Montage Technology Group's CEO Discusses Q3 2013 Results - Earnings Call Transcript

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Montage Technology Group Limited (NASDAQ:MONT) Q3 2013 Earnings Conference Call November 7, 2013 8:00 AM ET

Executives

Leanne Sievers – Investor Relations-Shelton Group

Mark Voll – Chief Financial Officer

Stephen Tai – President

Howard C. Yang – Chairman and Chief Executive Officer

Analysts

Ross C. Seymore – Deutsche Bank Securities, Inc.

Blayne Curtis – Barclays Capital, Inc.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Quinn Bolton – Needham & Co. LLC

David M. Wong – Wells Fargo Securities, LLC

Operator

Good morning, and welcome to Montage Technology’s Third Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only-mode. At the conclusion of today’s conference call, instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded today, Thursday, November 7, 2013.

I would now like to turn the call to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Leanne Sievers

Good morning, and welcome to Montage Technology’s third quarter 2013 earnings conference call. I’m Leanne Sievers, Executive Vice President of Shelton Group, Montage’s Investor Relations firm.

With us today are Montage’s Chairman and CEO, Howard Yang; President, Stephen Tai; and Chief Financial Officer, Mark Voll. Before I turn the call over to Mr. Voll, I’d like to remind our listeners that during the course of this conference call the Company may provide financial guidance, projections, comments and other forward-looking statements regarding future market developments, marker share gains, the future financial performance of the company, new products or other matters.

We want to caution you that actual events or results may differ materially. We refer you to the documents Montage files from time-to-time with the SEC, including our most recent Prospectus and Registration Statement filed in 2013 among others. These documents contain or identify important factors that could cause our actual results to differ materially from those contained in our financial guidance, projections, comments or other forward-looking statements.

In addition, any projections as with the company’s future performance represent management estimate as of today, November 7, 2013. Montage assumes no obligation to update these projections in the future as market conditions may or may not change. Also, the Company’s press release and management statements during this conference call will include discussions of certain non-GAAP measures and financial information. These financial measures and a reconciliation of GAAP to non-GAAP results are provided in the company’s press release and related current report on Form 8-K, which can be found at the Investor Relations section of Montage’s website at www.montage-tech.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 30 days in the Investor Relations section of Montage’s website.

And now, I’ll turn the call over to Montage’s CFO, Mark Voll. Mark, please go ahead.

Mark Voll

Thank you, Leanne, and good morning everyone. Let me begin the call today with a review of our financial results for the third quarter of 2013. Revenue for the third quarter was $30.1 million, an increase of 18.8%, compared to $25.3 million in the second quarter and an increase of 45.9% compared to the $20.6 million in the third quarter of 2012. Third quarter 2013 total revenue consisted of $27.3 million from our set-top box products, or 90.7% of revenue and $2.8 million from our memory interface products or 9.3% of revenue.

Gross profit in the third quarter was $19.1 million, or 63.7% of revenue, compared to $16.5 million, or 65.1% of revenue in the prior quarter and $12.9 million, or 62.7% in the prior year quarter. Third quarter gross margin was above our target model range of 55% to 60%, reflecting the increased sales of our higher margin SoC set-top box solutions and more favorable pricing due to product shortages in the market.

Longer-term, we expect the combination of product mix and slight price reductions will trend gross margins closer within our target model. In terms of our operating expenses for the third quarter, total operating expenses were $10.5 million or 34.9% of revenue, compared to $10.5 million or 41.4% of revenue in prior quarter, and $6.2 million or 30.2% of revenue in the third quarter of 2012.

Looking specifically at expenses related to new product development, our research and development expenses for the third quarter was $6.6 million or 22% of revenue, compared to $6.8 million or 26.8% of revenue in the prior quarter and $3.8 million or 18.6% of revenue in the third quarter of 2012.

R&D increased sequentially in year-over-year due to additional product development efforts. Tape-out related costs for new product development were $500,000 in the third quarter. Selling, general and administrative expenses were $3.9 million, compared to $3.7 million in the prior quarter and $2.4 million in the prior year quarter. As a percent of revenue, SG&A represented 12.9% in the third quarter, compared to 14.6% in the prior quarter and 11.6% in the third quarter of 2012.

Income from operations was $8.6 million or 28.8% of revenue. This compares to $6 million or 23.8% of revenue in the prior quarter and $6.7 million or 32.5% of revenue in the prior year quarter. Our operating margin of 28.8% moves us closer to our target model of 30% operating margin.

