQuint at approximately 20% share of this market.

As previously announced, TriQuint is shipping production volume of our integrated module solution for the high performance 3x3 market. This MIMO product uses TriQuint technology to fully integrate the LNAs, amplifiers and switches for a dual-band application into a module solution. Three of these front-end modules provide the complete RF front end for a 3x3, that's three transmit and three receive paths architecture.

This product is used in high performance applications that require maximum range and maximum quality of service in the minimum amount of board space. This product was the primary wireless LAN growth driver for us in the quarter. I am happy to announce now we have an important new design win, which is now shipping in high-volume production.

This new dual-band product provides a power amplifier function for a 1x2, one transmit, two receive paths architecture. Both of these products are driven by a significant lead customer, but they represent a platform capability which will allow us to expand our penetration in this important market.

Our strength in optical, up 44% year-over-year, is driven by demand for increased bandwidth in the optical infrastructure, primarily in 10-gig and 40-gig applications. Most of our customers for these products supply transponders to major OEMs. We supply critical high-performance drivers or PLDs for those transponders. These drivers are very high-performance gas-based modules.

The increased demand for bandwidth comes from the ever increasing data and video traffic generated by new consumer applications. We have successfully completed the acquisition of WJ Communications, and are well under way with the integration of the business. The addition of WJ products to TriQuint's existing products adds to our strategy of offering a complete RF solution to the base station market.

WJ's strength in mixers, game-stage amplifiers and drivers, combined with TriQuint's strength in LNAs, filters, along with our combined strength and our power creates an unmatched capability in the market. The combined portfolio touches virtually every RF socket on a typical board.

I would like to update investors on our progress in the base station RF power market. This market requires amplifiers in the 50 watt to 200 watt range, and represents a new $300 million to $500 million opportunity for TriQuint. As 3G and 4G modulation schemes are commercialized, they require amplifiers with greater linearity and improved efficiency. TriQuint is well positioned to meet those needs.

The engineering expertise acquired with peak devices and WJ combined with our organic know-how has created an impressive RF power team. As announced on June 18, our first WJ products in this category have been released. This high-powered team has now launched our 100 watt and above product line. These products support the final power stage in the transmit lineup and put TriQuint in the technology leadership position for next generation base station power.

These products are based on high-voltage gas technology, which is ideal for reducing power consumption, allowing base stations to run cooler, greener and with higher efficiency. Across all of our markets and networks our strategy is simplifying RF. The goal of simplifying RF is to bring high-performance products, ease of customer design and superior value to our customers.

This strategy is driving growth and solid financial performance for TriQuint. Our defense related revenues were up 15% in Q2 of 2008, as compared to Q2 of 2007, and my expectation is for continued growth.

Major drivers this year include Cobra Judy, a ship-based radar system that can be deployed to monitor strategic ballistic missiles and F-22 airborne radar. We continue to see strong BAW and SAW filter product demand for use in classified space programs and various terrestrial applications.

During the quarter, we launched a new family of GaN, Gallium Nitride, power amplifier products for the defense market. These products also have crossover application into our aerospace and networks markets. Additionally, we have released our GaN technology to the general market as a foundry technology for customer design.

Our sharpened focus on the military market is producing strong bookings and confidence that we will achieve double-digit year-over-year growth in defense-related products in 2008.

Now, Steve will provide our results for the second quarter of 2008 and our guidance for Q3. Steve?

Steven Buhaly

Thank you, Ralph. For the second quarter of 2008, we reported revenue of $127 million, including $5.6 million from WJ Communications. Revenue increased 12% from the second quarter of 2007 and 14% sequentially. There were no customers who accounted for more than 10% of our revenue in the quarter.

Please refer to the supplemental data posted on the investor section of our website for a detailed breakdown of our revenue by market. For the quarter, our revenue to end markets was as follows: handsets 48%, networks 41%, military 11%. Our revenue by geographic region was comprised of Asia 59%, Americas 30%, Europe 11%.

Finally, our revenue for handsets was broken down as follows: GSM 28%; CDMA 33%; wide-band CDMA, EDGE and other 39%. Our book-to-bill ratio for the quarter was 1.29. Our gross margin for the second quarter of 2008 was 34.6%, level with the prior quarter.

Gross margin for the core business, which excludes all WJ Communications results, was up 50 basis points from the prior quarter, at 35.1%. Non-GAAP financial measures excludes stock-based compensation charges, and certain charges associated with the acquisition of WJ Communications. Second quarter 2008 non-GAAP gross margin was 37.0%. Gross margin improved due to the inclusion of higher margin WJ products and continued yield improvements across the portfolio.

Operating expenses were $41.8 million for the second quarter of 2008, and $39.0 million for the core business. Core operating expenses increased approximately $3.2 million from the first quarter of 2008. While second quarter 2008 core non-GAAP operating expenses were well above our target of 25% of core revenue, we expect this metric to converge with our targeted level in the second half of the year. With the inclusion of WJ's higher gross margins and operating expenses, we will examine whether we should make any adjustment to our model going forward.

