QLogic Corporation Presents at Goldman Sachs Technology and Internet Conference (Transcript)

| About: QLogic Corporation (QLGC)
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QLogic Corporation (QGLC) Goldman Sachs Group Inc. Technology and Internet Conference February 14, 2012 5:00 PM ET


Simon Biddiscombe - President, Chief Executive Officer, Director


Bill Shope - Goldman Sachs

Bill Shope - Goldman Sachs

Okay. Thank you all for joining us today, those of you who don’t know me I am Bill Shope, I am the IT (inaudible) for Goldman Sachs and today we are very happy we are very happy to be hosting Simon Biddiscombe, CEO of QLogic as many of you know QLogic is the leader in the storage networking market and obviously he has many great insights for us on that market and on its evolution as well as by the enterprise market overall. So with that

So with that we will go ahead and get started, Simon I wanted to, give that there is some probably some investors that don’t know the story all that all yet. Wanted to start off with a bit of a primary type of question if you could just to us a rundown the core QLogic story.

Simon Biddiscombe

So historically QLogic has been very focused on fiber channel technologies and we have had both fiber channel host technologies that would be server or storage deployed and then private channel switch technologies as well.

And the private channel market has actually continued to be very robust despite people suspect its demise might be eminent over the course of many, many years. There is an industry we shipped more fiber channel ports last year than ever before. Last year we shipped 3.4 million euros so the fiber channel market continues to be a very robust market and QLogic enjoys a significant leadership position in the host part of the market with 55% market share and way ahead of the nearest competitor.

Over the course of about the last five years we have also being investing in the latest version of convergence. So for us convergence means primarily fiber channel over Ethernet and we have invested aggressively in fiber channel over Ethernet convergence which naturally takes you into the Ethernet market as well.

So even though the fiber channel market continues to be robust and we shipped more than ever before last year the greater growth opportunities is actually presented to us by converged technologies and 10 gig Ethernet technologies for data center applications as well. So we've invested aggressively in those markets over the course of the last five years. We always thought that fiber channel or the Ethernet convergence share will attract fiber channel share and that’s exactly the way it plays it. So FCoE market today we have approximately 55% market share and then in the Ethernet market through the first nine months of last year, we were actually number two behind only Intel in the Ethernet adapter market.

So we have been able to establish very strong positions for ourselves in both converged technologies but then also in core Ethernet technologies as well. So the market opportunity is expected to grow significantly, if you look at the total market that we served last year, you probably have something around $1.7 billion if you fast-forward to 2014, you will probably close to the $3.5 billion so there is roughly a doubling of the market over a number of years and roughly a 20% growth in the overall market that we serve on an annual basis.

CapEx, tremendous positions grow itself, we are excited about the future.

Bill Shope - Goldman Sachs

Well if you look into more recently your most recent quarter, I think many investors were surprised the strength of the business particular the fiber channel portion of the business and I think a lot of the surprise there comes from the fact that we are pretty concerned about the macro environment. As I know you were as well few months ago. What do you think that tells us your performance tells us about how the year ended, what enterprise spending is looking like going into this year particularly in the markets that you serve

We saw a slightly stronger end to the year than we had expected to, part of our growth in the December quarter was actually dampened by our InfiniBand business, by lower later we are going to talk about the decision that we have made to sell that business to Intel at this point in time but our growth was even stronger than the headline numbers if you take out the InfiniBand business that we have entered into the process of selling to Intel.

We never quite tracked the server market perfectly from quarter-to-quarter but if you look at the underlying fiber channel market in particular, it's a start, we had a very close correlation on a yearly basis to the underlying server market and obviously our growth is further accelerated against that server market by our participation and converged Ethernet markets as well.

So as we look into 2012 our expectations Global IT spend we actually use your Goldman Sachs number when we give consideration, we see the market development so we are somewhere in the mid-single digits little less than developed economies, little bit more in the emerging economies. We see services been slightly below those numbers but we storage been slightly above those numbers. When I access the overall markets that QLogic serves at the server and storage level, the public got something in the mid-single digits by way of growth.

