Analyst Conference Summary

conference date: October 29, 2009 @ 2:00 PM Pacific Time
for quarter ending: September 26, 2009 (1st quarter fiscal 2010)

At the time of writing, I own two competitors, Microchip (MCHP) and Marvell (MRVL)
Forward-looking statements

Overview: Good recovery quarter, but still below year-earlier revenues.

Basic data (GAAP) :

Revenues were $449.2 million, up 14% sequentially from $394.5 million, but down 10% from $501.2 million year-earlier.

Net income was $42.0 million, up over 400% sequentially from of $8.1 million, but down 38% from $67.6 million year-earlier.

EPS (earnings per share) were $0.13, up over 300% sequentially from negative $0.03, but down 38% from $0.21 year-earlier.

Guidance:

December quarter (Q2 fiscal 2010) revenue expected between $450 and $465 million. Gross margin 57% to 59%. Operating expenses up to $175 to $178 million. GAAP EPS $0.16 to $0.20.

Conference Highlights:

Results exceeded guidance. 290 basis point increase in gross margin; 730 basis point increase in operatin margin y/y. Free cash flow was 25% of revenue.

Special expense items reducing earnings by $0.03 per share net were: $16.9 million benefit for stock option related settlement; $8.3 million asset write down; $16.8 million tax provision for international restructuring.

Bookings increased 10% in the quarter. 90 day backlog increased 4% to $288 million.

Cash and investments ended at $937.6 million, up $24.2 million in the quarter. Cash flow from operations was $138.5 million. $29.2 million capital expense. $61.4 million was paid in dividends, and $17.6 million was used to repurchase shares. $25.6 million reduction in inventory, which is now at target.

A cash dividend of $0.20 per share will be paid on December 4, 2009, to stockholders of record November 20, 2009.

Cost of goods sold was $197.6 million, leaving gross profit of $251.6 million. Total operating expense of $161.5 million included: research and development $116.7 million; selling, general and administrative $55.0 million; impairment of assets $8.3 million; and two items that reduced expenses by $18.4 million. This left operating income of $90.1 million. Interest and other income was $1.9 million. Income tax provision was $50.0 million.

Consumer segment showed strong revenue growth. 33% of total revenue. LCD TV chips particularly strong. But expected lower in December quarter, especially for cell phones.

Computer segment also showed strong revenue growth. 25% of revenue. Server and financial terminals strong, plus notebook recovery. But notebooks expected weaker in December quarter. New storage products are shipping.

Communications segment resumed growth. 18% of revenue. Networking and data communications up the most. Base station bookings for China resumed.

Industrial segment began to recover. 24% of total revenue. Exceeded expectations. 22% increase in bookings in quarter. Automotive design wins now ramping for entertainment modules for Europe and Asia.

DigiKey relationship expanded from just U.S. to global.

Q&A:

Industrial market demand increase is broadly based. Avnet-based design wins have only begun to ramp.

Notebooks down in December quarter? Down slightly because of normal seasonality following normally strong Q3.

When will you get to 60% margins? We are predicting 58%, this is partly because of ramping of high-margin industrial products. As the mix and top line improve we can get back to 60%.

Regulators for notebooks? Mostly we have shifted to higher-value products like battery fuel guaging and display. We still have some power management, but it is not that significant any more. The Windows 7 launch should not affect us.

Geographic tax charge for December quarter? $15 million, the GAAP guidance excludes that amount, the same as this quarter.

Cell phone adjustment? Most of our revenue comes from 2 large Korean customers. This is usually a quarter where they have bullish selling plans. We don't know what their sell-through will be like. We believe there will be a reduction in our cell phone sales. This is feature phones, but smart phone sales should be strong.

We have lots of room to gain more market share in the smart phone and feature phone markets and analog base band.

Use of cash? Priorities are unchanged. Grow the business, including small acquisitions. Second is dividends. Third is share repurchases. We are not yet 100% convinced we are out of the economic problems of the last year. Repurchases will remain modest until we can see a full recovery.

Our distributors are more bullish as a result from input they got from their customers. They may more more product than expected in the quarter.

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