We recorded net interest income of approximately $1.1 million, and net tax expense of $0.2 million in the second quarter of 2008. Net income was $3.4 million, or $0.02 per diluted share for the second quarter of 2008, down from $0.03 in the first quarter of 2008. Core business net income in the second quarter was $5.0 million or $0.03 per diluted share. Non-GAAP net income in the second quarter was $9.6 million or $0.07 per diluted share, up from $0.05 in the prior quarter.

Cash flow used in operations was $14.0 million in the second quarter of 2008 due to the growth in inventory and preparation for upcoming growth in the second half of 2008. In addition, total cash decreased due to the acquisition of WJ Communications and capacity investments, primarily in our Oregon fab.

Finally, the purchase of approximately $17 million of investments with maturity dates greater than a year also reduced cash. As a result, our cash balance decreased by $121 million to $98.3 million at the end of the quarter.

During the quarter, net inventory increased $36.5 million, to $109.7 million as we purchased materials and built product in anticipation of strong third quarter demand. Inventory turns were 2.9 in the second quarter of 2008 compared to 4.0 in the prior quarter, calculated using ending inventory.

Accounts receivable increased $17.6 million to $80.4 million due to higher Q2 revenue and the timing of shipments. Complete reconciliations of GAAP to non-GAAP results and of TriQuint and WJ Communications results to the results of the combined Company are available in our press release and in the Investors section of our website.

We estimate that third quarter 2008 revenue will be a $155 million to a $170 million. Third quarter earnings are expected to range between $0.06 and $0.08 per diluted share. We expect non-GAAP earnings to range between $0.10 and $0.12 per diluted share. As of today, we are approximately 95% booked for the third quarter.

Our next conference call, the Q3 2008 earnings release, is scheduled for Wednesday, October 22, at 2:00 pm pacific time.

I will now turn to Ralph for closing comments prior to welcoming your questions.

Ralph Quinsey

Thanks, Steve. TriQuint is on track to achieve our product development and design win targets for the year. I do recognize we fell short of our core Q2 revenue goal, but I am confident this was a transient issue and I remain excited about our future growth. Our two largest markets, cellular phones and wireless LAN, are growing in unit demand and expanding in RF content.

We achieved impressive design wins in both of these markets by providing great products to some great customers. TriQuint produces some of the most advanced, smallest and highest performing RF products available, enabling our customers to build their products smaller and with less RF complexity. We are helping our customers replace complex discrete designs with elegant module solutions.

I am impressed with our technology portfolio and proud of the impressive results this team is achieving. This Company has attracted some of the best talent in the world and is using innovation, solid engineering and unmatched support to drive technology margin and volume in a way that is a win-win for our customers and investors. We appreciate your interest and support and look forward to hosting the annual Oregon Tech Tour at our plant in Hillsboro on August 12th. We hope many of you are able to attend.

I would like to now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of James Faucette with Pacific Crest.

Nathan Johnsen - Pacific Crest Securities

Yes, hi. This is Nathan calling for James. Just wanted to ask real quickly on your revenue guidance. It seems like it is up a little bit since your announcement a couple weeks ago. Just wanted to see what had changed, what is making you guys more confident in your revenue growth?

Ralph Quinsey

In July -- our July 9th announcement, we took our best look at our expectations. Of course, between then and now, we have had a chance to better refine that. As we said, our bookings are quite strong. We are 95% booked to the center part of our guidance. That is a little higher than we typically are. So we thought it was appropriate to adjust the guidance to reflect that.

Nathan Johnsen - Pacific Crest Securities

Okay. Great. Just wondering if you could talk a little bit about order trends kind of through the quarter and into July, I mean, commentary out of Anadigix and TI has obviously been pretty negative, and it seems like the handset commentary outside of Nokia also has been a little on the negative side. Are you guys seeing any increase in order cancellations or are you guys kind of noticing any impact there?

Ralph Quinsey

Independent of the specific ramp related items that we have already discussed, I would say in general, the handset market -- people agree it is about a 10% unit growth market this year. That is down from multiple years of 20% or better. That feels like a slowdown, and I think people are recognizing that now, but I think 10% unit growth is still a solid number.

What is interesting is the growth is starting to come from specific areas. I think smart phones are going to do quite well this year, and I think emerging markets are going to do quite well this year. And so TriQuint fortunately is uniquely positioned, I think, to do well in both of those ends of the market, and we feel good about our second half.

Steven Buhaly

If you look at the mix change in the second quarter, it shifted pretty strongly towards 3G product set, and that really helps create more revenue per phone, and offsets to some degree, any softness in unit volume that might be out there.

Nathan Johnsen - Pacific Crest Securities

Have you guys noticed any pricing pressure for the higher-end phones? Again, commentary out of LG was that they were expecting, partially at least, due to the 3G iPhone were expecting pricing pressure at the high end. Given your guys' kind of high RF content in those phones, are you guys expecting sort of higher than normal pricing pressure going forward?

