Synaptics Incorporated (SYNA) Q3 2009 Earnings Call Transcript
Published at 2009-04-23 21:39:15
Alex Wellins - Partner and Co-Founder, The Blueshirt Group Francis Lee - CEO Russ Knittel - EVP and CFO Tom Tiernan - President and COO
John Vinh - Collins Steward Daniel Amir - Lazard Capital Markets Anthony Stoss - Craig-Hallum Paul Coster - JPMorgan Yair Reiner - Oppenheimer Rob Cihra - Caris & Company Jeff Schreiner - Capstone Investments Vijay Rakesh - Equity Partners Steven Fox - BofA Brian Blair - Wedge Partners Kevin Cassidy - Thomas Weisel Partners
Welcome to the Synaptics Third Quarter Fiscal 2009 Conference Call. (Operator Instructions). I would now like to turn the conference over to Alex Wellins of The Blueshirt Group. Please go ahead.
Good afternoon and thanks for joining us today on Synaptics third quarter 2009 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the company's website, at synaptics.com. With me on today's call are Francis Lee, Chairman and Chief Executive Officer of Synaptics; Tom Tiernan, the company's President and COO; and Russ Knittel, the company's Chief Financial Officer. We'd like to remind you that during the course of this conference call Synaptics will make forward-looking statements, including predictions and estimates that involve a number of risks and uncertainties. Actual results may differ materially from any future performance suggested in the company's forward-looking statements. We refer you to the company's SEC filings, including Form 10-K for the fiscal year ended June 30, 2008, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information. With that said, I'll turn the call over to Francis Lee. Francis?
We are very pleased to report strong results for our third fiscal quarter. Revenue of $100.6 million represent a robust growth of approximately 28% year-over-year and was an all-time record high for our third fiscal quarter. Net income totaled $6.1 million, up 102% year-over-year, and earnings per diluted share about $0.17, an increase of approximately 112% year-over-year. The Synaptics team continue its track record of outstanding customer service responding the changing order patterns to meet our customers' needs in the current challenging environment. Our results also continue to reflect a positive impact of our revenue diversification strategies evidenced by a revenue breakdown for the quarter. Revenue from mobile phone applications were up 5.5 times compared with the same period last year as we continue to capitalize on the earliest option of capacitive interface solutions within smartphones and other feature-rich cell phones. This tremendous revenue growth more than offset a 21% decline in revenue from PC applications year-over-year. The decline in PC revenue reflect a general softness within the notebook market as well as decreased contributions from multimedia control applications in notebooks. Our strong overall results demonstrates Synaptics ongoing leadership within our key markets and ability to execute with an extremely dynamic market conditions. We will continue to invest smartly to capitalize on the rapidly expanding opportunities ahead, building on our momentum in the fiscal 2010 and beyond. I will now turn the call over to Russ for a detailed discussion regarding our third quarter results and outlook for the fourth quarter of fiscal '09.
