Analyst Conference Summary

conference date: April 30, 2009 @ 2:00 PM Pacific Time
for quarter ending: March 30, 2009 (3rd fiscal quarter 2009)

I own two competitors, Microchip (MCHP) and Marvell (MRVL)
Forward-looking statements

Overview: Cash flow positive despite big revenue drop and negative GAAP net income.

Basic data (GAAP) :

Revenues were $339.7 million, down 18% sequentially from $410.7 million and down 30% from $487.4 million year-earlier.

Net income of negative $26.4 million, improving sequentially from negative $38.8 million, but down from positive $61.0 million year-earlier.

EPS (earnings per share) were negative $0.09, improved sequentially from negative $0.12, but down from positive $0.19 year-earlier.

Guidance:

Revenue in June (4th fiscal) quarter of $350 to $380 million. Gross margins 47% to 50%. Operating expenses $170 to $175 million. Excluding special items, GAAP EPS of $0.03 to $0.08 per share. Expecting strong cash flow from operations.

Dallas Fab will do last runs, requiring special accounting, reducing gross margin by about 1%. Will be fully closed in Q4.

Conference Highlights:

Bookings increased during the quarter by 13%, and 90 day backlog increased by 15% to $238 million. New cell phone chips have begun to ship in volume. Also larger customers may be restocking their inventories. Cash dividend will continue to be paid. Contuing to reduce costs.

Revenue declined in all 4 end markets, but surpassed guidance.

Consumer was 28% of revenues. Cell phone design wins were ramped up. Expects to continue to make gains in this segment.

Industrial was 28% of revenues. Impacted by weakness in distribution business. Expected to decline further in June quarter. But gaining share in medical ultrasound market. Also strong in new electricity meters.

Computing was 23% of revenues. There was a recovery in notebook display.

Communications was 21% of revenue. Wireless and wireline buildout in Asia helped exceed expectations.

GAAP gross margin was 53%, at high end of guidance. Factory utilization was 57%. Inventory was reduced, leading to lower than expected utilization.

Cash balance dropped $27.2 million to $898.3 million. Cash flow from operations was positive $106.0 million, but $31.9 million was spent for acquisition of Innova Card and two Zilog remote control product lines; $61.0 for cash dividends; and $36.0 for capital expenses. Inventories are down to $240.0 million. Accounts receivable is down to $196.3 million. No stock repurchaes in quarter.

Cost of goods sold was $172.0 million. Gross profit $167.7 million. Operating expenses of $184.7 million consisted of $121.0 million for R&D, $48.8 million for selling, general and administrative, $11.0 for restructuring, and $4.0 million other. Leading to an operating loss of $17.0 million. Other expense was $0.2 million. Income tax provision was $9.2 million. These GAAP numbers include stock based compensation of $39.6 million. Cost of goods sold included $12.4 million in accelerated deprectiation.

Tax situation changing to reflect the ex-US shipments of products. In this quarter we had $9 million in extra taxes due to transition to new structure, which should reduce tax rate long run.

Made more headcount reductions in April. Also will be required to take 5 more days without pay in the quarter. 401K payments remain suspended.

New Zilog product line will cause some temporary expense increase.

Q4 special expenses should be $12 million accelerated depreciation, $4 million for severance, and $10-12 million tax provision for international restructuring.

Believes cell phone inventories are at normal levels, so orders should reflect end demand. Believes dollar content per smart phone will increase at the major smart phone producers.

Q&A:

Utilization impact on gross margins? There will be the impact we said from the ongoing ramp down of Dallas plant, but that should be about all. There will not be a merit increase this year, which had typically impacted margins in the second half of the year in the past.

Cell phone business in Korea? Most of our revenues come from high-end phones, and had been mostly with Korean customers. We are seeing our Korean customers gaining market share. We are getting design wins outside Korea now. Expanded from CDMA to 3G phones as well. We have only a small percentage of the overall cellphone market, so there is room to make more gains.

China? What we are hearing from customers is that all of the phase A infrastructure investments now need to be absorbed, but phase B should start relatively soon.

How much of guided increase is due to share gain, how much to inventory normalization? It is hard to tell. Cell phone includes both. Notebook and display is just restocking.

Acquisitions? Should contribute about $5 million in revenues in fourth fiscal quarter.

Tier 1 handsets customers? We have 4 out of 5 of the top handset suppliers, and are working on the fifth. Our dependence on Korea should decrease.

Revenue size of Chinese meter market? We believe there will be 150 million units, we don't want to talk about our prices per unit (ASPs).

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