Ralph Quinsey

You know, we don't get a lot of visibility as far as pricing pressure on phones. Certainly our customers are -- it's a demanding marketplace, and we anticipate fairly healthy ASP reductions year-over-year, and we play that into our guidance and into our strategic planning process. Right now, the market, again, great products. You get a little better price for great products. On the commodity side of the market it gets more difficult, but over and above that, I am not seeing a great difference in pricing than we reported last quarter.

Nathan Johnsen - Pacific Crest Securities

Great. Thank you very much.

Operator

Your next question comes from the line of Aalok Shah with D.A. Davidson.

Aalok Shah - D.A. Davidson & Co.

Hi, guys. Can you hear me?

Ralph Quinsey

Yes, we can.

Aalok Shah, D.A. Davidson & Co.

Okay. Couple questions for you. Ralph, you mentioned that you have won a design for the 1x2 on the 802.11n side. I was wondering if that is with the same customer you have the 3x3 relationship with, and maybe you can talk a little bit about that in terms of the general market conditions. Are you seeing 3x3 strength so far in the marketplace, or is the price points still too high? And maybe just a couple of quick comments on what you think on the overall market handset weakness we saw out of LG. Is that just customer specific, or is there anything that you know of that might be going on in the industry right now, and then I have a follow-up as well?

Ralph Quinsey

Sure. First of all, in the wireless LAN products, both our 3x3 and our 1x2 products were driven by a lead customer, the same lead customer. Overall, that program for Q3 looks very healthy to us. As far as handset weakness, and LG in particular, again, I would just say the overall handset market, I think a 10% unit growth market is appropriate. It feels like we are slowing down because the market was 20% or more. For customers like LG, for all the top five customers for that matter, where we participate, we have great products. We are seeing great demand. Where the market is more aggressive, right now, is from a pricing perspective, is on the low end, and I think somewhere with the mid-tier, you might be seeing some of the pronounced effects of the slowdown. Again, we have had less exposure to that then we do right now to what we think are the stronger parts of the market.

Aalok Shah, D.A. Davidson & Co.

Okay. If I could follow-up real quick, on the shortfall in the quarter from the previous guidance, was that mostly handset related in terms of its mid-end, mid-tiered kind of handset makers, or was there anything else going on there?

Steven Buhaly

You know, I would say that it was probably two-thirds in handsets, and one-third in networks. Of that, most of the networks was ramp-related delays and about half the handset was ramp-related delays.

Aalok Shah, D.A. Davidson & Co.

And, Steve, maybe, this period last quarter or this time last quarter, what was your type of bookings as you entered the quarter?

Steven Buhaly

It was mid-80s.

Aalok Shah, D.A. Davidson & Co.

Mid-80s. So this is much better at 95%, I am assuming it right?

Steven Buhaly

It is better, and, yes. Yes, it is above where we typically are. We are typically in the mid-80s. But, there was uncertainty with respect to those ramps last quarter, and that uncertainty is not entirely diminished. We are still in a ramp mode, and our guidance tries to reflect that.

Aalok Shah, D.A. Davidson & Co.

Great. Thank you very much.

Operator

Your next question comes from the line of Steve Ferranti with Stephens Incorporated.

Stephen Ferranti - Stephens Inc.

Thank you. Hi, guys. Nice job on the gross margin improvement during the quarter, by the way.

Ralph Quinsey

Thank you, Steve.

Stephen Ferranti - Stephens Inc.

I wonder if you can characterize it at this point in time, can you characterize for these incremental ramp opportunities in the second half, can you characterize what inning we are in for each of those? Obviously, we are in early innings here, but I am curious as to your thoughts on that?

Ralph Quinsey

I would say for our wireless LAN opportunities, we are in the bottom of the third, we have got lots of room. I would say for our 3G opportunities, we just got started.

Steven Buhaly

Do you think we have anybody on base yet, Ralph?

Stephen Ferranti - Stephens Inc.

That's certainly helpful. And I guess sort of directionally, can you give us a sense of whether you expect fourth quarter to be up from third quarter levels in terms of overall revenue?

Ralph Quinsey

We are not guiding for fourth quarter, Steve, but directionally, it is typically one of our stronger quarters, right? And so I would expect to see it not being down, how much it's up we will give you that direction when we get closer to the fourth quarter.

Stephen Ferranti - Stephens Inc.

Okay. Great, you touched upon it a little bit in a prior question, but it looked like the GSM and CDMA business was slightly down sequentially. How do you feel about your business in the second half of the year in those particular segments? I don't expect we are going to see a whole lot of strength there, but from second quarter levels, how do you feel about sort of how those businesses play out throughout the remainder of the year?

Ralph Quinsey

For GSM, it is a little bit of a mixed bag. We have seen some strength in China and some weakness in Korea. For CDMA, obviously that's a North American play, and we have a primary customer there that we are just not very aggressive on the guidance around that customer.

