Welcome to the Q1FY09 Semtech Corporation earnings release conference call (Operator Instructions) Mr. German you may begin your conference.

Welcome to Semtech Corporation’s fiscal year 2009 first quarter conference call. I’m Todd German Director of FP&A and Investor Relations and we have just released unaudited results for our first quarter that ended April 27, 2008. For the next 45 minutes or so Mohan Maheswaran, Semtech’s President and Chief Executive Officer, and Emeka Chukwu, our Chief Financial Officer, will be discussing those results and answering your questions. Before I turn the call over to Emeka, I want to remind everyone of the following important information. This call is open to all interested parties in accordance with Reg FD. Any questions about our performance, operations, plans or our estimates of future financial results will be considered now. We are unable to say if there will be another Reg FD plan opportunity for you to ask questions before the next quarterly conference call. Semtech reports results based on generally accepted accounting principles, commonly referred to as GAAP. The results announced today are preliminary, as the quarterly review by the company’s independent registered public accounting firm is still under way. As such, these results are subject to revision until the review is completed and the company files its quarterly report on Form 10-Q. This quarter we have also made reference to certain non-GAAP measures. These non-GAAP items are provided to enhance your overall understanding of our comparable financial performance between periods. In addition, management generally excludes certain items in managing and evaluating the performance of the business. This conference call will include forward-looking statements. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives, and expectations. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Some of these risks are discussed in our most recent filings with the SEC on Form 10-K and 10-Q. Although a replay of this call will be available on the Investor Relations section of our website, we assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. For those interested in learning more about Semtech, CFO Emeka Chukwu will be presenting the Oppenheimer Annual Technology Conference in Boston on June 4. Thank you for your attention on this important preliminary information and I will now turn the call over to Emeka Chukwu, Semtech’s Chief Financial Officer.