Turning to income taxes, our affective income tax rate for the third quarter was 8.4%, compared to 9.9% in the prior quarter. We anticipate our rate for the full year of 2013 will be in the range of 9% to 10%. Our third quarter GAAP net income was $8 million or $0.31 per diluted share, compared to the prior quarter net income of $5.5 million or $0.20 per diluted share and $6.4 million or $0.24 per diluted share in the third quarter of 2012.

Excluding $1.2 million of stock-based compensation and $300,000 amortization of assembled workforce, our non-GAAP net income in the quarter was $9.5 million or $0.38 per diluted share, which compares to the prior quarter net income of $6.8 million or $0.26 per diluted share and $6.8 million or $0.26 per diluted share in the third quarter of 2012.

It is important to note that although the trading of the company’s ordinary shares commenced on September 26, the initial public offering of ordinary shares was officially closed on October 1. So our GAAP and non-GAAP EPS results for the third quarter are based on pre-IPO share counts.

The share count used to compute third quarter diluted EPS was 6.5 million shares, compared to 6.6 million shares in the prior quarter and 6.4 million shares in the prior year quarter. For the fourth quarter, we expect shares used to calculate earnings per diluted share to be $28.1 million.

Turning to the balance sheet as of September 30, 2013, our cash, cash equivalents and short-term investments were $47.6 million. We’ve raised $49.5 million in net proceeds after deducting underwriting discounts and commissions in our public offering on September 26, 2013 receipt of which will occur after the close of the quarter.

Cash flow from operations for our third quarter was $11.2 million, compared to $6.9 million in the prior quarter and $6.6 million in the prior year quarter. Accounts receivable of $10.4 million represents 31 days, sales outstanding, which compares to $8.3 million and 29 days sales outstanding at the end of the prior quarter. Inventory of $9.8 million representing 4.4 turns compares to $10.4 million or 3.4 turns in the prior quarter.

Let me close my remarks with our guidance for the fourth quarter of 2013. Revenue expected to be in the range of $32 million to $34 million, as we expect to see sequential growth in both product lines. Gross margin is expected to be in the range of 59% to 61%, non-GAAP operating expenses, which excludes non-cash charges are expected to be in the range of $12 million to $13 million.

Operating expenses assume tape-out costs in the quarter, up $2.2 million. We have been notified that we’ll be receiving approximately $2.5 million from cost reimbursements under a set of government funded technology development projects, which will be an offset to our operating expenses.

However, the timing on the receipt of these funds is uncertain as we may receive the funds in the fourth quarter, but we believe that is more likely to receive the funds in the first quarter of next year. Therefore our current expectations for fourth quarter operating expenses do not reflect a receipt of any reimbursement.

Lastly as I said earlier, we estimate shares used to calculate our fourth quarter earnings per share are expected to be $28.1 million. Now I will turn the call over to Steve, who will provide overview of our sales and operations in the quarter, including the review of our end markets and product development efforts.

Steve, please go ahead.

Stephen Tai

Thank you, Mark. Welcome everyone and thank you for joining us today. Given this is our first quarterly earnings call since completing our IPO on October 1. I would like to begin my remarks with a brief introduction of Montage for those of you not familiar with our company.

Montage is the leading global fabless provider of analog and mixed-signal semiconductor solutions, addressing the home entertainment and cloud computing markets. The foundation of the company’s technology platform is the ability to design high performance, low power semiconductors by using proprietary building blocks, which include a radio frequency and analog front-end solutions, digital signal processors and high-speed interfaces.

In the home entertainment market, Montage provides comprehensive solutions to address a rapidly growing demand for standard definition and high definition televisions in the emerging markets, such as in China, India, Southeast Asia, Middle East, Latin and South America and Africa.

In cloud computing market, Montage offers high performance, low power memory interface solutions that enable memory intensive server applications. Our memory buffer customers include the world’s three largest DRAM manufacturer and the world’s largest third-party DRAM module supplier.

Now let me turn to a more detailed overview of our quarter, including – based on our products and markets. As Mark highlighted, we achieved strong sequential and year-over-year growth in the third quarter driven largely by increased sales of our set-top box solutions for the home entertainment market.