So I would CDMA will continue to in the second half, continue as it is. We have some new customers coming on, particularly for our TRITIUM modules for the CDMA market. So I think that is going to start to drive some growth and could hit us in the quarter in Q4. And for GSM, I think you are not going to see us really turn the corner on GSM until sometime next year.

We have got, again, great new products coming online, really focused on that market. So I think you are going to see us turn the corner on GSM some time next year. Right now, what is driving the Company is the wide-band CDMA growth and the wireless LAN growth.

Steven Buhaly

And it is probably fair to say that reflects the sequencing of our engineering investments.

Ralph Quinsey

Yes.

Stephen Ferranti - Stephens Inc.

Okay. Very helpful. Where are you guys in terms of – you talked last quarter about some investment in your capacity. Can you give us an update on where you are in terms of that investment?

Ralph Quinsey

Sure. The bulk of that investment is behind us for the foreseeable future. We have expanded our Oregon facility significantly compared to the beginning of 2007. Probably double the capacity compared to the beginning of 2007. So quite a while ago.

We are now running a utilization rate in the quarter of about 82%. Last quarter we were pushing up towards 90%; we felt uncomfortable with that. So I think we are in a very, very good position as far as, the highest volume factory, our Oregon facility being in a sweet spot. We are still wrapping up the capacity expansion through this year, but it is largely in place now.

We still have got lots of headroom in Texas. In fact, Texas utilization of the existing Texas 6-inch line has crept up. I used to characterize it as below 25%. Now I would characterize it at just below 30%. So it is crept up with strong military and networks business, high performance networks, and we are still positioned to bring out our 6-inch BAW line in the second half of this year, and we are positioned to pull the trigger to expand our 6-inch capacity. I have put a kernel of capability in there. It didn't cost very much money, less than $5 million.

And so we will be able to be responsive when the demand pull comes to build on that kernel and make it seamless as far as our investments going forward for capacity expansion. We have got lots of room, as you are well aware, in the Texas facility to expand.

So a long story short, we think we are effectively managing that not to get too much capacity or be caught with too little.

Stephen Ferranti - Stephens Inc.

Great. And I guess just last question from me, any expected impact on the P&L either through additional headcount to support this equipment or depreciation that we should be thinking about?

Steven Buhaly

You will see depreciation creep up a bit as we put this capital into production. I don't think it is going to be a big deal in the quarter, and it is certainly on an incremental basis, fairly inexpensive capacity. So as we add revenue, which we expect to do in Q3, I think it will more than take care of the incremental cost.

Stephen Ferranti - Stephens Inc.

Great. Sounds good. Thanks, guys. That's it for me.

Ralph Quinsey

Thanks, Steve.

Operator

Your next question comes from the line of Edward Snyder with Charter Equity.

Edward Snyder - Charter Equity Research

Thank you. Several here. First, you mentioned smart phones picking up. I am just curious, how do you define a smart phone? I mean you sell modules into these devices? What would you define a smart phone as, just to make sure we are talking apples-to-apples?

Ralph Quinsey

Yes. I guess that is a term that has many definitions. We really look at that as the higher-end PDA style multi-function phones.

Edward Snyder - Charter Equity Research

So by definition, phones that have, like, an operating system, it'll do web browsing and a bunch of different things? We are not talking music phones or imaging phones or that sort of thing, right?

Ralph Quinsey

That is correct. It is the former.

Edward Snyder - Charter Equity Research

Okay. And where would you say you gained share in the quarter? I mean -- and coupled with that, you had no 10% customers. Is that primarily due to WJ being in your guidance now, or is there a big growth for the non-10% customer to diversify that? Why do we not have any 10% customers and where do you think you gained share?

Ralph Quinsey

We have clearly have gained share in wireless LAN and in 3G. That's the growth engines we have been talking about, we clearly believe that we have gained share there, and I think we are stronger in world phones or anything that really has the need for an elegant solution in RF.

As far as 10% customers, we have a handful of, maybe six customers in the range of 5% to 10%, and it is just we have diversified out somewhat.

Steven Buhaly

I would say those two primary areas, 3G and wireless LAN, were early enough in their respective ramps in the second quarter that they did not broach the 10% threshold.

Edward Snyder - Charter Equity Research

Yes, but clearly based on your guidance, I would expect that not to be the case next quarter, correct?

Steven Buhaly

Well, we will see. The top line is getting bigger, too, so the hurdle would be a 10% customer going up as well.

Edward Snyder - Charter Equity Research

All right. But then to my point, Ralph, I was looking more specifically for OEMs. Do you think you have gained a toehold for, say, Sony-Ericsson -- I know you guys have been working with Nokia for quite some time, but probably haven't gotten there. Where do you think you stand with Samsung and LG, and you have been supplying to these guys before, do you think you have kind of picked up slots there? And when you are talking about 3G, wide band and CDMA, historically you have been supplying Motorola those parts. They have had -- what's the best term -- difficulty in the last year and a half. Is that your primary customer now, or have you gone elsewhere?