Revenues for the fourth quarter of fiscal 2009 were $74.4 million, a 23% increase from the same quarter last year and down 5% sequentially. The increase in year-over-year revenue was driven by strength in sales of our protection products, our power discrete products, and our power management products. As expected, revenues were down sequentially due to seasonal weakness and demand for our computing and non-handheld customer products. During the first quarter 60% of our revenues were derived from customers in Asia, 25% came from North America and 15% from Europe. For the fourth quarter revenues from OEM sales represented approximately 43% of total revenues, wide distribution represented approximately 57% of total revenues. All this ramp-up sequentially in Q1 resulted in a book-to-bill above one. We saw strength in our consumer and communications and markets driven by demand for our protection products. All those for our industrial and military products remained very strong. In [inaudible] seasonality, we saw a pressure decline in auto’s for our computing products. Net those autos accounted for 41% of shipments during the quarter. Our GAAP net income for the quarter was $8.1 million or $0.15 per diluted share, up from $7.9 million or $0.11 per share for the same quarter last year, and down from net income of $14.9 million or $0.23 per share for the fourth quarter of 2008. We expect a GAAP net income of $0.16 to $0.18 per diluted share in the second quarter of fiscal 2009. For the first quarter expenses related to equity-based compensation were $4.8 million or 6% of revenue. This is an increase of approximately $500,000.00 from the fourth quarter of fiscal 2008. The increase was due to the alignment of the timing of executive grants with the company’s planning cycle. We expect equity compensation of approximately $5 million in the second quarter of fiscal 2009. During the quarter the company incurred one time charges totaling $2.2 million as it undertook certain activities to enhance overall execution in some of its business units. We expect these actions to realize annual cost savings of approximately $1 million. Our GAAP tax rate in the fourth quarter of fiscal 2009 was 22.3% compared to 26.8% for the fourth quarter of 2008. I the fourth quarter of fiscal 2008 our effective tax rate was impacted by the recovery associated with the now settled insurance litigation. We expect our GAAP tax rate for the second fiscal quarter of 2009 to be approximately 22.3% based on projected regional mix of income. The non-GAAP numbers discussed today are due to the impact of stock-based compensation, amortization of acquisition related intangibles, expenses and the recovery associated with the now settled insurance litigation, the gain on the sale of used real estate, certain restructuring expenses, expenses related to the now complete stock option investigation and expenses related to ongoing offshore related matters. On a non-GAAP basis, net income was $13.4 million or $0.22 per diluted share for the first quarter of fiscal 2009. Net income for the same quarter last year was $10.6 million or $0.14 per share. For the fourth quarter of 2008 net income was $16.8 million or $0.26 per share. We expect non-GAAP earnings in the second quarter of fiscal 2009 to be between $0.23 and $0.24 per diluted share. Non-GAAP gross margin for the fourth quarter of fiscal 2009 were 55.3% a 20 basis point decrease from the fourth quarter of fiscal 2008. The benefit from a greater mix of higher margin of revenue was offset by lower manufacturing volumes. We expect non-GAAP gross margin during the second quarter of fiscal 2009 to be sequentially flat to up 40 basis points. We remain committed to exiting the year at close to the mid-point of our 55% to 60% non-GAAP gross margin model, driven mostly by revenue from new products. Non-GAAP restructuring and development expenses were $10 million for the quarter. This represents 15.5% of sales compared to 2.9% in the previous quarter. Despite the cost benefits from our restructuring activities, we expect R&D spending to remain relatively flat at $10 million in the second quarter of fiscal year 2009 as we accelerate our new product development expenses. Non-GAAP SG&A expenses were $15.2 million for the quarter, an increase of $100,000.00 from the fourth quarter of fiscal 2008. This represents 19.2% of sales, the same as in the fourth quarter of fiscal 2008. This increase in SG&A spending reflects the impact of upgrading our sales force. We expect SG&A spend in the second quarter of fiscal year 2009 to remain relatively flat at $15.2 million. Interest and other income was $1.7 million in the first quarter. For the second quarter of fiscal year 2009 we expect interest and other income of approximately $1.5 million. The decrease is due to lower average interest rates. The company’s non-GAAP effective tax rates for the fourth quarter of fiscal year 2009 were approximately 24.5% compared to 20.7% in the fourth quarter of fiscal 2008. The higher tax rate was due to the absence of any benefit from foreign exchange fluctuations in Q1 2009. If you recall, our fiscal year 2008-tax rates were favorably impacted by the [fact street of addition] for all the year last currency exchange activity associated with the weaker dollar. We expect our non-GAAP effective tax rate for the second quarter of 2009 to be approximately 24.5%. As a reminder, the actual rate can vary from the forecast based on the geographical mix of our income, fluctuations in currency exchange rates, revolutions of deferred tax assets and liabilities. The diluted share count for the fourth fiscal quarter was 52.1 million shares. We expect diluted weighted average share count spending of $62.5 million shares in the second quarter of fiscal 2009. This forecast can vary based on the average stock price for the quarter and the level of stock option exercises or stock buy backs. Turning to the balance sheet, our balance sheet remains strong. Semtech ended the quarter with approximately $229 million of cash and investments on the balance sheet, an increase of $16 million from the end of fiscal 2008. During the first quarter the company spent approximately $2.1 million on property, plant, and equipment. Depreciation and amortization for the first quarter was approximately $2.1 million, including approximately $233,000.00 of intangibles amortization. In the second quarter we expect capital spending to be approximately $4.5 million. The higher levels of capital spend is to support the expected promotion ramp of newer platform products in our power management and advanced communications and sensing businesses and to support an increased supply of ramp up of our power discrete products. We expect depreciation and amortization to be approximately $2.2 million in the second quarter of fiscal 2009. The days sales are spending in accounts receivable was 42 days in the first quarter, up slightly from 38 days in the fourth quarter. In absolute dollars net inventory increased by $3.8 million in the first quarter as compared to the fourth quarter of 2008 and the deals of inventory increased to 84 days from 68 days in the fourth quarter of 2008. Most of the increase was the wafers and dye back as one of our key wafer suppliers had a plant shut down for the first week of the second quarter and also to support a stronger Q2 demand. Inventory at our distribution partners was up from Q4 levels also in support of higher demand from our end customers. In summary, we are pleased with the company’s financial performance in the fourth quarter.