So when I think about within the context of the company growth trajectory clearly we benefit by the 10 gig transition that comes with Romley servers as we move forward through this year and the participation in a market that we haven’t historically participated.

Bill Shope - Goldman Sachs

And I definitely want to touch on Romley in a bit but first I want to go back to something that you discussed in the opening question. I think part of the recent folks were surprised in general by the fiber channel business last quarter that as you we are talking there is this prevailing view net fiber channels under secular (inaudible).

I don’t think you all have denied that you have certainly I think argue with the curve that many folks would argue it's facing over the next several years. Can you talk about where the disconnect is in terms of that bearish view versus your view on what the fiber channel market.

Simon Biddiscombe

I think it comes back to an application sensitivity in the data center, okay, so when I talk to end users the biggest end users of fiber channel technology, I think there has been exception of part of investors that fiber channel is going to die and everything is going to be replaced by Ethernet or converged technologies.

The way I look is not the same thing, it is different horses for different course, okay, so when you're thinking about Goldman Sachs and you are thinking about mission-critical applications that have to be up under and in 24 hours a day, that is a fiber channel world and that stays a fiber channel world, okay.

There are other elements of the world that you may decide to deploy on Ethernet network, and somewhere in the middle is the concept of convergence but convergence is not for everybody. If we have got highly utilized Ethernet networks and highly utilized fiber channel networks, convergence doesn't quite have the same value proposition, it does if you have got underutilized networks, okay.

So our belief system around the long-term trajectory of fiber channel is it's going to be a very robust market for several years to come and we have got a plus or minus flat, so our expectation is that the fiber channel market that we serve today will continue to be there for several years to come because the most conservative person in the data center who is storage guy, who is bringing forth mission-critical applications on a daily basis is not going to change his mind about the technology he is deploying for the sake of saving a little bit of money on (inaudible).

So we have a fundamental belief system around the application needs of performance of robustness that are served by fiber channel that 8 gig, 16 gig and then 32 gig as well.

Bill Shope - Goldman Sachs

You just mentioned the 16 gig and 32 gig, can you talk about how should we think about these transitions and I know we are obviously starting go through the 16 gig transition.

Simon Biddiscombe

Yes its early days, a little bit of history, so the 8 gig transition began four years, almost exactly four years ago. I think we started shipping products in the March of 2008 timeframe. So, we have been shipping 8 gig products for four years and we have just got to about 70% of our shipments being 8 gig okay, the rest is 4 gig at this point in time. So these product cycles take extraordinarily long times to move from generation to generation, 16 gig cycle is eminent there is no doubt about it we have had our products with customer since the August, September timeframe. Most of the qualifications that were done through Romley recognize that Romley was supposed to have been shipping late last year; we have done with 8 gig fiber channel.

So, when Romley launches substantially all of the calls that have been done over test work the OEMs did interpret with both work and so on was 8 gig fiber channel and not 16 gig and then 16 gig will really start the round point to get to the second part of this year. Part of the reasons that’s cost actually, so the cost of a 16 gig solution in particular I understand that the adapter (ph) is very high at this point in time because the optical modules aren’t full production so they are relatively expensive. Lesser than issue is servers with the mezzanine card deployment, we obviously don’t have those modules.

So, 16 gigs coming, we have been getting all ramped once you get through the second part of this year and we will be there with our 55% market share in respective, and same with we have with every other generation of the technology.

Bill Shope - Goldman Sachs

Okay, when looking at the various portions of our working market, you have been a player in InfiniBand you just recently sold that business. You knew I think some folks view that as a potentially attractive opportunity longer term, so what led you to move away from that business?