Ralph Quinsey

And I want to remind you, I'm sensitive to our customers not liking us to talk about them on our earnings calls, but I can give you this color. We have been strong with customers in Korea, and I think we are expanding our strength there. I think you are seeing some share shifting and to Samsung and some growth at LG, and that's how your expectations should be set.

Motorola remains a valuable customer to us, and we have supplied them products across most of their standards. We don't have a lot of visibility into GSM and EDGE for Motorola. Of course, Nokia, we have very little participation with Nokia right now. And then Sony-Ericsson remains an opportunity for us.

Edward Snyder - Charter Equity Research

And then of all your wireless products now -- and I apologize if you’ve touched on this and I missed it, front-end modules, [FEMA's] are growing among some of your competitors. I would expect you are seeing the same type of trends? If you are not, how would you characterize it? Is it the fastest growing, is it the bulk of your revenue at this point? Do you have any color at all on what we can expect from that area?

Ralph Quinsey

Again, that was the wireless LAN area or the --

Edward Snyder - Charter Equity Research

The front-end modules.

Ralph Quinsey

Front-end modules for handsets?

Edward Snyder - Charter Equity Research

For handsets, right.

Ralph Quinsey

Front-end modules for handsets, a growth area for us, and I believe we are gaining share there, particularly in wide-band CDMA and our TRITIUM module is very successful. Those grew 75% compared to the previous quarter, and then our 5012, which is the POLAR EDGE module or the voice part of the wide-band CDMA architecture, 15 customers design wins. I am very excited about that product in the second half of this year. I think most of that is going to hit towards closer to the end of the year, but very excited about that product.

Edward Snyder - Charter Equity Research

Then you are supplying to a new customer -- high-profile launch, US 3G phone very recently. That is a front-end module also, and if I remember correctly, you said it is fair to assess the ASP for that product is in the $3 to $4 range?

Ralph Quinsey

Yes, so I can tell you that our 3G products, the best way to model the 3G products is that for our solution, our complete solution there are four modules for a world phone. There is the core EDGE module. There is the band-1, the band-2 and the band-5. So that's a typical solution.

For modeling purposes, I tell people, "Just use a $1.50 for each of those parts." Some will be a little bit above that. Some will be a little bit below that, but it's just a good number -- easy to add up model. So two parts is going to be $3, and four parts is going to be $6.

Edward Snyder - Charter Equity Research

Okay. And then to the extent that you can sell these in a single module, the accretive margins at corporate average or are they dilutive?

Ralph Quinsey

It depends upon the products and where they are in the ramp. These products certainly make money for us, but I think, as we are ramping new product and high volume. They tend to be a little margin challenged, because we are working out the early yields.

Edward Snyder - Charter Equity Research

But that is always the case with a new product. When you get to run rates that are more typical and you have got some learning curve behind you, do you expect them to be at the corporate average, or there have been -- some of your competitors have done modules for big OEMs before, then you could produce them all day long, from now until the [cows] come home and they never are going to get the margins at the consolidated average. Are we dealing with that kind of situation?

Ralph Quinsey

Yes, I think the best way to look at this, Ed, is in the broader perspective. We have a roadmap for, in this case, 3G modules that we think are going to be very good margin modules, right. And I think the early products tend to -- you work out the bugs and yield. You get through that, and then you get price pressure, and so that you probably get less than great margins, but you get good margins for them.

But then you introduce the next product, and the next product tends to start higher on the margin scale, and you have learned more on the yield scale. We have a roadmap in front of us that I am super excited about that where our handset products are going to add to the overall corporate gross margin.

Edward Snyder - Charter Equity Research

But it sounds like you have several iterations before you get to the point where it is accretive to margins, to consolidated margins?

Steven Buhaly

Let me answer your question a little more broadly. Including these products, we continue to believe that we are on a track to get to a 40% gross margin on a non-GAAP basis. There are two pros and cons, or one each in the mix right now. First, inclusion of a full quarter's worth of WJ products is going to help us. Those products have higher gross margins. On the other hand, precious metal prices right now are hurting us. Gold and platinum, in particular, have gone up dramatically over the last year, and are retarding our progress towards the goal, but I think that these two ramps, particularly as they get their feet underneath them, are very consistent with getting to that goal.

Ralph Quinsey

And just a little more color, Ed, because I am really trying to give you a good answer, is that some of the new products we are launching in 3G are accretive to our corporate gross margin averages today. Some of them are below. It is little bit of a mixed bag. Our intent is to get them all above.

Edward Snyder - Charter Equity Research

Thanks, guys. I appreciate it.

Operator

(Operator Instructions) Your next question comes from the line of (Venk Nathamuni) with JP Morgan Chase.

Venk Nathamuni - JP Morgan

Hi. Good afternoon. Thanks for taking my call.