I will discuss our Q1 fiscal year 2009 performance by end market and by product group and then discuss our Q2 fiscal year 2009 outlook. Q1 of fiscal year 2009 was another very good quarter for Semtech. We achieved the highest Q1 revenues in the company’s history. This now represents our fourth consecutive quarter in which we achieved a revenue record for the quarter. Semtech achieved $74.4 million in revenues in Q1. This is above the high end of our revenue guidance and represents a 23% increase versus Q1 of fiscal year 2008. Non-GAAP gross margins were 55.3% and non -GAAP EPS grew on an annual basis by 57% to $0.22 per diluted share. We are pleased with both our revenue and EPS performance in Q1. Demand for our advanced common sensing products and our power discrete products was relatively strong in the quarter, driven mostly by the high end industrial, high end in medical, military and communication segments. With the changes in our strategy over the last two years, we have see a change to our market segment mix, so we have decided to consolidate our market segment reporting going forward. Specifically, we will start to report on our consumer business, which has recently become a more significant contributor for Semtech. Starting this quarter we will provide the revenue broken out by market segment in four forward segments: consumer, industrial, computing and communications. Included in our consumer segment will be market segments such as handhelds, set top boxes, digital TVs, games, digital video recorders, digital still cameras, blue tooth, headsets, and other consumer equipment. Included in our industrial segment will be automated meter reading, military and aerospace, medical, automated test equipment, security, automotive, home automation, and other industrial equipment. Included in our computing segment will be desktops, servers, notebooks, graphics, printers, and other computer peripherals. Included in our communications segment will be base stations, patent optical networks, switches and routers, and other networking equipment; wireless LAN, voice over IP and other communication infrastructure equipment. In Q1 of fiscal year ’09 revenues from consumer accounted for 46% of overall revenue during the quarter, while revenues from computing accounted for 18%. Communications accounted for approximately 19% of revenue and industrial accounted for 27%. As expected we saw a sequential seasonal decline in our computing business, while we saw modest strength in consumer, driven by handhelds and strength in communications driven by networking and communications infrastructure equipment. Now let me discuss the performance of each of our product groups in Q1. In Q1, as expected, our power management revenues declined by 20% sequentially, but increased on an annual basis by approximately 22%. Our power management business continues to make steady progress. The demand in Q1 was driven mostly by the computing and consumer end markets. Our power management business unit is becoming more balanced with revenue contributions from all segments. New power platforms that will be released in Q2 and Q3 will drive the balance further and continue to expand our SAM. In Q1 Semtech introduced a new family of programmable, high input voltage buck regulators targeted at a wide range of applications such as DSL modems, [set up boxes], cable modems, and digital TVs. This is the first family of high voltage, high performance buck regulators that targets such a broad range of market segments to be released in some time. We are already seeing good design wins and orders from this family of products. As I have discussed in the past, Semtech’s strong reputation in integration of power management, delivering extremely high efficiency at very small form factors continues to serve us well as customers recognize the architectural power advantages they can realize by using Semtech products. This quarter we also completed a series of restructuring actions to improve overall execution in two of our product groups. One of the product groups affected was our power management product group. These actions included the closure of several design locations and a reduction in force in one of our power management locations. The impact on our power management momentum due to these actions is expected to be minimal. In Q2 we expect our power management business to increase nicely driven by growth in consumer, communications, and computing systems. In Q1 our protection revenues declined sequentially by 3%, but increased 28% on an annual basis. Demand for our protection products remained strong in the quarter driven by the consumer and communications markets. The increase in demand for our protection devices is being driven by the increase in the number of corps requiring protection and the increase in system returns our customers are facing due to unprotected systems. Our protection business unit continues to execute quite superbly and strategically we are very encouraged by the design win momentum of our protection products across all our target markets. In Q1 we released an exciting new 5-volt protection platform to protect display port interfaces from ESD, cable discharge events, and latch-up. As display port interfaces become more pervasive we expect these ports to be protecting Semtech protection devices. In Q2 we expect our protection revenues to increase driven by continued strength in all our target segments. Our power discrete revenues were up approximately 16% sequentially in Q1 and up 65% on an annual basis, to once again achieve another revenue record. Once again, we are delighted with the execution in this product group and our customers continue to award us increasing opportunities as we support their supply and constrain demand. This business is driven by demand from the aerospace, military, industrial, and high-end medical markets. Our focus on improving our supply through put is driving our ability to serve this unfulfilled demand in these market segments. In Q1 we started to take orders for our first space level certified products and we expect to start shipping these products in Q2. We will continue to see growth in our power discrete business and in Q2 we expect our power discrete revenues to increase modestly again. Revenue for the advanced communication and sensing business increased 4% sequentially. On an annual basis our advanced common sensing business was down 2%; however, excluding our test and measurement business, which was down significantly, our advanced common sensing business would have been up 15% sequentially and 205 on an annual basis. Our advanced communications and sensing business momentum is beginning to accelerate as we introduce new, exciting wireless sensing and consumer analog platforms to the market. Part of our Q1 consolidation actions included some reductions in our advanced common sensing product groups, in line with our strategy. Specifically, we are defocusing a slow growing ATE segment in favor of the fast growth consumer segment. Solid development execution on our new road maps is critical to the future success of our advanced common sensing business, as you expect these new platforms to positively accelerate the top line and drive further operating leverage. To date the progress is very good and we continue to monitor the progress very closely to insure there are no missteps. In Q1 we released another member of our highly integrated, low power sensor interface platform targeted at the industrial sensing segment. Semtech’s unique platform enables customers to use very low power sensor technologies to build high performance, low power, sensor systems. In addition, we began sampling of our first consumer analogue platform targeted at a broad range of consumer applications and we are already seeing advanced orders. We expect to formally announce this platform once it is fully released. The business from these new platforms is expected to start to contribute modestly in the second half of fiscal year 2009. In Q2 we expect revenues from our advanced common and sensing business to increase. From a distribution POS standpoint in Q1 of fiscal year ’09 as expected we saw total POS decrease due to seasonality. The POS decrease was driven mostly by Asia across all segments. Distributor inventory was approximately flat in the quarter as expected. We believe that our channel inventory is now at the levels necessary to appropriately support our customers as we enter Q2 with a strong outlook. Moving on to new products, we released eight new products in Q1. In addition to some of the platforms mentioned earlier in the call, we also released some other leading edge protection and power management platforms, including an industry leading integrated license platform and a low profile ESP protection platform that replaces incumbent discrete protection devices. New product development continues to be an area of focus for us as we try to change our mix and address new market segments. Design wins from these new products will start to enhance annual product revenue and overall gross margins in the second half of fiscal year 2009. Turning to design wins, we recorded over 665 new design wins in Q1, which represents another good design win quarter for the company. The design wins were once again well balanced across several of our product groups and regions, with Asia being somewhat softer. With the new platforms we have recently announced we expect to see a continuation of the strong design win momentum in the future. One of the important take aways on Semtech design wins is that we are penetrating some of the fastest growing segments in the industry. These markets include multi-media handhelds, next generation wireless LAN systems, high end LTV TVs, WiMAX M3WG systems, voice over IP systems, BDSO platforms, ultra mobile PCs, advanced medical systems, and automated meter reading systems. Not only are these some of the most attractive market segments from a growth standpoint, but we have multiple opportunity in each segment. In addition, Semtech’s portfolio is being recognized by many of our customers as being truly differentiated in the areas of high performance, low power, high integrated, highly efficient, small form factor and truly green. We believe that we are uniquely positioned to benefit from these differentiators in the years ahead. Now let me discuss our outlook for Q2. Our book-to-bill going into Q2 was well above one. Given the current momentum in all four of our product groups, we expect Q2 revenues to be up between 3% and 6% sequentially. If we achieve the low end of guidance or $76.6 million, Q2 revenues would be the highest Q2 in the history of the company and represent 14% annual growth. To attain the mid-range of our Q2 guidance or $77.7 million, we needed net terms orders of approximately 34% at the beginning of Q2.