As a reminder, our set-top box products are target specifically at emerging markets where requirements and market dynamics are very different, compared to the established market. Emerging markets traditionally have poor existing infrastructure and low quality transmission signals, which require more robust signal processing and performance than what is typically needed in more developed markets. Our strong signal processing capability combined with our customized software solutions and few application engineering services are critical for overcoming these challenges.

We believe that these same factors also carry a competitive barrier over large companies that you might typically see in established markets. Since our inception, we have sold over $300 million integrated circuits, which have been shipped to over 150 end customers worldwide.

More specific to the third quarter, we continue to convert existing set-top box customers to our SoC Products solutions, which contain the entire set-top box basic functions including RF Tuner, demodulators and audio/video decoders. This total solution consists of both hardware and software offers higher ASP than our standalone solutions. Our SoCs made up approximately 80% of set-top box revenue in the quarter.

Going forward, we expect the percentage to remain relatively consistent between 75% and 80% due to the continued strong demand for our front-end solutions and we planned to release additional new products toward the end of the year. To complement our existing satellite solutions and cable solutions released earlier this year, we will be introducing new terrestrial solutions that will complete our product portfolio, making us the only provider of full suite of end-to-end set-top box solutions for customers.

During the quarter, we also began to see revenue contributions from recently released cable and high definition decoder solutions, which are still in the early stage of adoption in our key target markets. as Howard will discuss in a minute, further adoption of HD alongside of broader transition from analog with digital broadcasting in the emerging markets will continue to be a strong driver of our future revenue growth.

Now turning to the cloud computing market where revenue from our memory interface products also continued to gain traction during the quarter. We saw our backlog increased in recent month as LRDIMM orders increased for product shipments in the fourth quarter with Intel’s release of its Ivy Bridge server platform. In the third quarter, more than half of our memory interface revenue came from our team, but we expect in the coming quarters that we ship with LRDIMM, representing a more significant portion of the memory interface revenue.

Montage’s current generation of RDIMM and LRDIMM solutions above Intel validated, as well as qualified with several memory module suppliers. The memory interface markets being driven by the proliferation of mobile devices and global IP traffic that put the increased string on server infrastructures and creating the need for more powerful server CPUs. In order to ensure optimal server performance, additional memory is added by using two inline memory modules are DIMMs.

Manufactures of these memory modules then turn to Montage for our memory interface solutions that buffer data centers as well as commonly addressing those between the CPU and memory. Our current product improved registered buffer for our teams, as wells as low reduced memory buffers for LRDIMMs.

Before our memory interface solutions can be incorporated to DIMM modules, they must first to be validated by CPU manufactures. Today, Montage’s one of the only two LRDIMM memory buffer supplies validate by Intel for DDR3 Technology, which is the most events and prevalent memory technology used in cloud computing data servers.

With Intel’s release of Ivy Bridge in early September, LRDIMMs high speed and high density become significantly superior to RDIMM buffer technology that has been commonly used on Sandy Bridge based servers. For example, one of our AM market customers, IBM has already announced six systems that currently support LRDIMMs with more expected, this compares to only one system that support LRDIMM on the Sandy Bridge platform. We believe that the increased prominence of Intel’s Ivy Bridge platform combined with Montage’s lower power technology that delivers 30% lower power consumption, compared to our comparator.

We drive a significant run of our DDR3 LRDIMM products beginning early 2014. Also during the quarter, we introduced the industry’s first production ready dual mode DDR4 registering clock driver and data buffer that support both RDIMM and LRDIMM modules for use in next generation server platforms.

Since Montage is the only supply, our production ready RDIMMs and LRDIMMs. In the third quarter, we recognized more than $150,000 in revenue, from the sale of these products to our customers. This product complements our existing DDR3 solutions, and enhances our product offerings in events of the next generation CPU platform and the transition from DDR3 to DDR4 technology. As we look forward, we remain highly engaged with the CPU manufactures and our customers on DDR4 solutions that we expect to run and drive continued growth.

Lastly, I want to emphasize that this market opportunity for Montage’s memory interface solutions is still in the early stage of growth and development. But we believe we are well positioned as the primary supplier of LRDIMM solutions to all of the leading OEMs to benefit from the significant growth expected in this market.

With that, I would like to turn the call over Howard, who will discuss our ongoing strategic initiatives. Howard, please go ahead.

Howard C. Yang

Thank you, Steve. Overall, I’m very pleased with the progress we’ve made in the quarter as we continue to exclude our plan. To further expand upon what Steven has discussed, I want to provide an overview of our go-forward strategy and the product roadmap, which will be a strong contributor to our future growth along with our existing products.