Ralph Quinsey

Hi, Venk.

Venk Nathamuni - JP Morgan

Hi, how are you? I just want to make a clarification. You had mentioned that you were expecting the mid- to high-end of the wireless handset end market to be relatively strong in the second half of the year, yet what we have heard from folks like Sony-Ericsson and to a certain extent from LG and also Nokia was that the growth was happening more in at the low end, and not so much in the mid- to high end. So, did I understand your point correctly, or is that –

Ralph Quinsey

Yes. I think that you -- I think companies like RIM, right, HCC, they are doing quite well on the smart phones.

Venk Nathamuni - JP Morgan

Okay. So you are still expecting higher ASP because you are catering primarily to the high end of the handset market?

Ralph Quinsey

Yes. If you look at our content per phone, our content in a GSM or low-end phone is below $1.50 now. Our content in a 3G phone, a smart phone, if you will, is in the $4 to $6 range. And so depending upon where we grow, that mix is favorable if we grow in the 3G. That is where we are growing right now.

Venk Nathamuni - JP Morgan

Okay. Great. Thanks. And then the other question is, going into the second quarter, you were approximately what -- 90% booked, and, of course, there was the top line, was it just because there were some de-bookings, or, basically you wanted to figure out what is the confidence level in your new guidance given that your booking level was approximately the same? It was 90% and now it is 95%?

Steven Buhaly

At this point a quarter ago, we were about 85% booked, and now we are about 95% booked to the midpoint of our revenue guidance. The risk factor a quarter ago pertained to the two -- primarily pertained to the two ramps we have in a wireless LAN and 3G, and we still have risks in those areas. Ramps are, by their nature, full of uncertainties, and I think those risks are still out there. But one significant difference is we are 95% booked this quarter, and we were 85% booked in the prior quarter.

Venk Nathamuni - JP Morgan

Okay.

Steven Buhaly

So that's how we have tried to account for some of the risks and uncertainties that are inevitably associated with the kind of ramps we are participating in.

Venk Nathamuni - JP Morgan

Okay. Thanks. And that also explains why you have raised your guidance range as well, because you are 95% booked now?

Steven Buhaly

Yes. I think that's pretty fair. As time has gone on from our original warning, we have continued to see a strong intake of bookings, and are updating our guidance accordingly.

Venk Nathamuni - JP Morgan

Okay. Great. Helpful. And then one other question on gross margins. I am not sure if you already mentioned this. Do you have -- have you set any expectation for gross margins in the third quarter? Is it likely to be at the 34.5% to 35% range or do you expect it be higher as a result of the WJ acquisition and overall ASP improvement?

Steven Buhaly

A non-GAAP in the second quarter was 37%, and I think it is going to be in that range. We are going to get a little bit of a plus from a full quarter of WJ. There is some continued inefficiencies in the two ramps we have going on. So, I think it is going to be comparable to this quarter for good and we are lucky and precious metals moves our way, it might be a bit better, but I think it is going to be pretty comparable.

Venk Nathamuni - JP Morgan

Okay. Thanks. And the final question is, we have been hearing about this macroeconomic slowdown, but obviously some companies have been affected by it, but others haven't. What is your overall sense of where we are in the cycle? Does it feel like there is a slowdown further ahead, or are things stabilizing in your view?

Ralph Quinsey

So as far as comment on the macroeconomic impact, certainly we feel the effect even if it is just a headline effect, and certainly it makes us cautious. We have got fairly strong visibility on some key programs, although our timing has not been as good as I would have liked on that visibility. The visibility remains fairly strong, and I think those programs, as well as strength in military and strength in our optical business are helping drive the Company. So I think fairly strong guidance for the third quarter at $155 million to $170 million.

Venk Nathamuni - JP Morgan

Okay. Great. Thank you very much.

Operator

We have a follow-up question from the line of Aalok Shah with D.A. Davidson.

Aalok Shah - D.A. Davidson & Co.

Hey, Steve, just a quick housekeeping question. In terms of the stock comp in the quarter, can you break that down for the operating expense line for the R&D and SG&A?

Steven Buhaly

That is a pretty good question. I don't know if I have that right off the bat, let me look around here for a second.

Aalok Shah - D.A. Davidson & Co.

Okay. We can follow up later.

Steven Buhaly

Yes. Why don't you shoot me a note or a call on the specific -- it was about $2.9 million for the quarter.

Aalok Shah - D.A. Davidson & Co.

Okay.

Steven Buhaly

But right off the bat, I don't have it broken down by function.

Aalok Shah - D.A. Davidson & Co.

Okay. And then what do you think about stock-based comp going forward with the WJ acquisition now?

Steven Buhaly

Pretty comparable. It may go up a little bit, but we had our annual grant in the quarter. We brought in WJ. I think it is going to run in that range, maybe -- obviously a little bit more for a full quarter WJ, but consider it about $3 million a quarter.

Aalok Shah - D.A. Davidson & Co.