Simon Biddiscombe

So there is really a couple of reasons, okay, so if you look back to the acquisition of the businesses that put us in the InfiniBand business back in the 2006 timeframe we were buying – there was an expectation that InfiniBand could be a relevant data center network and technology and that didn’t ever prove to be the case for us. InfiniBand has primarily been about the HPC market and the HPC market as it has evolved away from our core capabilities has required different levels of investment, different technology focus and a different go to market focus. So when we entered that market back in 2006 we were buying chips from Mellanox right and there was an expectation there will be other silicon providers who will join the fray and we did leverage silicon from other providers and so on.

Didn’t prove to be the case and now we have got to a point where Mellanox has hosting switch, we have hosting switch in a relatively small market certain $280 million market, so they are difficult for everybody to sustain that level of investment so kind of it moved away from our core paper focus in terms of technology and it moved away in go to market as well. Certain expectation was there would be primarily an OEM go to market where we would sell the products the OEMs, and the OEMs would drive their products without InfiniBand technology into an end user market prove not to be the case. It's still required enormous made a touch on the part of end users so that meant that I had go call an educational institutional or oil and gas company or Formula 1 (inaudible) who is putting together some kind of HPC crust of research or geophysical modeling or weather forecast and whatever it was.

We don’t have that, that’s not who we are, our model is very OEM centric in terms of how we go to market. So for two reasons technology centric and go to market centric, the business is just a follow-up the way from the core QLogic that exists today.

It actually for us works well because as I said in my opening remarks that InfiniBand business had been something of an on growth, if you look back over the last 11 quarters we would have gone faster in seven of the 11 quarters with InfiniBand, if you look at the nine month numbers for the first nine months of our fiscal year we would have gone faster with InfiniBand and if you look at the most recent quarter, the December quarter we grew 2% sequentially without InfiniBand we would have grown by 5% sequentially.

So it has been something of a dampener on the overall company’s growth trajectory even accepts in that others can Ethernet and the (inaudible). So we are convinced this is the right thing to do, one of our higher gross margin, one of the higher operating margin as we said it's EPS, you bring more cash to the table and focus is critical.

Bill Shope - Goldman Sachs

You know you have touched on it a few times and your previous answers the Romley transition, it's been a hot topic for this industry for QLogic for quite some time, it's now upon us, can you walk us through how you are thinking about what this does for QLogic this year, what it does for your TAM and then also sort of touch on the debates that’s out there, what this begins to do the competitive landscape particularly as we enter the convergence Ethernet network more aggressively.

Simon Biddiscombe

So if you think about how we have – children that are participating convergence and then Ethernet as a whole as I said we started investing converged technologies back in the 2006 (inaudible) and brought to market FCoE, Fiber Channel over Ethernet and that meant that the OEM customers end users could leverage the traditional fiber channel capability that they have always purchased from QLogic 10 million ports of so that have been deployed over an Ethernet wire essentially but the moment you use an Ethernet wire you need a separate Ethernet stand and that meant that every OEM had qualified to QLogic 10 gig Ethernet stack as well.

So now I have got every OEM with QLogic Fiber Channel, QLogic convergence and QLogic 10 gig E. the moment you got 10 gig E the product can be a standalone for 10 gig E adapter as well as it can be a fiber channel Ethernet adapter right, so the OEM have qualified each of my varies stacks in order to be able to bring a complete offering of QLogic connectivity to the market, okay.

Romley is an important event because you buy a server today and you still get it primarily 1 gig I/O on the Ethernet side, okay, and typically it's (inaudible) chip on the motherboard.

If you forward to the Romley servers which is the latest set of Intel processors that we will ship in servers beginning March and it's a 10 gig. So your I/O will be 10 gig standard essentially instead of 1 gig. QLogic did not pay 1 gig, QLogic does pay in 10 gig. So there is why Romley is important to QLogic beyond 10 gig Ethernet but also for convergence as well, the GoM (ph) convergence 1 gig wire do converge on 10 gig wire. So we expect to see both an increase in our fiber channel but Ethernet revenues and an increase in our 10 gig iSCSI and 10 gig Ethernet revenues when Romley processors start to ship.