Starting with our set-top box business, our full customized solutions are highly valued by our customers. Today, a large majority of our set-top box revenue comes from our satellite chipset due to the fact that satellite is currently the transmission solution of choice in many emerging markets. But also contributing to our future growth will be our cable products, which we introduced at the beginning of this year.

The primary goals driver for the cable business is the conversion from analog to digital cable. Currently, it is estimated that only 60% of the China market has made the transition. but let’s be clear, we still see significant growth opportunities in the satellite market, especially with a continued transition from standard definition to high definition.

The phase of set-top box adoption is accelerating rapidly in emerging markets as disposable income and consumer demand for higher quarter entertainment increase. as Steve has mentioned, later this year, we’ll also be introducing a terrestrial product, which will complete our end-to-end product offerings. Montage is currently the only chipmaker that offers tuner, demodulator, and SoC for both satellite and the cable. So the addition of our terrestrial products will make us the clear market share leader in terms of total set-top box solutions.

Those of note, we intended to continue introducing solutions with higher level of product functionality and integration, as we seek to increase our average selling price for set-top box. We believe there is tremendous opportunity for two-mode deployment across mediums and standards. In fact, we are currently working on integrating satellite and cable on a single chip, which will greatly reduce the bill of materials for our customers.

In the coming year, we plan to launch our integrated satellite HD solution and integrated cable HD solution as well as HD set-top box solution, supporting DVB-T2 broadcasting standards. We are committed to investing in our future product roadmap to expand our leadership position in this growing market. In terms of our memory interface product as Steve highlighted, we also continue to make great strive in this rapidly developing market. There are a number of factors that give us confidence that the memory interface business will be a strong growth contributor from Montage in the coming years.

Overall, data center spending and particularly, spending around cost services has been growing rapidly. Additionally, higher capacity and faster memory in next generation servers are increasing the need and requirement for LRDIMM solutions, especially as the market transitions to next generation DDR4 solutions.

As the primary memory buffer supplier to all the DD OEMs, we are well-positioned to win a substantial equator here of the overall market as it evolves. Since this is still a developing, the rent may take a quarter or two, as Tier 1 server OEMs shift their configurations to the Ivy Bridge platform. Subsequently, we believe there is a significant upside in this market to complement our expanding growth process in our set-top box business.

Operator, you may now open the call for questions.

Question-and-Answer Session

Operator

Thank you, Mr. Yang. Ladies and gentlemen, we’ll now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Ross Seymore from Deutsche Bank. Please ask your question.

Ross C. Seymore – Deutsche Bank Securities, Inc.

Hi, guys. congratulations on a strong printing guide coming out of the box here. Just a question on the revenue guidance going forward, I know you said both segments would be up, but any additional color you could provide on magnitudes or drivers for each of the segments in your fourth quarter guidance?

Howard C. Yang

Yes, I would expect that the greater percentage of revenue increase would come from the memory interface products and more specifically around LRDIMM, as we touched on during the conference call, the LRDIMM orders are pretty strong, and we’re building quite a significant backlog and we would expect this to see a more significant ramp in revenue, because of that in Q4.

Ross C. Seymore – Deutsche Bank Securities, Inc.

Will the percentage of the revenues in LRDIMM be above 50% of memory interface? is that the kind of the range we’re talking about?

Howard C. Yang

That’s correct, yes.

Ross C. Seymore – Deutsche Bank Securities, Inc.

Great. and then I guess as my follow-up, Mark, I know there is a bunch of one-time things, as far as your OpEx in your fourth quarter. can you just walk us through that, again? how much of the tape-out expenses is going to be a one quarter phenomenon or will that follow through and then remind us about the China reimbursement, the size of it and is that something that will just be a one-time or now in the first quarter, any color you can give on those for the implications, not only in the fourth quarter, but first quarter would be helpful?

Mark Voll

Sure. So as we look first, going to Q3, our tape-out costs were about $500,000. we were planning those costs to be a little bit more then $1 million, so that carry-overs in the Q4. In Q4, the tape-out costs were estimated to be $2.2 million and then we would expect as we go into Q1, we’d be back down to a level about $0.5 million to $1.25 million is kind of a range going forward on a quarterly basis. As far as, the government reimbursement is concerned, we know we will receive the $2.5 million for the completed projects, we had originally thought that would be in Q4. we believe that’s possible, but more likely, we’re planning on it being a Q1 event.