(Operator Instructions) Your first question comes from Shawn Webster - J.P. Morgan.

On the terms required for your Q2 outlook, they seem a little bit on the low side. Is there anything that’s causing you to be a little bit cautious or how should we think about that given the high turns you’ve had over the last several quarters?

Well the terms are a little bit lower than previous quarters, but I think it’s kind of in line. When we look at it by market, we think it’s a pretty reasonable number given the backlog and the kind of demand forecast we have for Q2.

How were your product lead times in the quarter? Was there anything that was going out, coming in or are they pretty stable?

From a supply standpoint?

In terms of fulfilling orders for customers.

Yes, supply lead times are pretty consistent. It varies from product line to product line, but I would say six to eight weeks for the majority of our products, then we have some that are in the 10 to 12 week time frame.

How was pricing in your Q1 and what do you expect for the rest of the year?

Pricing, it varies from segment to segment. Obviously in consumer and computing it continues to be quite challenging. It is a very competitive environment and it’s nothing surprising. It’s what we expect and I would expect it to continue through out the year, the second half will probably be a little bit more challenging than the first half.

When you look at your design win progress we’re getting to date and maybe what you’re expecting in terms of design wins over the next couple quarters. What’s the outlook for 2009 in terms of your end markets, which ones do you think will be the best growing for you?

We have a fairly balanced product portfolio and a fairly balanced end market portfolio. We are putting a little bit more emphasis now on some of the consumer applications and some of the non desktop and notebook computing applications, so I would say there’s hope for there that because some of the platforms are targeted at some of those new applications we’ll get some of the design wins there. Of the design wins that we currently have and that are coming through, I would say that they are kind of outside the normal design win spaces that we’ve been historically successful in, so that’s good news for us.

Then in terms of the restructuring charge, was that a cash charge and do you expect any more in Q2?

Yes, it was a cash charge. In Q2 we’re not really expecting that much more: probably something in the neighborhood of $200, 00, or $300,000.00.

Your next question comes from Steven Smigie - Raymond James.

In terms of gross margin you talked about getting to the mid-point of your 55% to 65% gross margin by the end of the year. Do you mean by the end of the fiscal year as was calendar year and what would the progression of that look like through out course of the year?