We are very comfortable with the position we have been able to establish for ourselves, in fact if we just do through the first nine months of last year on the adapter side, as I said we are number two behind only Intel in the market, so we have established credibility, we have established the market presence for the company with Ethernet based technologies including convergence and iSCSI.

We are very comfortable with the trajectory we expected to take.

Bill Shope - Goldman Sachs

How we should think about the impact throughout this year?

Simon Biddiscombe

Difficult to say because it to be able to answer that I have would have to be able to tell you with certainty which OEMs would have which servers in the market on a month to month, quarter-to-quarter basis. So if you actually go to the Nehalem launches which is the last set of server launches, actually took about six months from first servers from the first OEM, the last servers from the last OEM was about a six month process and they all run their own development lines and made Romley’s different because it's been delayed and it's given the OEMs a chance to catch up with one another and so on but it's a six month window and within which people will launch servers if it's a same trajectory as we say with Nehalem launches a couple of years ago.

So, it's difficult to say how it's going to exactly manifest itself on a quarter-to-quarter basis. What I do think is the case, you don’t get the full benefit in the full December quarter, right, so how is that six month trajectory and you start in March that assumes everybody shipping everything with 10 gig by the time you get to September and therefore the December quarter would be a complete quarter.

The other issue you will have to only time will tell the mix of what continues to be shipped based on Nehalem launches processors versus what will be shipped based on Romley processors. So as the OEMs figure out how much it is going to continue to be a value play versus a performance play of which processors are going to ship in which environments, you may start some 1 gig – the chips as well as paying the stuff.

Bill Shope - Goldman Sachs

Obviously the benefit of Romley, of this whole transition is that you TAM expands, but I think the other side of that is the push back on that is that the margin levels in the Ethernet and Converged world is lower than what you have enjoyed in the past in fiber channel and in many cases.

And also historically you really built the business around a very profitable duopoly market in fiber channel and now you go up against about comes about comes in and so to the world as well anyway.

So how do we think about that and the risk inherent in that transition.

Simon Biddiscombe

So there is one comment you made that I will kind of correct, okay, you said that as you move to Converged the margins changed, okay, in the true Converged piece which still requires my private channel storage capability, I am actually able to protect my margins, I am getting private channel as well as Ethernet okay and my private channel is my crown jewels, if you will within the context of the business model. Ethernet definitely has a different margin browser sitting with it, part of that is because the competitive dynamic introduces Broadcom, it introduces Intel and introduces about half of those another players at this point in time who are yet to be consolidated out of existence essentially.

So there is no doubt that the margin characteristic in the Ethernet world is different than the fiber channel world, we have built that into our expectations for the business over an extended period when we last laid our business model, we said we would start at 66% margin and gross margin and we would expect that to erode by roughly a point a year, okay, while 18 months ago and my guidance for the current period is 68% gross margin and I still expect to rose now a Ethernet becomes a more significant part of the mix but we continue to over deliver frankly because I think we do a really good job in managing the margin profile of the company both in the gross margin and the operating margin as well.

But it a different competitive world and where we have core strengths predicated on convergence and so on, our credit capabilities that translate into Ethernet world. We have technology differentiation with some specific functionality we have introduced and so on that I think sets us up well to benefit from the Ethernet growth but it does have a different margin profile no doubt.

Bill Shope - Goldman Sachs

Yes that’s fair. I have a plenty more questions, do you want to open it up for the audience, make sure you have some interactivity here, is there any questions out in the audience?

All right well maybe a little later, we will open it at the end, you know I want to move on to another topic one of the hot topics within the storage network systems were of as then, this moved towards flash everywhere so to speak and there has also been a lot of excitement over the context of putting flash within the server speeding up by reducing latency.

