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Exar Corporation (NYSE:EXAR)

F2Q13 Earnings Call

October 24, 2012 4:30 p.m. ET

Executives

Louis DiNardo - President and CEO

Kevin Bauer - CFO

Analysts

Tor Svanberg - Stifel Nicolaus

Blake Harper - Wunderlich Securities

Dave Kang - B. Riley

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Exar Corporation’s fiscal 2013 second quarter financial results call. [Operator instructions.] I’ll now turn the call over to Chief Financial Officer Kevin Bauer. Please go ahead sir.

Kevin Bauer

We appreciate your assistance, operator. To our listeners, good day and thanks for joining us for our fiscal 2013 second quarter investor conference call. I’ll begin the call with the financial overview of the quarter and Lou DiNardo, our president and CEO, will then provide more detail regarding the business. We’ll then discuss the fiscal year ’13 Q3 outlook. Following these presentations, the conference call will be open for questions.

Before we begin, I’d like to remind you that the company provides its investors, financial analysts, and the general public with a business and financial update each quarter in its results news release and conference call. Please note that our fiscal 2013 second quarter quarter results release was disseminated today after market close and can be viewed on our website.

Exar will not provide any further updates on its performance during the quarter unless it does so in a news release or other manner that is compliant with Reg FD and Reg G as the case may be and other applicable regulations. The company’s guidance and remarks are based on current information and expectations as of today, October 24, 2012. The company undertakes no duty to update such statements.

The company reports its results in accordance with GAAP. However, for the periods presented today, we are disclosing various non-GAAP measures. The company uses these non-GAAP measures to evaluate the company's operating performance, and the measures are used for planning and forecasting of our future periods. The company believes non-GAAP measures are useful to the performance of financial analysis. The reconciliation from GAAP to non-GAAP financials for the most recent or prior periods or events that maybe discussed today can be found in today’s financial results release or the company's applicable SEC filings.

I also need to inform you that during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties, and are not guarantees of future performance. Listeners are encouraged to review the Safe Harbor statement contained in today’s press release as well as the other risks detailed from time to time in the company's SEC filings.

Let me now address our financial results. We made additional progress in the September quarter towards our goal of consistent, profitable growth. We achieved GAAP net income per diluted share of $0.01. On a non-GAAP basis, we doubled net income per diluted share from $0.03 to $0.06 sequentially, and achieved $2.9 million in net income. We also increased cash and short-term investments by $3 million from the prior quarter.

Net sales for the September quarter, our fiscal 2013 second quarter, were $30.6 million, up 5% sequentially and slightly above our guidance range. Our net sales by product line and customer for the second quarter compared to the prior quarter were as follows. Data compression and security sales increased 23% to $4.5 million, on increased shipments of our DX1800 series data compression and security cards.

Connectivity sales increased 2% to $16.4 million, as sales of serial transceivers grew approximately 5% in a competitive market. Sales of UARTs were slightly down. Power sales increased 3% to $6.8 million, on growth of approximately 1% on our analog power products and growth of 38% on programmable power products. Communication sales were flat quarter on quarter at $2.9 million.

No single end customer accounted for 10% of our revenue in the second quarter. Collectively, our five largest end customers for the quarter, Alcatel Lucent, EMC, Huawei, Teradata, and ZTE accounted for 18% of our revenue.

The non-GAAP gross margin for the second quarter decreased to 46.7% from 47.2% in the prior quarter. The sequential reduction in gross margin is attributed to unfavorable product mix in our component products and price [unintelligible] on our highest volume serial transceivers, partially offset by the growth of the gross margin contribution of data compression and security products.

Non-GAAP operating expenses for the second quarter, which excludes stock based compensation, amortization of intangible assets, and restructuring charges, were $12.1 million versus $12.9 million in the prior quarter. The prior quarter included labor-related costs for transitional employees following the restructuring, and in addition, the sequential reduction is due to additional attrition, partially offset by increased engineering services.

Non-GAAP operating expenses included R&D of $5.5 million and SG&A of $6.6 million. The non-GAAP operating income for the second quarter was $2.2 million compared to operating income of $0.9 million from the prior quarter. Non-GAAP net income was $2.9 million, or a diluted net income per share of $0.06 compared to net income of $1.4 million, or diluted net income per share of $0.03 for the prior quarter.

On a GAAP basis, gross margin was 43.5%. Operating expenses were $13.7 million. The operating loss was $0.4 million, and the net income was $0.3 million, or diluted net income per share of $0.01.