In addition to our GAAP results, I will also provide supplementary results on a non-GAAP basis, which excludes non-cash share-based compensation charges and certain other non-operational and non-cash items. Please refer to our press release for the third quarter of fiscal 2009 for a detailed reconciliation of GAAP and non-GAAP results. As Francis indicated, revenue of $100.6 million was a record level for our third fiscal quarter, an increase of 28% over the comparable period last year, and for the second consecutive quarter, our revenue mix was roughly evenly split between PC and non-PC applications. On a year-over-year basis, our revenue from PC applications declined approximately $13.5 million, reflecting the general weakness in notebooks, a lower priced product mix and a reduced attach rate for our multimedia control solutions. The attach rate in notebooks for multimedia controls in the third quarter was approximately 8%, down as expected from 11% last quarter and compared to more than 25% in the comparable quarter last year. While below historical seasonal norms, notebook demand as widely recorded was better than expected, and netbooks continue to be a sweet soft within the notebook category. As a leader in the notebook market, we benefited from the general improvement in market demand, as such revenue from notebooks exceeded our expected range and was the primary reason revenue for the quarter was above guidance. Revenue from our non-PC applications grew approximately $35.2 million over the comparable period last year. This exceptional growth was primarily driven by a 5.5-fold increase in revenue for mobile phone applications, which represented approximately 42% of total revenue for the quarter. Expanding interest in capacitive touchscreen interfaces continues to drive adoption of our technology in the mobile phone market where customers see the benefits of our integrated engineering capabilities and time to market. Our non-GAAP gross margin was 40.9% compared with 41.1% in the preceding quarter, and 41.3% in the comparable period last year. This was in line with our expectations. Headcount at the end of March was 502 compared with 460 at the end of December. We plan to continue to add staff as we selectively invest to further enhance our capabilities and position the company to meet the expanding market opportunities. Total operating expenses were $30.1 million compared to $29.7 million in the preceding quarter, including non-cash share based compensation charges of $5.7 million and $5.3 million, respectively. Excluding share based compensation, our operating expenses were essentially flat as anticipated as reduced legal fees and other expense control actions helped offset the impact of the headcount additions in the quarter. Net interest income was $304,000 compared with $653,000 in the prior quarter, primarily reflecting lower interest rates and lower average invested cash balances. As we stated previously, we continue to monitor and evaluate our investments in auction rate securities on a quarterly basis. None of our failed auction rate securities have defaulted and all of them continue to pay interest at the contractual rates. Our valuation analysis for the quarter resulted in the recognition of $2.9 million non-cash other than temporary impairment charge to our quarterly earnings. As of the end of the quarter, the PAR value of our auction rate securities was unchanged at $45.7 million and the carrying value was $29.9 million, all of which are classified as long-term assets on our balance sheet. Our GAAP and non-GAAP tax rates for the quarter were 24.4% and 21.5%, respectively. Our significant improvement and profitability year-over-year, primarily reflects the combination of our strong operating performance, more efficient tax structure and the impact of our stock repurchase program. Our non-GAAP net income in the March quarter was $13.4 million or $0.38 per diluted share compared with $8.8 million or $0.23 per diluted share in the comparable quarter last year, representing increases of 51% and 65%, respectively. Now a few comments on our balance sheet. We ended the third fiscal quarter with total cash and short-term investments of $174.5 million, up from a $136.8 million at the end of the December quarter. Cash flow from operations was approximately $33.5 million. Stock option exercises and the tax benefit from employee share-based plans contributed $2.9 million and $3.2 million, respectively. Capital expenditures were approximately $1.5 million in the quarter, primarily for test equipment, tooling and general infrastructure. Depreciation was $1.7 million. Receivables at the end of March declined to $69.2 million compared with $81.7 million at the end of December. This reflects the 29% decline in sequential revenue coupled with the timing of customer shipments during the quarter. DSO's were 62 days, up as expected from 52 days at the end of the prior quarter and approaching on a more typical range of 65 to 70 days. Inventories at the end of March were $15.9 million compared with $22.1 million at the end of December. Inventory turns this quarter were unchanged from the December quarter at 15 times. I'd like to make a few comments regarding our business outlook. We entered the June quarter with a healthy backlog of $72.2 million, up approximately 43% compared to our backlog entering the March quarter. Based on our beginning backlog, current order patterns and the visibility related to anticipated new orders, we believe revenue for our fourth fiscal quarter will be in the range of $105 million to $115 million, an 8% to 19% increase over the comparable period last year. As in the previous quarter, this relatively broad guidance range is a reflection of the current macro environment. Using our current backlog as a proxy, we expect our non-GAAP gross margins to be in the range of 40% to 41%. We expect our operating expenses to be up sequentially reflecting the full impact of our headcount increased in the prior quarter, in combination with our staffing initiatives this quarter. We expect our FAS 123R charge to be approximately $6.1 million, essentially flat compared with the March quarter. For the fourth fiscal quarter, we currently anticipate that our non-GAAP tax rate will be in the range of 21% to 23%. Diluted share account in the March quarter was based on an average stock price of $22.34. Based on the current trading range, the diluted share account for the current quarter under the Treasury method could increase more than 700,000 shares. Our non-GAAP net income per diluted share for the June quarter is expected to be in the range of $0.37 to $0.47, representing an increase of 23% to 57% compared to the same period last year. Based on our first nine months performance and our guidance for the fourth fiscal quarter, we expect fiscal 2009 will be a record year for revenue and profitability. We currently anticipate that our revenue for fiscal 2009 will be $463 million to $473 million, an increase of 28% to 31% over last year's record level. Our non-GAAP earnings per diluted share is expected to be in the range of $2.09 to $2.19, increase of 59% to 67% over last year's record high. I'll now turn the call over to Tom to highlight some of our recent product and market developments.