Yes, we do mean by the end of the fiscal year and our fiscal year ends in January of 2009. In terms of the progression, I think we’ve talked about the fact that we do expect to get to that point mostly from revenues from new products, especially new power management products. I don’t know that I could really point out a progression at this point, but everything that we currently leads us to believe that we should be able to come close to that target in that time frame.

The two factors that are going to drive the speed in which that gross margin transition occurs will be one, the mix going from less computing to more consumer and other light communications in industrial and then I think the other factor will be some of the new product platforms in our advanced common sensing business, specifically should generate much higher gross margins for us.

Can you talk a little bit about what gross margin might look like in the new categories you laid out there? Is it particularly above corporate average and one counter below corporate average, just that general, if you want to be more precise that’s fine too?

Well obviously the protection business is at corporate average. Our advanced common sensing business is slightly above corporate average, power discrete is above corporate average, and power is well below corporate average. From a market segment standpoint one would expect, and think this is probably in line with what we have, although I don’t have the details behind it: communications and industrial will be above corporate average, consumer will be at corporate average, and computing probably well below.

Just on the strong growth you’ve seen on the discrete into the aerospace etc., are you having any potential running into capacity constraints there yourselves?

Not really, aerospace we still have a lot of upside from the standpoint of improvement in our manufacturing process yields and our bottle neck is not really the capacity itself of the manufacturing flow, it’s more some of the peripheral elements. But, as we get our yields up and get more consistency in our flow through our supply chain, I think we’ll be able to increase the capacity. Obviously at some point if we continue to grow at this rate, then a year from now we may have to re-look at that.

Power management seems to be very strong on a say compounding the growth rate of the next couple years. Is that 20% to 25% sort of revenue grower just generally what that might look like?

The power management business is the business that’s going through a little bit of a shift. Obviously we’re trying to do less computing and a little bit more in other areas. The good thing about the power business is there’s so much opportunity for us and I think because we have highly efficient, high performance, small film factor, very green products, obviously everybody in the industry, all our customers, are looking more and more for those type of products, so there’s a huge opportunity there for us. I would say that we would grow above industry average rates there. The challenge, obviously as we try to move the mix to higher margin products is staying out of some of those low margin areas; how much revenue is lost in those areas.

Your next question comes from Craig Ellis - Citigroup.

How much further opportunity is there to find efficiencies and really add operating leverage through staff reduction as you look out over the next 12 to 18 months?

I don’t think there’s a lot of opportunity through star production. If I look at what we have done really over the last quarter it’s more making sure that we have the R&D in the right places and the whole system working so that execution can be very good. I’ve never been a fan of bringing down the R&D, getting rid of designers and things like that. I think the goal is more to just make sure we have an efficient engine. Our power management business and our advance common sensing business, if I go back when I first joined the company we had two different power management businesses, we put them together and now what we’ve really done is now made them into a more efficient business. Our advanced common sensing business was three companies that we had acquired; we put them together. We’re going through the fine-tuning of bringing that to a fast kind of efficient machine. I think we’re largely done. There may be a few things here and there, but I don’t think there’s much leverage there.

You’ve emphasized for the last three or four quarters, the emphasis that you’re putting on the consumer end market. How much of that designing strength are we seeing in your guidance versus what would come later in the year in terms of sequential revenue growth?

Most of it will be the second half. The consumer side of it is more driven by the handhelds to date; that’s where we have quite a lot of penetration. Power management is doing very well in consumer, but the real upside for us is we come out with consumer analogue platforms and put a little bit more emphasis on some of the efficiency improvements in the power side; I think we’ll see that in the second half.

On the inventory side where would you like to finish the quarter with on end in the quarter?

I think we talk about our model being somewhere between 65 days in times of very high demand and 75 days. Obviously we’re well above that at this point. It’s probably going to take us awhile to come down to the 75 days. My expectation would be that we should be somewhat flat to slightly down in some days of inventory at the end of this quarter.

Okay, five to slightly down in terms of days and then can you just provide a little bit more color in terms of your comfort with your channel inventories?

The channel inventory, we’re comfortable with it. We’re going into Q2 with a strong, our outlook is quite strong, and you can see from our guidance that we believe Q2 is going to be a pretty good quarter for us. Also, given that many of the customers that we’re working with now are starting to order in a slightly short of decline. We have pretty good visibility, backlogs pretty good and so we’re quite comfortable.

Your next question comes from Harsh Kumar - Morgan, Keegan.

Mohan, there was one very noticeable thing; there was a complete lack of caution on macro economy. It seems you’re feeling very good about where you are. Could you talk about maybe at this point in time how you’re seeing the general tone of business? Obviously it’s good, but do you feel at this point in time we’re past any concerns on the macro economy, is business that good?