I’ll now provide some balance sheet comments. We ended the second quarter with $198.1 million, or $4.32 per share outstanding in cash and short-term investments. Cash generated by operations was $2.4 million. Capex was $0.6 million, and the exercise of stock options provided $1 million in cash.

At the end of September, inventory in the distribution channel remained at 12 weeks, and days of inventory on hand decreased to 94 days. Depreciation and amortization was $2.9 million in the second quarter, which includes the amortization of acquired intangible assets of $1 million. And, we ended September with 45.8 million shares outstanding.

I’ll now turn the call over to Lou.

Louis DiNardo

Thank you Kevin. Thanks for joining us on the call today. I think it’s fair to say we’re pleased with the results of our second quarter. During the quarter, our programmable power management products started to ship to Intel- and ARM-based next-generation server designs, as well as a wide variety of industrial equipment.

As more servers are deployed in data centers, energy monitoring is playing an increasing important role. Data center costs are heavily weighted to energy consumption, and our power management products provide critical information for data center infrastructure management. The vCIM market is forecasted to have a combined annual growth rate of 47% over the next five years, and our products are actively being adopted.

Additionally, our PCIe solutions for compression and security in big data analytics are gaining momentum. Our cards are used in large networking and storage environments. We provide significantly increased performance and lower overall system costs.

Perhaps most importantly, we see good progress in new product development. We launched new designs in power management controllers and regulators. We have several new programmable products going into design. We’re working on a fully integrated power module development, and we have connectivity products that are now in fab, and we’re waiting on First Silicon.

All in all, we’re on the right path. With respect to the specifics of this quarter, on most metrics our results exceeded our expectations. Revenue, operating profit, net income, earnings per share, all exceeded the non-GAAP guidance we provided in our first fiscal quarterly release and earnings call. Revenue of $30.6 million, as Kevin mentioned, represents growth of over 5% quarter to quarter. Frankly, given the macroeconomic headwinds and the performance of our peer group. This is pretty solid performance.

Operating income of $2.2 million represents growth of 149% sequentially. Net income of $2.9 million represents growth of 97% compared to the prior quarter, and earnings per share, at $0.06, is nearly twice the consensus estimate and represents 100% growth quarter to quarter.

I think it’s also important to note that our year over year numbers are shaping up nicely as well. While we certainly took a hit at the top line, revenue of $30.6 million compared to $36.1 million a year ago. GAAP net income went from a loss of $1.1 million to a profit of $0.3 million.

Non-GAAP net income was up 100% from $1.4 million to $2.9 million on lower sales, and GAAP EPS went from a $0.01 loss to a $0.01 profit. Non-GAAP EPS went from $0.03 to $0.06. In my view, our financial performance this quarter is a reflection of the goodness that results from focus, good business processes, and a commitment to profitability.

Now returning to revenue, I’ll give you a bit more granularity. Generally there were few surprises in the quarter with respect to end market, geography, channel, or product areas. End market growth excelled in those markets that appear resilient to these challenging times. Markets such as data center infrastructure, big data analytics, and new server designs all provide a catalyst for growth, and we’re enjoying our participation in these markets.

Generally, the industrial sector is weak, and we experienced the same tepid demand from industrial customers that our peers have reported. Geographically, Asia was up 3% while the Americas declined 12% and Europe was a bit of an outlier with 7% growth. This profile reflects our heavily weighted industrial concentration in the Americas, and frankly a very positive lack of exposure to the compute segment in Asia.

Channel performance showed strength in direct shipments, that is sales to OEM customers and distributors that we recognized on a point of purchase basis. Sales in this channel grew nicely, 12% quarter to quarter, while point of sale distribution revenue was relatively flat quarter to quarter. The quarter was a bit back-end loaded, and as a result we left some backlog behind that was requested in the quarter but we couldn’t ship.

Certainly another indicator to look at is inventory, particularly inventory at our point of purchase distributors. These are primarily regional distributors in Asia. During the quarter, inventory declined slightly into a growing point of sale at these distributors. Again, this is in part because we couldn’t catch the backlog and in part because they’re cautious in a tough market.

Frankly, this is a positive indicator in that during the first and second quarter of fiscal ’13, we started a refresh of our work in process, particularly wafers and die bank to support growth in our component product lines. As their POS continues to expand, this indicates good prospects for growth in the shipments for this channel.