Last quarter we touched on new design wins, featuring our enhanced gesture recognition technology, for both notebook and mobile phone applications, various products incorporating specialty TouchPad and the expansion of our mobile OEM customer base in multiple geographic markets. Now, I'd like to give you an update on a small sampling of some of the design wins within our markets over the past quarter. In the PC market, we continue to see an increased trend toward incorporating gesture functionality into TouchPads for notebooks. During the quarter, the Lenovo IdeaPad Y650 began shipping with the Synaptics TouchPad featuring Synaptics Gesture Suite, which includes her two-finger pinch, chiral motion scrolling, flick and momentum gestures. In addition, the newly announced Acer Timeline is currently shipping with the Synaptics gesture-enriched TouchPad. Within notebooks, the notebook category continues to exhibit strong growth and we continue to lead in the segment. In addition to the Dell Inspiron 9, HP Mini-Note 2133 and Aspire One announced in the first fiscal quarter, Lenovo F10 is now shipping and incorporates Synaptics Gesture Suite. We are also providing TouchPads for the HP Mini-1000 and the Dell Inspiron Mini 12. In addition, Synaptics TouchPad is integrated into the next generation of Asus EPC which will begin shipping next quarter. Within the desktop category, we have a design win in the new Gateway ZX2300, all in one PC system for our touch buttons with proximity sensing, which provides the controls for multimedia functionality while also enabling sleek industrial design. In the PC peripheral segment, Synaptics touch buttons were chosen to control the various monitor settings in three new Acer H series monitors, the 2113H, 233H and 223HQ. These products are currently shipping in the US and Asia. In the personal digital entertainment market, we have added Sony entertainment to our growing base of handheld customers with the new Sony Walkman X series personal media player. The media player features an OLED display driven by Synaptics ClearPad touchscreen solution, allowing the user to navigate the media content and flip through different menus for songs or videos. The Sony Walkman X series will begin shipping in Japan this quarter. Turning to the mobile phone market, some high profile phones featuring Synaptics touchscreen solutions will also hit the market this quarter. We recently introduced LG Arena feature Synaptics ClearPad touchscreen solution and Gesture Suite to enable the user to easily and intuitively navigate and control the various menus and applications on this feature-rich phone. Our ClearPad's gesture recognition lends itself well to LG's innovative S-Class user interface, which revolves a 3DQ to navigate four different home screens. The LG GD900 slider phone, which was announced at CTIA Wireless features to Synaptics ClearPad sensors to enable intuitive controls on both the touchscreen and the transparent keypad, slide-out keypad access in input device for key entry, text recognition and gestures. LG use Synaptics enhanced gesture recognition technology to compliment the phone's new S-Class user interface. The LG Viewty Smart is another new mobile phone incorporating Synaptics ClearPad touchscreen technology. The ClearPad sensor is mounted beneath the phone's plastic case to create the GC900 sleek design. With an 8-megapixel camera, the three-inch touchscreen interface is an ideal feature for an optimal viewing area and gesture input. Finally, on the mobile front, Synaptics collaborated with Texas Instruments to provide the ClearPad sensor for TI's zoom mobile development platform. This platform is built around TI's OMAP3430 applications processor, which was announced at Mobile World Congress in Barcelona. We believe this in addition to the work we've been doing with other key chipset providers to mobile OEMs can further promote the adoption of capacity sensing within handheld devices by leveraging Synaptics capabilities within the market. This quarter's design wins reflect our ongoing leadership within our target markets. Synaptics intuitive interface solutions are well suited to a broad range of products and applications, and we will continue to innovate to meet the needs of the next generation products that will serve the evolving and growing digital lifestyle trends. Our customers continue to benefit from our innovation, systems engineering know-how and portfolio approach, which includes both our custom integrated modules as well as our one-touch designing studio. They also appreciate the high levels of flexibility and support we provide them from design through mass production. I will now turn the call back over to Francis for a business update and closing remarks.