To be honest with you, it is quarter-to-quarter right. We come up with very pleased in Q1, our backlog going into Q2 is quite strong. We like what we see in Q2. We like the fact that some of our new platforms are beginning to come out and get traction. We like the fact that we’re getting a little bit of balance, more balance in our portfolio and our market segment mix. All those things are good for Semtech. I also believe that, because of the uniqueness I talked about with Semtech that even in a recession and you know I’ve talked about this before, that Semtech’s one of the few companies that because of the strong balance sheet, because of our balance in markets and products and the fact that we have very leading edge technologies that can come to the customers and help them bring out really quiet innovative and disruptive technologies that I feel good where we are today. I also feel that given the shift in our power strategy that we’re starting to get some momentum in some new areas there. That’s the reason why I feel fairly good about where we are today.

Mohan, could you break out for us orders based on your new division of revenues, the four categories that you have, to give us a sense of maybe where orders are really strong or how they track versus the four new segments?

Are you talking about the end markets?

Correct, for computing and industrial and consumer and so on and so forth. Specifically, do you expect consumer to be up or were consumer orders up so far for the June quarter guidance?

Going back to the orders that we saw in Q1, communications were very good as we expected and industrial was okay, it was what we expected. Consumer was good actually, but that was driven mostly by protection products for handheld applications. Computing was actually weak as would also be expected. I think some was what we expected in the second quarter, we would expect that the consumer orders would start to pick up more in line for getting ready for the second half of 2009.

OpEx, very good control so far, how should we think about operating expenses? Would you keep a pretty tight handle for the rest of the year or how should we think about maybe as a percentage of revenue or operating expense? Then also your operating margin goals are they still pretty valid, the ones you’ve been talking about the last couple of calls?

Yes we are actually really focusing on controlling our operating expenses as we promised everyone. In absolute dollars we will expect the operating expenses to get, especially on the SG&A side, to be mostly flat, a little bit up, an increase here and there, in some software search and development. That is probably where we might be seeing some increases as we go through the year, mostly based on new product development at force. In terms of meeting operating margin mortar that was talked about, yes we are still very comfortable that if we achieve the revenue levels that we’ve talked about and getting gross margin expansion, that we should exit our current fiscal year at the low to mid point of the model.

Your next question comes from Sumit Dhanda - Banc of America Securities.

Your gross margin outlook for the second quarter up 30 basis points sequentially. The rough map says the incremental gross margins are in the low 60s. I’m assuming some of this is being fueled by a little bit of new product growth in the quarter. Is that sort of the trajectory we should be thinking about or is the portfolio product that you released later on in the year even more margin rich relative to what you’re seeing in Q2?

With the regards to our gross margin, I think we’ve actually laid the foundation that a lot of this passion in gross margin is going to come from revenues from new products, especially power management products that are for the customer on the consumer end market. We do expect that revenue rack to start happening in the second half of this year and that is when we would expect to see more involvement in full gross margin expansion.

So more than the incremental low 60s types gross margins that you’re seeing heading into the second quarter?

Low 60s.

Incremental gross margins, if you look at your revenue guidance…

Yes, there should be acceleration in the pick up of gross margin in the second half.

The power discrete segment is doing astonishingly well, I mean up 65% year-over-year. I know you mentioned the specific end markets, but is there anything specific that is causing such good growth in this business? If you could just talk to that a little bit.

Well what it is really Sumit and it goes back two years ago when I joined the company and we kind of put a renewed emphasis on looking at this business and talking to customers and then customers were telling us, look we really need Semtech to be in this space and to supply us. I would have been very nervous if it was one sub segment that was driving that request, but it wasn’t it was industrial, it was high end medical, it was aerospace, it was military, so we started to look at it more and more. We decided that if we could supply on a consistent basis and keep our customers happy they would reward us with more and more opportunity and that’s what we’ve been doing. Frankly, I think now that we have also entered the space segment, I think we can continue to grow that business.

You feel that obviously the growth rate is sustainable. Are there any competitive dynamics that trouble you or do you feel like this is a fairly fragmented market and the competitions not really an issue here?

Well there are competitors and the main one obviously is Microsemi is really the driving competitor leader out there. I would say that this is more our growth and our ability to continue to grow in this market is going to be driven by our customers and our customers want us, they keep telling us that to keep supporting us and I think that’s going to be the key thing. Plus, I think getting into the space segment and then gradual expansion of our supply chain I think is going to give us more and more opportunity. I don’t think this is a strategic segment for us five, ten years from now. I view it as a three to five year opportunity for us to do very well in this market place, support our customers when they need us, keep a very stable foundation for the company and then use it as a leverage to drive some other businesses.