Now drilling into some of the product line detail, as I mentioned, our growth this quarter was driven by our participation in networking and storage opportunities. Data compression and security are themes that warrant close attention. As big data reigned supreme, and analytics becomes increasingly more critical, everyone from Fortune 100 companies to Facebook, Zynga, Amazon, as well as mom and pop retailers need to efficiently process data. Calling on large blocks that are in storage that must be read, processed, and updated is a big I/O task.

Our current family of products, [ICUs] and cards, address these bottlenecks that are created in large networked environments, whether they’re in the cloud or in an enterprise. We have a design win pipeline that’s close to $10 million and an opportunity pipeline of over $20 million and growing. This will layer on top of the $4.5 million second quarter we had, which is an $18 million run rate.

Our next-generation product is in place and out now, and we expect to go to fab in the March quarter. This product will take an already successful offering to a new level of performance for offload processing that’s never been achieved. It will provide superior speed and compression ratio as well as a high level of integration for data security.

Now turning to our programmable power products, this continues to be a pretty rich vein for us to mine. We have design wins in next-generation surface reference boards as well as production platforms using ARM processors. We provide control of complex system power, and more importantly we provide telemetry for energy monitoring.

If you take a moment and consider racks and racks of servers in data centers, consuming enormous amounts of power for cooling - not simply the power consumed by the server, but the HVAC costs to maintain a controlled environment - the ability to provide real time energy data is a goal that Intel and others have clearly set in their near term sights. Our products provide exactly this type of telemetry. We have a combination of close to 300 opportunities and design wins, valued at over $30 million in annual revenue. Of course, we won’t win them all, but the pipeline is large and growing.

Let me give you a little more insight into the kinds of things we’re talking about: home gateways, machine tools, network routers and switches, remote metering, industrial instrumentation, four or five server reference designs, several set-top boxes, EDSL cards, host bus adapters, a tablet, an in-flight entertainment system, medical instrumentation, wireless receivers, and other low-power server opportunities.

Volumes span the gamut from 10,000 units a year to a million units a year. So if we take into consideration the potential for growth from these two important markets, big data analytics and efficient server designs, on the back of best-in-class value-added products. You couple that with our strong presence with UARTs and connectivity products in the broad industrial segment, and our new direction for Exar comes into focus.

Basically, power management should be a much bigger business in the next few years, and data management - that is, compression and security - should also be a much bigger business. We’ll also see growth in connectivity and add more analog mixed signal products.

So beyond scale, there are a couple of very important benefits that come from more diversified growth of value-added products. We should enjoy a better balance of OEM versus distribution customers, and this will provide us better visibility in the long run. We should also enjoy higher gross margins on these products, and that will positively impact profitability. And ultimately, a broader, more balanced portfolio that is not overly weighted to connectivity helps bring consistency. We’ll do meaningful business in more markets with more products and more customers.

Now turning to the current quarter, our book-to-bill last quarter was essentially one to one, on a gross shipment to gross bookings measure. Our regional distributors drew down inventory a bit, and we believe they have room to replenish their inventory if the POS holds.

So while we’re not immune to the strong headwinds in the semi space, each of our product lines has a plan to grow. We expect revenue growth in the range of 2% to 4%, non-GAAP gross margin in the range of 47% to 48%, and we’ll continue the aggressively control costs. Non-GAAP EPS is expected to be in the range of $0.06 to $0.07.

So thank you again, and Kevin and I will now answer questions.

Question-and-Answer Session

Operator

[Operator instructions.] We’ll go first to Tor Svanberg with Stifel Nicolaus. Go ahead please.

Tor Svanberg - Stifel Nicolaus

First talk a little bit about Q4 guidance. You’re really bucking the trend here vis-à-vis the group by showing some growth. Book-to-bill was essentially one. So could you maybe talk a little bit about your backlog? And I know you mentioned you expect each product line to grow sequentially, but are some going to be stronger than others?

Louis DiNardo

The backlog’s grown nicely over the course of the last three quarters. I think as I mentioned in my comments, our ability to get at that backlog has been difficult during the last two quarters. We embarked on a process to build more wafers, get more die bank. Frankly we weren’t able to catch all of our backlog this past quarter.

When we look at our component business, and that’s the power management business as well as the connectivity business, we’re a relatively small player in relatively large markets. And when we look at 2-4% growth versus what we’re hearing out of some of our peers, we’re a small player in these markets. We tend to be aggressive.