I think the question you know when someone is talking about Fusion-io, if one of those types of companies is what that does to the HPO world. So how did you think about that, is how is it sort kind of strategy…

Simon Biddiscombe

So we see significant opportunity associated with flash based technologies in the data center right in the same way as everybody else sees significant opportunities associated with the technology whether it's SSDs replacing SATA drives and storage arrays and servers whether it's PCIE deployments of cache to improve SAN performance or to improve application performance there is more opportunity than anybody can get their arms around at this point in time, more participants in the market than you can imagine at this point in time.

We see significant opportunity in the application of flash based technologies to the world that QLogic is in and we have we see more opportunities than risk than anybody.

Bill Shope - Goldman Sachs

Now when I guess just to dig into that a bit more, I mean the concept of when you looked into some of these presentations from the leaders in this emerging market, they talk about getting rid of legacy protocols, getting rid of the typical storage networking gear. I mean obviously that’s within a portion of the market at this point and in an environment where down the road you have performance within the server in the flash and you don’t have traditional storage networks on the outside again understanding that wouldn’t be the entire market, where does QLogic fit into this.

Simon Biddiscombe

So we got a lot of things going on under the covers, we haven’t broken eggs for people that think about what do next generation technologies do to the core set of markets that QLogic serves today, obviously we are not asleep with the wheel (ph) right, so we have been investing for some period of time since about 18 months ago, I started talking about incremental organic investments that we were going to start undertaking that were targeted at expanding the opportunity that QLogic serves and we haven’t launched products we expect to be sampling products at the end of the this quarter but we haven’t talked about what they are but you should rightly assume the leverage of new technologies and that we are going to be very well positioned with exciting products to serve that you said about the patients and opportunities.

Bill Shope - Goldman Sachs

You know I guess a somewhat related question one of that sort of in the server market has been – we have seen this fairly substantial shift in growth towards the (inaudible) type company, many of which are just buying white box at risk and many of which don’t have a major fiber channel network absolutely.

So how do you think about that seeing maybe a logic portion?

Simon Biddiscombe

It's actually one of the most interesting changes that we have seen occur in the go to market for our business over the course of the last several year. So if you go back three or five years, I could call on IBM, HP, Dell, Oracle Net, EMC, six major customers and through my engagement with those customers I can get to every end user, okay.

Today, I still have to call on that same set of customers, okay, typically within that set of customers there is no cloud group swap. So I have to got to call the cloud group begin that set of customers as well as the traditional X86 based storage teams, okay.

And then I have to call up on the white box guys in Taiwan, then I have to call on the major cloud providers who are or who have the way with all to design their own infrastructure, okay. Then I got to call on a new set of customers who are targeted new set of products at that opportunity. Okay, so they are not necessarily X86 based processors, maybe they are ARM based processors or something like that right, so I have gone from one go to market called talking to IBM, HP, Dell, Oracle Net and EMC, the five different go to markets, all of whom have slightly different technology requirements. Most of them today are 1 gig world Ethernet, 1 gig world, if you use Google as an example. Google uses fiber channel for revenue TRP which is then what you would expect and there is some transaction processing I understand that this is based on private channel networks but they didn’t search for 1 gig world, it's not a 10 gig world, the opportunity opens up as we migrate to 10 gig and only if QLogic can prove to in our example Google that using our product will give them a significant improvement in the efficiency effectiveness of cost of deploying it's application, so it's all about been able to drive application improvement and performance, improvement.

So in that cloud world, so I didn’t get through the door unless I can offer a differentiated solution to those customers and some of the new products that we haven’t talked about yet often differentiated solutions that improve network performance and improve application performance.

Bill Shope - Goldman Sachs

Okay that’s fair and this is assuming something we are going to be hearing more and more…

Simon Biddiscombe

Most of this will get launched if not next quarter then sure after.

Bill Shope - Goldman Sachs

Any questions from the audience, all right, I want to switch over to the switch business if I could. Can you talk about your positioning in this market segment, how does it evolve particularly as we move towards more of a converged network world.

Simon Biddiscombe

Yes we have always been the number three participant in the fiber channel switch market that actually goes back to an acquisition that we entered in 2011, bought a company called Ancor Communication’s was a fiber channel switch provider.