On the inventory side, you said the plant shut down caused you to build some inventories as you exited Q1. I guess I’m curious as to why you won’t see a reversion to a lower inventory level as the instance is behind you when you exited Q2. Because, you talked about data of inventories just being flat to slightly down.

You can see from the guidance we’re expecting a very strong Q2. As is usually the case in previous high demand, there are tendencies that you have to bring an inventory in place to support that demand and obviously if the second half of history is to be our guide, we should also expect our second half to be strong, so the anticipation here is that we will continue to have a need to put inventory in place to support our demand.

I think there’s a key point there Sumit, that Emeka’s assumption and our assumption is that Q3 is also going to be strong.

Fair to assume that a fair chunk of the build up in Q1 was a function of this trend as opposed to the planned shut down that you had to account for?

Yes, definitely. In my prepared text I said there were two drivers for the increase in inventory: the first one was to shut down a defund rate and then the second one is distract that seeing our Q2 demand.

Your next question comes from Bob Gujavarty - Deutsche Bank. Bob Gujavarty- Deutsche Bank Securities: I think in your breakdown by end market, you used to provide a wireless handset as a percentage. I assume that’s in the consumer now? Would you mind breaking it out just for a historical reason?

We can go back, so in comparison Q4 for that market segment, consumer and handheld was 29% versus this quarter at 36%. Bob Gujavarty- Deutsche Bank Securities: Is it safe to assume that your percentage that went into the handset business was up Q on Q?

Correct. Bob Gujavarty- Deutsche Bank Securities: Did you repurchase any stock in the quarter?

No, we did not. Bob Gujavarty- Deutsche Bank Securities: Then when you think about it, in terms of inventory clearly there’s some, is there any risk in terms of the quality of the inventory in terms of any obsolescence issues or any potential in that regard, or are you pretty comfortable this stuff is long dated and there should be no issues there?

I don’t think there should be any issues because most of our inventory growth was in the product line that is pretty broad based, so the risk of solid science is pretty minimal.

Your next question comes from Doug Freedman - American Technology Research.

I noticed that you clearly have gained some traction again back in the handset market. I’m assuming that’s with the PMIC. Has that begun to ramp yet?

With the handhelds it’s both in protection and power. Protection has done very well and handheld high power is charges and also the wike LED, integrated wike LED drivers. I would say that PMIC, when you look at PMIC, we defined it and it’s defined in many different ways and ours I wouldn’t put it into the fully integrated category of a fully integrated PMIC at this point. So, we are getting traction in hand held’s, but it tends to be the non-fully integrated PMIC.

What is your feeling as far as the success of your customers? One of the pushbacks we’ve been receiving on the semi side is, hey orders are great, but if we look at the end markets, where is it going. What is your feeling as far as how well your customer base is doing and how your new products that are ramping, how the products that their selling in are doing. If you can give us some color on just the health of our supply chain.

It’s difficult for us to answer because we’re so diverse. I mean we’re very balanced across regions as well. I would say that there are some North American customers, the handheld customers specifically where you have very good momentum and yet it doesn’t necessarily translate into real revenue. One of the nice things about Semtech, we do have, take the handheld space, for example, where we are being career, we have stations in Twain, in China, in North America and Europe also and that’s true of most of the segments we play in, so we’re pretty global. I’ve put a lot of emphasis on that. If there are two regions where we’re not, it’s Europe and China. We can do a lot better in those regions and that’s going to be a focus for us going forward, but I think in general I would say it’s really tough to say how your customers are doing at this point in time. We can do it by segment, obviously there’s some computing customers that are doing a little bit better, I would say HP is doing a little bit better, for example, than Dell, but on the whole it’s kind of a tough thing to answer.

Can you give us a little bit of insight into sort of your strategy in the go to market? You’ve mentioned quite a bit that you’re really trying to re-staff the sales force and improve the sales execution. What is your thought on what sort of waiting you should have as far as internal sales support versus external and maybe going with more of an erect focus and where you are with that at this point in time?

The type of products we have, especially in advance common sensing and then with our power products, it’s really a technical sell and it really is an application sell. I refer a lot to platforms because they are application platforms that you have to sell in many ways, versus a simple product. It does mean we have to have FAEs and technical people and really technically savvy sales people and that’s more our approach. It doesn’t mean we don’t use reps and distributors, but we just need to have our people out there making sure that the knowledge base is transferred.

So you continue to feel strongly that it’s important to have the internal people?