We will have inventory in place, and we are working with best-in-class channel partners with Future globally, Arrow Electronics globally, and the likes of Wintec with WT in Taiwan. So we understand that the rest of the players in the space are looking at flat to down, but 2-4% certainly seems prudent given the backlog that we have and the presence we have in this serial transceiver businesses, in the UART business, as well as in the general purpose analog power management space.

Tor Svanberg - Stifel Nicolaus

It looks like the serial transceiver business saw some pricing pressure this quarter. Is this sort of related to some end of life product or is it more just the environment? Help us understand a little bit of what’s going on specifically with serial transceivers.

Louis DiNardo

No, it’s not related to end of life product. It’s merely a reflection of what’s going on in the marketplace. In the serial transceiver business, we compete with the likes of everybody from Maxon to TI. Those that have large factories that they want to fill to get aggressive on pricing during down market cycles. We’ve done a lot to reduce costs here. We think we can still be competitive. We’re not going to lose market share. We’re going to take it where we can skim some of the cream that remains in that marketplace. But it’s nothing to do with end of life products and just a reflection of what’s going on in the marketplace.

Tor Svanberg - Stifel Nicolaus

And then lastly, on R&D, you’ve been there now for about nine, ten months. Some of the R&D that you mentioned earlier, especially on power management where you have three other programs where you can capture some revenues, is this the result of spending that you initiated when you started? Or is this something that’s still ongoing and we should continue to see incremental opportunities into next year?

Louis DiNardo

We’ll certainly see incremental opportunities into next year. I’ll separate the question into two pieces. The R&D that’s going on, we have rebuilt the component engineering team. We’ve brought in some of the best and brightest, people that we’ve known and worked with for a long time.

We did have to go through a cycle of product definition and then go through design. We’re moving very quickly on new product development in the power management space. And that’s standalone products and frankly it’s also looking at sophisticated and complex integration of complete modules. And you’ll see us do a bit of both. I think we’re fortunate. We’ve got a great engineering team, and we’re moving those developments along quite nicely. In fact, I think probably the brightest of those developments will [tape] out here in the fourth calendar quarter.

But when we look at the demand side for products that we’ve either started to show a little bit early, as we’ve defined them and we’ve found data customers or their products that were released at the beginning of this year or last year.

Certainly we have kind of a revitalization of our sales team. Steve Bakos joined us this quarter and wasn’t around for the last earnings call. Steve brings with him a great depth of knowledge in the component selling business. His time at Linear Technologies, time at Conexant most recently. We’ve hired people underneath Steve in that organization in China. We put a press release out recently about bringing Tim Lu on board. So these are guys that know the component business and how to lock down design wins so that we can bring them to fruition. We’re addressing both parts of the equation, defining and developing new products and moving them quickly through that process as well as selling what we got.

Tor Svanberg - Stifel Nicolaus

Your [euro] business was up sequentially this quarter, which is obviously bucking the trend. Was that primarily related to some data compression programs specifically to a customer there? Or is anything else going on?

Louis DiNardo

For us, there’s no data compression and security business currently, although there’s certainly some opportunities that we’re chasing. But we swing a little bit more violently with communications infrastructure play there. We have a couple of really nice segments we play. The communications infrastructure piece, it’s lumpy, and we had a lump that was nice for the quarter. We also do big business in the automotive space through third parties, and we’ve got large participation in Bluetooth module designs, for example, and sometimes we get a balance out of that. So I think stars aligned, and we had a decent quarter in Europe when everybody else seems to have been on the sidelines.

Operator

Our next question is from Blake Harper with Wunderlich Securities. Go ahead please.

Blake Harper - Wunderlich Securities

So I wanted to start with Kevin. The gross margins, just wanted to see what your expectations were going forward. Will that mix kind of continue, with the ASP erosion with the transceivers that you talked about? I think we had expected to be back above 50% range by the end of the fiscal year. But just wanted to see what you expect going forward and when you think you could be back above the 50%.

Kevin Bauer

The guidance that we came out with for the next quarter is 47% to 48%. But certainly within there there’s continued competitive pricing. We also have some cost reductions that are going to begin traction next quarter.

But one of the biggest things that’s also helping is that if you were to look at our inventories, the March quarter to the June quarter, we drained them roughly about $2 million. And this quarter they were flat, roughly $15 million to $16 million. And the story behind that is that now we have our throughput in alignment with what we are shipping, and so therefore our manufacturing efficiencies are much more in line as we go forward. So that’s going to help for the next quarter and beyond.