Ross C. Seymore – Deutsche Bank Securities, Inc.

Great, thank you, and congrats again.

Mark Voll

Thanks.

Operator

Our next question comes from the line of Blayne Curtis from Barclays. Please ask your question.

Blayne Curtis – Barclays Capital, Inc.

Thanks. And I’ll accord the congrats on the great results, maybe, Mark, if you could just provide a little extra color as to what drove the upside in the set-top box business. And then I thought you mentioned that there were some shortages that affected gross margin, any color there, was that – is that expected to be resolved in the December quarter? Thanks.

Mark Voll

Yes, Blayne. That thing has been resolved and then moving forward, we will – trending to be able to fully support customers and then for some of the early small price adjustments to some key customers that’s some of them are already getting that. So I think everything is tracking well in the set-top box side.

Blayne Curtis – Barclays Capital, Inc.

Okay. And then maybe, if you could just talk about the DDR4 design cycle, you mentioned having the first working silicon. when is the real designs going to be locked down timing wise and what type of lead do you see versus the competition?

Howard C. Yang

Blayne, this is Howard. The DDR4, as Steve mentioned earlier that, we actually in Q3 already shipping over 150 – more than $150,000. We are clearly in the leading position over there and for meaningful ramp; I believe it will be more of second half of next year for DDR4, but then the crossover probably a year later.

Mark Voll

Okay, congrats again, on the results. Thanks.

Howard C. Yang

Thank you.

Stephen Tai

Thank you.

Operator

Our next question comes from the line of Tore Svanberg from Stifel. Please ask your question.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Yes, thank you and congratulations on the solid results. First question, could you talk a little bit about your relative visibility into the fourth quarter. You mentioned pretty strong backlog on the memory interface side, but any color you could give us as far as visibility is concerned would be great?

Mark Voll

If we look at the two different product lines on the memory interface, I think we have very strong visibility, because we have a backlog of orders that we know that we will ship in the – in Q4. So we’re pretty confident there. The set-top box business is strong. We continue to ship product in sizable numbers and increases throughout the Q3 and that has also taken place in the Q4. So we were very confident that the overall guidance, in particular, the set-top box portion of it is very strong and we’re confident in the number that we have out there.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Very good, and you mentioned the shortage. I assume that’s primarily related to your SoC and how do you feel about that potentially having built some extra orders in the quarter. Just want to make sure that the shortages didn’t sort of cause customers to order too much in the quarter, I guess?

Stephen Tai

Right. This is Steve. No, I think everything is back to normal now. And that the small shortage is just a delay certain price adjustments in Q3, but then obtained trends of modern supply of customers and we were doing that in the past couple of years, going to the Q3, Q4 hot seasons. I think we are in track – on track for Q4 now.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Very good. And last question on LRDIMM. Now that LRDIMM is becoming a more meaningful percentage. could you give us a sense for how pricing looks like relative to RDIMM, not necessarily your ASPs, but if you look at some of the end system model pricing, historically LRDIMM has sort of struggled to keep up with pricing of RDIMM. So I’m just trying to understand now that Ivy Bridge has been launched. How is pricing playing out for that market?

Howard C. Yang

Yes. Tore, this is Howard. You’re right. Historically, the LRDIMM and RDIMM had large price differences, which is also kind of headwinds for the LRDIMM attack rate. And that gap is really closing out, as far as, we know the significantly closing out in the recent couple of quarters. So we believe that reason has more or less gone and we believe the LRDIMM will ramp.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Very good, again, great quarter. Thank you.

Howard C. Yang

Thank you, Tore.

Mark Voll

Thank you.

Operator

Our next question comes from Quinn Bolton from Needham & Company. Please ask your question.

Quinn Bolton – Needham & Co. LLC

Good evening, gentlemen. and I’ll accord the congratulations on the strong first quarter after the IPO. Just wanted to come back to the LRDIMM business, in the September quarter, you mentioned that RDIMM was over half at sales and you had about $150,000 of sales from your new DDR4 product. Was the LRDIMM sort of roughly flattish with the June quarter level or did it actually kick up slightly in the quarter?

Mark Voll

It kicked up slightly in the quarter.

Quinn Bolton – Needham & Co. LLC

Okay. And then from that base…

Mark Voll

And we…

Quinn Bolton – Needham & Co. LLC

Sorry, Mark, go ahead.