Yes.

I’m having trouble sort of reconciling two of the things that you said: one of them being that lead times remain short, orders are coming in, and visibility is not, that orders are coming in with rather short lead times, but yet your turns have gone down so much. Is it that did people this quarter lay in some orders that is going to cause the turns to come down or is it just that you want to leave yourself with sort of a situation where we’ll have very strong growth in the October quarter?

I guess what I said was that visibility is better because our backlog is stronger. I wouldn’t say there’s anything that’s changed dramatically from the standpoint of order lead times. It’s been pretty consistent.

A few of the other questions have been focused on sort of the incremental gross margin question and how you get the gross margins there. Is there sort of a revenue number at which you need to achieve to get that 57.5% exiting the year?

Well Doug, we’re going to need higher revenues to make sure that we have the volumes, but I think we’ve talked about the fact that a lot of our gross margin expansion is going to come from new products. So the key for us is to keep our eyes on the percentage of revenue that is coming from the new products.

Your next question comes from Jeff Rosenburg - William Blair & Company

Todd, can you also give us the sequential comparison of what revenue was as a percentage of sales for the computing segment as you’re looking at it now in the fourth quarter?

It didn’t change. It was 21% in Q4 and 18% in Q1.

I assume that was the predominant driver of the strong decline in power management, that’s where the drop came in computing?

Mostly computing.

If I remember back to the real strong revenue ramp you had in the middle of last year, the reason the gross margin didn’t benefit was there was some opportunity to take on some business that was at a lower gross margin. It feels like as you get back to comparable levels in Q2 you should have a much richer mix already, but yet gross margins are only up slightly. Can you reconcile that a little bit as to why that’s not helping and then the new products are sort of layering on, on top of that?

Well currently the strength is driven by, currently in the last quarter it was driven by handhelds. Some networking kind of infrastructure stuff and communications and industrial, which tend to be a little bit higher gross margin than the computing sector, but Q4 and Q1 I think the computing revenue decline was fairly small, it wasn’t massive. I don’t think it was substantial enough to move the gross margin needle. Then we had the little bit of offset with lower volumes there, that gave us lower absorption and that resulted in a lower gross margin.

I guess I’m looking more at Q2 as things come back up to levels that are more comparable to what they were in the back half of last year and just thinking that it felt like the mix should be richer, but maybe what you’re saying is it’s not all that substantially different, in Q2 versus the second half of last fiscal year.

Right, yes.

Could you give us an update given there was some pretty big sequential moves in the rough breakdown of revenue by product segment?

By business chains you’re looking for, so…

Yes, power management, protection.

Yes, power was 24%, last quarter it was 28%; protection was 48% in Q1 and 47% in Q4; AC&S is 17% in Q1 and 16% in Q4; and power discrete was 11% in Q1 and 9% in Q4.

Your next question comes from Sumit Dhanda - Banc of America Securities.

Emeka, I just had a quick follow up on how we should think about share con, I’m assuming the share con was down in Q1 despite the lack of repurchases simply because y our stock price is so depressed. As you look forward, I mean is the idea that you won’t be repurchasing stock, you still have a healthy excess cash balance on your balance sheet?

Yes, the reason it was down in Q1 actually was because we did a $15 million buyback in Q4 of last year, so we didn’t see the full benefit of that in Q4 of last year, but in Q1 we saw the full benefit of it. As we go forward, as you know we do have a $15 million program that is currently authorized. My expectation is that we will be active, but it is not going to be significant, because like I said before, we are going to finance this out of our cash from operations and I don’t know exactly how much I’m planning on buying back, but I don’t expect it to be anything significant.

Your last question comes from Steven Smigie - Raymond James.

Mohan, you alluded a little bit to obviously expecting a decent Q3 as well. Typically that’s a very strong sequential growth quarter for you. Is there any reason at this point for you to believe that it wouldn’t be sequential?

No reason to believe other than some of the analysts had mentioned macro economic factors. Other than that, I have no reason to believe that Q3 wouldn’t be another strong quarter for us.

Let me summarize by saying that Q1 of fiscal year ’09 was a very good quarter for Semtech. We increased revenues annually by 23% to achieve a Q1 revenue record in our 48-year history and increased non-GAAP EPS by an outstanding 50%. We also achieved a book-to-bill well above one and saw three of our four product groups grow by double-digits on an annual basis. Finally as we continue to fine tune the execution machine within Semtech and continue to nurture a high performance culture, I am confident that the new Semtech is going to continue to perform at a higher level. With that I would like to thank everyone for participating in our first quarter conference all and look forward to updating you all next quarter. Thank you.