We’re not really talking about the gross margin guidance beyond that, but certainly the continued traction of the data common storage and programmable power markets are going to help that.

Blake Harper - Wunderlich Securities

And then Lou, you had talked to, in your prepared remarks, about some of the new Intel and ARM based server designs. Can you kind of help maybe get some more color on some of that as far as who the customers are? Are those traditional server customers that you’ve always had with traditional enterprise servers? Or are these more data center designs? Obviously the ARM base is a new thing too in some of the larger data center designs. But if you can kind of help fill in some color of where that is, as far as where it was, and kind of what the opportunity is going forward and what that looks like.

Louis DiNardo

This is one of those areas where we have a virtual green field, and we find that in many of the markets that we’re addressing now with appropriate products. We basically had no participant in the server space. Whether you’re talking about core power, which has been dominated by a handful of players for quite some time or system power, which was far more fragmented, we address the system power requirement, and we have a highly integrated product that can control four rails.

So it generates more power supply rails as well as controls those rails. It’s a really nice, compact solution, and it reduces the bill of materials significantly. But when you look at the data center-focused server designs - and granted, we won’t see the next generation of Intel’s CPU and Ivy Bridge hit the marketplace until probably June of next year. But there’s an awful lot of activity that goes on before that.

And these are designs where Intel is focused on energy monitoring. They have an entire software package that will sit on top of their next-generation power supply designs so that they can dish that data off to the DCIM, or the data center infrastructure management platforms. And there’s no reason you need to be running around with a thermometer checking the temperature at specific racks within the data center and turn as I recall conditioning on or off. There’s the middle ground play, where people are putting together data center infrastructure management packages that are hardware and software based, but frankly the server, via the processor and its control and interface with the power supply chips knows what its power consumption is.

And Intel is driven to find a way to capitalize on that so that data center infrastructure management can be optimized. The flip side of that, as you mentioned, are the ARM-based processors, or the ARM-based server designs. For us, it’s a nice place to be, because we’re not waiting for the next-generation chip set. These are designs that have more but lower power rails, so you don’t have that VR spec that you have to hit. Multiple outputs and our ability to control all that is necessary to control in the server design, as well as provide energy monitoring, it’s allowed us to find places now where we can ship in volume into production while we wait for the broad base of next-generation servers to come out.

Blake Harper - Wunderlich Securities

And then just to follow up on that, when you talked about the opportunities for design wins within the programmable power there, those 300 design wins at $30 million, is the majority of that servers? You mentioned a lot of opportunities there, but just wanted to get an idea of how much of that was really related to the servers.

Louis DiNardo

I was quite impressed. We do a quarterly business review where all the sales team comes in, between the time we end the quarter and the time we have to get on this call and really discern what our prospects are for the coming quarter. I put that list together literally on the back of an envelope, sitting there listening to our sales team, of the wide range of apps that we’re finding programmable power well suited for. And we have a series of products. We have everything from the original 7704, 7714, the most recently released 7724 with our software package.

It’s all over the place, and I think if I were to take the effort and add up all of the 10-100,000 sockets and weigh them against the million unit sockets that are represented by the server space, I’d take a swing and say it’s 50-50, which is nice, because that implies we’ll have diversity. Those lower volumes carry higher ASPs, which allow us a greater gross margin profile, and then you get the growth out of the big bumps in the server space. I’d say it’s probably evenly weighted, but I haven’t done the math.

Blake Harper - Wunderlich Securities

And then I just have one last question. Now that you’re cash flow positive and put up some operating profit a couple of quarters in a row now, have you evaluated at all the cash allocation strategy? Or have you looked at that at all?

Louis DiNardo

I look at the cash every day. [laughter] It’s a nice, comforting thing to look at. You’re right, I think we said back in January when I joined the company, and we started to refocus on our component business and committed ourselves to profitable growth. And a couple of quarters under our belt, there’s free cash flow or positive cash flow and earnings, and it would be time to start to evaluate what the allocation of capital should look like.

So we think about it, we started to talk about it. We’ve made no decisions, but it’s still early in the game for us. We’re rebuilding a product line. We’re redefining a strategy, so it’s certainly on the radar. We haven’t put a whole lot of thought into it yet.

Operator

[Operator instructions.] And we’ll go next to Dave Kang with B. Riley. Go ahead please.