Thank you, Tom. Now I would like to make a few comments regarding the general business environment as we head into the last quarter of fiscal '09. Why would these experience better than expected demand in a notebook market during the third quarter is difficult to determine how much of that was driven by stronger end demand versus inventory restocking within a channel? The fact remains that the overall macroeconomic picture has not changed dramatically. However, Synaptic is well-positioned in our target markets. We continue to execute extremely well into tough environment leveraging the prevailing market uncertainties into opportunities wherever possible. It is in times like this that our proven long-term track record for execution and their ability to how our customers design, and deliver cutting ex-products really sets us apart in the competitive landscape. Our overall desired pipeline remains very healthy. The rumors continue to be selective about which design we choose to pursue. As evidenced by the number of new heights in the third quarter, we continue to invest in organization on a goodwill basis with an emphasis on expanding our development capabilities to better support our customers at a local level. Along this line, innovations continued to be a pivotal part of our growth strategy. As an example, we expect to impending release our Microsoft's Windows 7 operating system to create additional opportunities for Synaptics. We are actively developing our technology to take advantage of this platform, and as with everything we do, we would drive innovative solutions that offered the highest customer value. In summary, I'm grateful to the worldwide Synaptics team. With dedication, diligence and solid execution enable the company to deliver exceptional operating results, given the challenging market condition. With the general economic climate still very much in flux, we will continue to take a prudent approach towards managing our business. It's safe to say that we expect to finish the fiscal year on a very positive note with record revenue and net income. A product update that Tom provided points to continuous strong progress and activities in our target markets and our ongoing staffing initiative is a clear indicator of the abundant opportunities available to us. As such, we continue to take the necessary steps to scale our business for future growth. We expect this momentum to carry over into fiscal 2010 and look forward to providing you with an update on our fourth quarter's earnings call. That concludes our formal remarks and we will now turn the call over to the operator to start the Q&A session.
(Operator Instructions). Our first question comes from the line of John Vinh with Collins Steward. Please go ahead. John Vinh - Collins Steward: First question is on margins. Looks like margins are coming down a tad. Can you maybe just talk about what are the drivers for your fourth gross margin guidance?
John, this is Russ. The primary driver there is just our expected product mix for the quarter. As you know, we have a fairly broad gross margin range among the different custom solutions that we provide to the market and this is just our current expectation, again using the backlog as a proxy for where gross margins will end up in the quarter. John Vinh - Collins Steward: It is due to the fact that you expect a higher mix of handsets versus PCs going forward?
No. Again, gross margins are relatively independent of the vertical markets that our solutions sell into it. It's a function of the specific unique designs and the mix of those that we ship within the quarter. John Vinh - Collins Steward: On notebooks, you guys said that, you saw a pickup in notebooks in the quarter. Can you also maybe give us a little bit color in terms of kind of the demand you saw on the notebooks versus netbooks in the quarter? Were they both equally strong or netbooks stronger then notebooks?
Well, generally, we saw increased demand for both traditional notebooks and netbooks as we move through the quarter. Both of which were above our expectations in the range that we had guided too.
These are the growth rate is, John. Clearly, the netbook is the darling up in notebook categories. John Vinh - Collins Steward: I was just wondering if there any differences there as we did hear that there was a little bit of netbook inventory in Q1. But that obviously was the strong kind of replenishment cycle there.
The other thing is that, of course, we are inch a number of new netbooks designs that are ramping as well. So, we have the benefit of that. John Vinh - Collins Steward: On the handset side, some of your competitors, obviously Cypress has been tucking up quite a bit in terms of their kind of attraction with their PSoC solution. Obviously, they take a fundamentally different approach to the handset market than you do. You guys focus more on fully integrated module solutions versus their focus on the chip. Can you maybe just comment on how you see kind of the chip versus this module kind of approach, kind of play not going forward? Obviously, you guys also have a OneTouch chips. Can you maybe comment on that?