And then not to -- not to harp on this, but if you guys give full-year guidance back in December or, I guess, in the first quarter, and since then you have done WJ and things have happened since then. How do you think you -- I mean, I haven't gone through the numbers yet to kind of see, but how do you think your position now axing WJ in terms of your full-year guidance that you gave?

Ralph Quinsey

Yes. So if you look at our full-year guidance, we originally guided $540 million to $580 million, right?

Aalok Shah - D.A. Davidson & Co.

Yes.

Ralph Quinsey

I am not updating or re-affirming that guidance right now, but I just want to walk you through how I am thinking about it. I think WJ is going to add in the range of $20 million, maybe a little bit better than $20 million to that. So, if you look at a $560 million midpoint of that guidance and add $20 million, call it $580 million, maybe a little more than $580 million, and look at our performance and our current guidance, $111 million, $127 million, the midpoint of our guidance right now is $162 million. It would take about $180 million to get into that -- solidly into that range and net/net.

So overall, I think that it is not out of reach. When you look at our core business, we are performing largely on plan. We had a timing issue Q2 to Q3, and then WJ brings on more revenue, right? It brings on more expense, so it is a wash to the bottom line. But we think we can manage that expense down after integration to create that $8 million of synergies next year. So I think net/net the core business is tracking fairly well this year, with a good strong second half, and WJ is performing nicely as we fit it into the business model.

Steve and I have to play with the business model a little bit to see if we need to adjust our gross margin target up a little bit, and our expenses up a little bit or how we want to reconfigure that, and we have committed to do that and talk about that in the future, but net/net, I am feeling fairly good about the year.

Aalok Shah - D.A. Davidson & Co.

Okay. And then, Ralph, on that topic with the margins real quick we have been waiting for you guys to see some margin expansion on the gross margin side, and I know you just hired Steve Grant, but was that kind of your thought as now, yes, you have got the top line growing for you, now it is just some margin expansion we need to see at some point, and what are you doing to get us to that point where we are going start to see maybe 40% gross margin?

Ralph Quinsey

Right. So we are still at growth story, and I plan on being a growth story for some time. And I want to also improve our efficiencies to help expand the margins. I think the performance of margin expansion has been pretty good, actually. 37% non-GAAP compared to where were a year ago is quite good, and quite close to our target of 40% when you think about the headwinds we have right now with gold. That is probably costing as a percentage, maybe even 2 percentage points headwind with gold.

Steven Buhaly

And platinum.

Ralph Quinsey

And platinum. I am sorry -- precious metals in total. So, I feel pretty good about the team's performance on margin expansion, but you are right. I see more opportunity there, and our overall manufacturing infrastructure and supply chain has grown, and it is time for us to pull that together and really focus on improving gross margin from that end of the business as well.

Aalok Shah - D.A. Davidson & Co.

Okay. Great. Thanks a lot, guys.

Operator

Your next question comes from the line of Drew Burke with Century Hills Partner.

Drew Burke - Century Hills Advisers

Hi. Good afternoon.

Ralph Quinsey

Hi, Drew.

Drew Burke - Century Hills Advisers

I just wanted to follow-up on the 95% booked number. I don't think I ever heard you up in the 90% booked, and in fact, I think you are usually 85-ish. I know the amount booked you are -- I think -- it has been my impression you back into your revenue guidance based on that. So now we are coming more conservative. Is that just because of these two ramps and the inherent nature of ramps?

Steven Buhaly

Drew, you hit the nail on the head?

Drew Burke - Century Hills Advisers

Okay. So if we wanted to --

Steven Buhaly

And by the way, talking to the same guys who missed on revenue last quarter for the uncertainties of this ramp, so we are being a little bit more deliberate and respectful of the uncertainties of these ramps.

Drew Burke - Century Hills Advisers

Okay. Great. And then as far as that miss goes, I am a little confused because in your pre-release you said it was $120 million. It was $127 million. I missed the beginning of the call.

Steven Buhaly

There was about $6 million of WJ revenue in there.

Drew Burke - Century Hills Advisers

That is what I don't have. That is what I was wondering.

Steven Buhaly

Our actual -- not counting WJ, we ended up at $121.4 million.

Drew Burke - Century Hills Advisers

Okay. Okay. And then just could you talk a little bit about what the trends have been -- I think, in the last question, you said that bookings trend since the 9th release have continued strong and that really accounts for this bump up from $150 million to $160 million that you had then to the $155 million to $170 million that you have now?

Ralph Quinsey

Yes. I think our bookings trend has been good. We are at a very high -- relatively high rate at 95% to the midpoint compared to history. And we've had more time to just work on putting the story together. So I feel comfortable with the guidance right now, the way that we have communicated it.

Drew Burke - Century Hills Advisers

Okay. Great. And then just the last -- well, two more things real quickly. The operating expenses, did I hear you say in your prepared, Steve, that basically they are going to come under -- into your target range in Q3, or from a real dollar standpoint, how much do we look for those to go up from Q2 to Q3?