Brocade’s number one, Cisco is number two, we are number three in the market and in the same way as this enormous brand preference for QLogic host technologies, there is enormous brand preference to Brocade switch technologies.

And I think over time we have rightly concluded that fighting the fight against Brocade at the end user level is not a fight that we can necessarily win easily.

So the current strategy and I am absolute convinced that this is the right strategy is to engage with the OEM customers who need QLogic fiber channel in top of rack switches or in blade switches or maybe in a box a stackable box kind of arrangement but the products will typically be OEM branded as opposed to QLogic branded so I am not fighting the fight with the QLogic brand, I am going to enable HP with a fiber channel switch capability and they can go side by side against Brocade. The twist on that, that has worked enormously in our favor over the course of the last couple of years is convergence, right, so if I am Cisco, I am Brocade, I have a full set of Converged switch capabilities that I can sell to end users.

If I am any other Ethernet switch company I don’t have the fiber channel or convergence switching capability and the only place you can get is QLogic, when the third participant in the market and the other two won't give you the technology, okay, so but the strategy continues to be is enable Ethernet switch vendors to go and fight the fight against Cisco and Brocade with a converged or fiber channel capability and the only one we have talked about at length and it's been shipping for an extended period now it's HP’s converged infrastructure where they take our basic sale and not case and sometimes it's a subsystem or blade or whatever it might.

But in that case it's nastic where they match our capabilities with Broadcom capabilities on the Ethernet switching side to bring together a converged switch that allows them to compete against Cisco and Brocade, so that’s the strategy, continue to deliver 8 gig in converged 16 gig in converged solutions to OEMs who have Ethernet capabilities but don’t have converged and fiber channel capabilities and allowed them to go on fight against Cisco and Brocade with end users.

Bill Shope - Goldman Sachs

So if we were looking at that portion of your business I mean how do you think about the economics?

Simon Biddiscombe

Actually it's very weird, it's kind of interesting, so it's varies enormously based on what solution I actually sell to individual OEM right, so if I am selling a chip it's likely to be higher gross margin but lower Asia-Pacific then selling a subsystem or selling a blade, right. So economies vary from OEM to OEM depending on how they choose to engage with us right you.

You buy a chip from us, you are not getting all the test and (inaudible) support that you do if you buy a subsystem or a full blade or a Top of Rack switch, it does a little bit of a Chinese menu to it, you can choose what you want to buy but you do with the implications that if you get it wrong.

Bill Shope - Goldman Sachs

Okay and so one of your major competitors doesn’t participate in the switch business and what have you learned thus far have been the key synergies that is having this synergy.

Simon Biddiscombe

It's actually interesting we have benefited from OEM both ends of the wire in terms of development capabilities, in terms of understanding switch functionality versus host functionality. There is no doubt that from a development perspective there are efficiencies derived from understanding both ends of the wire.

But there are very few companies that have ever been successful only in both ends of the wire, okay, so if you use the competitor, never have a switch business, still relatively successful on the host side, if you use Brocade wanted to be an adapter company and has close to 0% market share after four or five years of investment, right.

So there is a tremendous amount of positioning on the part of the OEMs but they don’t really want to let you on both ends of the wire they don’t want to lock (inaudible) necessarily. They will allow for some level of performance improvement if it's QLogic to QLogic, they will allow for some kinds of functionalities if it's QLogic to QLogic but ultimately they want to make sure they can sell who has a switch or who has ever host is most appropriate, okay.

Bill Shope - Goldman Sachs

Any questions from the audience? All right, I wanted to just shift if I could to thinking a bit back to fiber channel but from an Ethernet context you know you have invested quite heavily in developing your own Ethernet technology and then you are leveraging historic in cyber channel to go into this converged opportunity.

When I started from the other end and look at the legacy Ethernet providers, how had they done in developing cyber channel technology and particularly since some of them had pretty large balance sheet, how do you think about the hypervisors entries they had and sort of matching your fiber channel technology.