Dave Kang - B. Riley

Kevin, a couple of numbers first. Capex and the tax rate for fiscal ’13? What should we use?

Kevin Bauer

Capex was $0.6 million.

Dave Kang - B. Riley

Is that going to be around that level growth for?

Kevin Bauer

Yeah, I think we said that we’re spending $2-3 million on an annual basis. And then we’re still at a tax rate of, for all intents and purposes, just the local taxes throughout our international jurisdictions, which is about $400,000 on a year.

Dave Kang - B. Riley

And then for fiscal Q4, I think you talked about possibly R&D bumping up a little bit because of a mass [take out]. Is that still the case? And what, we’re looking at maybe a half million dollars?

Kevin Bauer

Yeah, that’s roughly right.

Dave Kang - B. Riley

And then North America, I believe you said North America was down. For the December quarter, are you expecting that to come back?

Louis DiNardo

We’re expecting all geographies to grow in the December quarter. The quarter in the Americas was tough. I think you can see the correlation between a slight decrease in UART sales, the industrial segment, and our concentration in the Americas, but I think we have good line of sight on eking out growth here in the December quarter. But 2-4%, it’s not big growth, but it certainly, as Tor’s question implied, bucks the trend a little bit. But we’re expecting growth in the Americas, growth in Europe, as well as growth in Asia.

Dave Kang - B. Riley

And then speaking of Asia, can you just provide more color on what’s going on with Huawei and ZTE? Has there been any kind of changes in behavior, buying patterns, especially after what happened a couple of weeks ago?

Louis DiNardo

Not that we have been able to discern. In the case of Huawei, most of our business to Huawei goes into consigned inventory and we recognize the sale when they pull it out. It was a good quarter. It seems like their volumes are right on par with what their forecasts are, so we’ve seen no meaningful change, or change in demeanor, even. Our guys are in there all the time, and Steve Bakos, who’s been on the job less than two months now or so has been back to Asia twice, including visits to the customers that you’ve mentioned. Nor have we seen anything different out of ZTE. We are a large and valuable supplier to ZTE, so we get a lot of insight and haven’t really felt or discerned any changes.

Dave Kang - B. Riley

And then you sense that their business is coming back, because obviously those two have been pretty soft throughout the year. So are you sensing that business with them is coming back?

Louis DiNardo

I’d say it’s difficult for me to be a barometer, or us to be a barometer, for them overall. Our volumes are nice, and they don’t reflect anything that is sliding down. And in fact, we’re up a bit, particularly in the case of Huawei this quarter. How much of that is us taking market share? Some of the components we sell certainly are multiple sourced, and it’s difficult to separate what you’re doing in the way of taking market share from your competitors versus their overall volumes. So it feels healthy.

Dave Kang - B. Riley

And the last question is, Lou, you talked about putting together an analog team. Have you done that? And how will that impact your expenses?

Louis DiNardo

Really important question. Putting together an analog team is like the design itself. It’s a bit of an art. [unintelligible]’s been in the Valley a long time. He’s well respected, and we have brought on design talent in the analog space as well as in layout and all of the support functions that are necessary.

Part of the challenge, and where we need to have discipline, is if you bring in too many engineers, before you have products for them to work on, you balloon your expenses, which you will always do in advance of generating revenue, because the products take a year to build and sometimes to design in. But we don’t want to do that prematurely.

So Zaki Moussaoui, vice president of system architecture, who, again, has been in the analog space an awful long time and had senior positions at some of our foremost competitors, he’s running system architecture and the product definition process. He’s spitting out lots and lots of good ideas, with full-blown MRDs in some cases, and some ideas that are still being germinated.

So we’re hiring prudently. We have the opportunity to hire guys. There’s no question we can get the talent we need. We just don’t want to bring them on too early and balloon expenses. So our goal is to keep those expenses under control and bring them on really when we need them and not terribly long in advance.

Dave Kang - B. Riley

So Lou, remember when you gave me that presentation, you had some blank boxes. When do we see those blank boxes being filled in? When do we see those products ramp?

Louis DiNardo

We’re working on them now. I’d say you’ll probably see the next generation of introductions, new product lines, or new themes within existing product lines the first half of calendar ’13. It takes about that long to go through definition and development. Some of the things you’re going to see out of us in the calendar ’13 timeframe, I think they’re going to be really the best-in-class products that you’d expect from team like this.

Operator

[Operator instructions.] We have no one else in queue, so ladies and gentlemen that does conclude our conference for today.

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