Steven Buhaly

Let me kind of just make it clear what I said in the script. Not counting WJ, I think our OpEx is going to come in to our target in the second half of the year. I am not sure if that will get there in the third quarter. I think we will by the end of the year. So the non-WJ OpEx, non-GAAP as a percent of non-WJ revenue, should hit 25% in the back half of the year.

Drew Burke - Century Hills Advisers

Okay.

Steven Buhaly

Now, as we add in WJ, WJ has got higher gross margins and a higher OpEx to go with it. And so Ralph and I are going to have to take a look at the business model and say, "Okay. Should we move up gross margin and OpEx a point each, for example?"

Ralph Quinsey

And part of that higher OpEx, at least right now, has to do with cost of integration, right. We expect to take some cost -- we've obligated between now and the end of the year to get that cost out, but we'll naturally get some reduction of the WJ OpEx as we complete the integration.

Drew Burke - Century Hills Advisers

Okay. Great. Thanks. And then the last thing I had was on turns business. How much --what level was your turns business most recently, and where do you see that in Q3?

Ralph Quinsey

Well, typically our turns business is 15%. That has traditionally been the amount of the business. By the strict definition of the word, though, obviously, we didn't get that last quarter.

In fact, we really did. It's just our normal turns business was offset by the specific ramp related items we discussed. And so that has been our history, as the turns business about 15%.

Drew Burke - Century Hills Advisers

Okay. And -- okay. Thank you very much.

Ralph Quinsey

You bet.

Operator

Your next question is a follow-up question from the line of Venk Nathamuni with JP Morgan Chase.

Venk Nathamuni – JP Morgan

Yes. You had mentioned that your gross margin target was 40%. Did you specify a particular time frame in which to achieve that, or is that still --?

Ralph Quinsey

No, we did not, but we did specify a range of revenue, $160 million to $170 million, should be in there. It was a non-GAAP target, just to be clear.

Venk Nathamuni – JP Morgan

Okay.

Ralph Quinsey

And certainly some of the things that helped that, WJ is going to be favorable to that gross margin, and the headwinds for gold -- precious metals are working against that.

Venk Nathamuni – JP Morgan

Okay. Great. Thank you.

Operator

Your next question comes from the line of James Faucette with Pacific Crest.

James Faucette - Pacific Crest Securities

Yes, hi. I just wanted to follow up real quickly on interest income and tax rate going forward, and how you guys think that we should be modeling that going forward after the WJ acquisition?

Steven Buhaly

You know, we are probably getting 2%, 2.5% on our cash, cash equivalents and investments, and we have about $115 million in that category at the end of the quarter. So put that on the credit side.

Tax is going to be pretty consistent. It is not going to be much different than it was this quarter.

James Faucette - Pacific Crest Securities

Great. Thanks.

Operator

Your next question comes from the line of Steve Ferranti with Stephens Incorporated.

Stephen Ferranti - Stephens Inc.

Hey, guys. Thanks for keeping the call open. Follow-up on the wireless LAN side. The nice sequential increase there, can you quantify how much of that was attributed to the new platform ramp that you are on?

Ralph Quinsey

So we have two new products. The 3x3 product and the 1x2 product. The large majority of our quarter performance -- just completed quarter performance came from the 3x3 product. Is that what you are asking?

Stephen Ferranti - Stephens Inc.

Yes. And are you currently shipping the 1x2 yet?

Ralph Quinsey

Yes, we are.

Stephen Ferranti - Stephens Inc.

Okay. And I guess you sort of touched on it before, but we are nowhere near what we would be a sort of normalized run rate on this -- the normalized potential at least, I would say, on a quarterly basis for this platform. Is that correct?

Ralph Quinsey

I believe there is still opportunity for growth.

Stephen Ferranti - Stephens Inc.

Okay. That is all I had. Thanks, guys.

Ralph Quinsey

Okay.

Operator

Your next question comes from the line of Drew Burke with Century Hills Partner.

Drew Burke - Century Hills Advisers

Just to clarify the previous on gross margins, isn't it largely -- I mean, you have always characterized it as being largely a function of the increasing revenues, margins were going up with revenues. That's primarily how we here looking at this, right?

Steven Buhaly

Yes. I think that's generally true. Obviously, some things like yield improvements are more time dependent as people work through processes and product problems, but we elected to use the revenue dimensions instead of the time dimension. There is a bit of both.

Drew Burke - Century Hills Advisers

Okay. Thank you.

Operator

At this time, there are no further questions.

Ralph Quinsey

Okay. I want to thank all of the conference call participants for their interesting questions. Our teams remain committed to healthy revenue growth and continuous improvement towards our financial goals. I look forward to updating you on the progress during our Q3 earnings call on October 22nd. Thanks again for your attention.

Operator

This concludes today's TriQuint Semiconductor second quarter results conference call.

You may now disconnect.

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