Simon Biddiscombe

Extraordinarily hypervisors, I mean we have got a 15 year investment in fiber channel that can’t be duplicated there is a reason Broadcom tried to buy Emulex, that’s the way you get the capability not by trying to invest and you can’t deal with number of operating systems, number of hypervisors, the variety of individual servers, the variety of individual fabrics and the variety of storage arrays, right.

They adapt to make sure that everything talks to everything. My Chairman used to refer to it with a smile on his face as the junk collector because typically there are a lots of problems that are solved in the adapter with software rights.

So every server is a little different and have performed, every switch is a little different and the place you tune for all of that is the adapter, so, there is reason there is two of us left in the market after 15 years and that’s the complexity of doing what we do.

The enormous software and firmware credibility that we have in end users is something that just can’t be duplicated or replicated, right, so Brocade tried five years, they have got all the right fiber channel DNA, they have got all the fiber channel DNA in the world okay and they have 0% market share as I said after five years.

So, why would we believe that somebody that has got no fiber channel DNA, would be able to put forth a solution, the Goldman Sachs would deploy in its data center in a mission critical application but needs to be up and running 24 hours a day. You are not going to take that risk.

Right, so if Brocade can’t be successful, why an Ethernet could be successful. So, to-date nobody else is fiber channel stacked and shipped, it's QLogic, it's Emulex and there is a tiny bit of Brocade.

Bill Shope - Goldman Sachs

Okay that makes sense. Final question and then I will open up to the audience for the closing of the session. You made it clear for the long time that returning capital to shareholders is a priority. Can you talk to us about buyback is your preferred strategy and whether or not that does something that could change over time?

Simon Biddiscombe

So the first strategy is always growth company factor, I will get the revenue levels so we are always looking at the M&A environment, we are always looking at acquisition, strategies that can accelerate the growth without taking us too far from our core technology and go to market capabilities. So M&A is always number one, in the absence of M&A buyback has been the historic way we refer to and capital to shareholders and we have actually we have purchased more than half the company. So, we have repurchased somewhere around $1.7 billion worth of the company’s common stock over the course of the late nine or so years.

We have taken out more than half of the common stock that existed in the company. We have believed for an extended period that the buyback was the right way to do that and not to have a dividend, as time has passed there is more of our cash that is based internationally as opposed to domestically but isn’t necessarily available for either buyback or dividend and therefore we have choose not to institute a dividend than risk had to take it away if that mix of cash got (inaudible) in the event that we wanted to undertake some M&A or something.

So, the buyback gives us all the flexibility in the world, we have from time to time scratch our heads on whether the dividend would be the right way to go as well and I suspect that once we close the transition with Intel and that brings cash back on shore we will scratch our heads on it again. But trying to record is the buyback and typically it's free cash flow on an annual basis that is returned to shareholders during the buyback.

Bill Shope - Goldman Sachs

You can probably imagine my response to the flexibility part is that obviously in today’s world leverage is also a possibility. So how is that going in your equation?

Simon Biddiscombe

Yes we think about, I mean we are always cognizant of capital structure considerations and debt is cheap, although it's cheap, everything is cheap at this point in time.

We don’t have a need for cash, all right, so yes we get lever up and yes we can use that to do something’s but we don’t, if we would rather keep the flexibility in the event that we did wanted to do something that was more significant that point down the road right, so having capital markets flexibility we deem to be an important element of who we are such that if we did want to enter into a bigger transaction but sometime way down the road then we can use the capital markets supposed to using it today and accelerated buyback or whatever it might be around.

So those don’t feel like the right strategies keeping the flexibility to drive the business feels like the right way to go.

Bill Shope - Goldman Sachs

Okay, makes sense, any questions from the audience we are about to wrap up, so this will be the final question. All right, well Simon, thanks for your time.

Simon Biddiscombe

Thanks Bill, appreciate it.

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