Mark Voll

We will expect that to be even more significant in Q4.

Quinn Bolton – Needham & Co. LLC

Okay. I’ll just say, if it gets to over 50% of sales in Q4, it sounds like, it’s going to have a fairly high double-digit growth rate in the fourth quarter, is that the kind of the right ballpark, I mean it was like it’s pretty strong growth in Q4 based on that backlog?

Mark Voll

Yes, that’s correct.

Quinn Bolton – Needham & Co. LLC

Okay, great. Shifting gears to the set-top box side, you mentioned that the HD and cable products were starting to contribute revenue. Can you give us some sense is that what percent of set-top box sales are coming now from cable and then from high definition solutions?

Stephen Tail

Sure. This is Steve. Yes, as we mentioned earlier that both cable solutions that since the beginning of the year has been ramping up and also we started – we starting the HD solutions since June this year. But as a percentage of the total revenue, it’s still relatively more. So we still need to get more design wins by converting more customers into the new products. So the majority of the products still a standard-definition based and/or satellite standard-definition definition based.

Quinn Bolton – Needham & Co. LLC

So if we think cables to probably single-digit percentage of overall associate products that’s it’s still early in the ramp?

Stephen Tai

Correct.

Quinn Bolton – Needham & Co. LLC

Okay, great. And then you mentioned some new terrestrial products that you’ll be introducing later this year, I was wondering, there are a lot of terrestrial standards around the world, is this for the China terrestrial standard, is it for one of the European or to other terrestrial standards around the world?

Stephen Tai

It’s for the European standard.

Quinn Bolton – Needham & Co. LLC

Okay, okay. great, thank you.

Stephen Tai

Thank you.

Operator

Our next question comes from the line of David Wong from Wells Fargo. Please ask your question.

David M. Wong – Wells Fargo Securities, LLC

Thanks very much. So for the orders you are getting for the LRDIMM, are they primarily for December quarter delivery or do they stretch out into 2014? And can you give us some idea as to what sequential growth you might get in LRDIMM into the March 2014 quarter?

Howard C. Yang

Well, the orders we got – we’re getting now are for our Q4 delivery. I would say it’s a little bit too early for us to give any kind of indication where Q1 is, although we’re regaining an indication from our customers. We expect to see significant sequential growth in Q1 from the Q4 quarter and at the same time; we expect to see pretty significant sequential growth in Q4 from Q3.

David M. Wong – Wells Fargo Securities, LLC

Can you give us some feel for the unit volume of LRDIMM chips you expect to ship in the December quarter?

Howard C. Yang

Unit volume, I – we’re not going to go into the unit volume on that yet.

David M. Wong – Wells Fargo Securities, LLC

Okay, great. Mark, can you give us rough views on R&D cost for your full year 2014?

Howard C. Yang

For full year, I would imagine to preempt – having this guidance on 2014, but I think that the level that we were at in Q3 timeframe, so $9 million to $10 million is typically what we’re going to look at for overall OpEx and most of that will be in R&D. We ran at the situation for Q4 where not only we have a number of tape-outs were planned. We have some carry-over from Q3, so that’s why the number is higher.

David M. Wong – Wells Fargo Securities, LLC

So there’s no significant permanent step-up in costs or ramping costs that do you foresee over the next few quarters?

Howard C. Yang

That’s correct.

David M. Wong – Wells Fargo Securities, LLC

Great. And when do you expect the rest of your revenues will begin to ramp?

Howard C. Yang

That probably were toward the second half of next year.

David M. Wong – Wells Fargo Securities, LLC

Okay.

Howard C. Yang

Only second half.

David M. Wong – Wells Fargo Securities, LLC

Okay, great. Great thanks very much.

Howard C. Yang

Thank you.

Mark Voll

Thank you, David.

Operator

Ladies and gentlemen, there are no additional questions at this time. I’d like to hand the conference back to Mr. Mark Voll for any further remarks and closing statements. Please continue.

Mark Voll

One final comment, I will be attending two upcoming conferences in New York this month. The Wells Fargo TMT Conference on November 13 and the Barclays Select Growth Conference on November 19. If you plan to attend these conferences, we welcome the opportunity to meet with you. I want to thank everyone for joining us today’s call and we look forward to reporting our continued progress next quarter. Operator, you may now disconnect the call.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and you may disconnect your lines.

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