First of all, as we have said a number of times before, the capacitive adoptions in the interface solution in the mobile market is in its infancy. So we are very excited about the TAM continuing to grow. Second of all, I would quote it "new markets like touchscreens and stuff like that, there's tremendous amount of innovation besides market expansions." Synaptics prides ourselves in terms of our ability to help our OEM customers in time to market in terms of giving them a solution that works. We are very flexible with business models. If they will work to help our customers to win in an end market, we will do. So as such we don't really emphasize on modules or chips or solution although we certainly have the capabilities to do all of the above. By looking at the discussions that Tom talks about of design activities and design wins, I'm very comfortable to let you know that we continue to win fair share of our designs and we are comfortable in terms of moving forward. You'll continue to see us as a leaders in this space.
Thank you. Our next question comes from the line of Daniel Amir with Lazard Capital Markets. Please go ahead. Daniel Amir - Lazard Capital Markets: First of all, can you give any clarity with regards to the backlog here? How much of it is mobile phone, how much of it is PC?
The backlog is up 43% quarter-over-quarter. So it's a very healthy level and we have seen increases in both segments of the PC and handheld segment. So they are both well represented. Daniel Amir - Lazard Capital Markets: Is one significantly more than the other?
No. Daniel Amir - Lazard Capital Markets: Okay. In terms of the commentary on the Windows 7 providing an opportunity, it looks like that the touchscreen monitors has kind of been something, it's an intensity, only a couple of PC companies actually have that. What is your opportunity there and is this something that you are focusing on this year or is it something that you are waiting until the market starts adopting it?
Couple of comments I'd make on that. One is we do think that Win 7 with its focus particularly on finger input for more consumer-oriented applications is going to result in a much larger chunk of the classic consumer notebook market adopting capacitive touchscreen technology. So far it's been very much niche-oriented in tablet PCs or vertical industry-oriented. So we do definitely see an opportunity there over the coming quarters and years. We, as you know, are not participating in that market today, but we'll be over the coming couple of quarters.
(Operator Instructions). Our next question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead. Anthony Stoss - Craig-Hallum: Will you give us a sense of how many handset models are currently shipping in the quarter?
Frankly, Tony, we kind of stopped counting here. We've got a number of products that have been going out. I'm pretty comfortable to tell you that similar to last quarter, we expect to have between 15 to 20 designs in production. Anthony Stoss - Craig-Hallum: 15 to 20?
Yes. In production. Anthony Stoss - Craig-Hallum: Also, if you won't mind commenting on your view of the current June quarter, you expect it to be linear, front-end loaded perhaps, any thoughts there?
You can tell that we have a healthy backlog going into this quarter versus previous quarters. So, clearly, our visibility in that part of it is a lot better. Having said that, that's really depending on number of turns business that comes in, right. So it's hard for me to predict that, although I would say that's probably going to be better than last quarter.
Our next question comes from the line of Paul Coster with JPMorgan. Please go ahead. Paul Coster - JPMorgan: Design win activity that you are currently experiencing, does it give you any visibility into the 2009 holiday season as it relates to handsets? Would you expect to have more designs in production? What kind of features are going to be on those mobile phones this holiday season?
Obviously, it is tough for me to project six months from now what it's going to be. I'm pretty comfortable to tell you that this adoption of the capacitive technology in the mobile phone market would continue to go up. Now, as you know, in that particular market I would continue to [fragment] it along the line of industrial designs and functionalities. So, you can expect that is going to be a wide range of interface designs are going to come in the months and quarters ahead. So I cannot predict which one is going to win out. You should expect that the number of capacitive interface solution will increase and a number of different deigns is going to increase from what you see today.
The other thing I'd add to that would be that I think from an end user perspective you'll continue to see more and more multi-finger functionality adopted into handsets on a go-forward basis. The UIs are being written to take advantage of that additional innovation that's now available in the technology. Paul Coster - JPMorgan: On that point, what is your latest thinking regarding the importance of your patent portfolio in the context of the ongoing debate around potential patent infringements?
Yeah, we feel very strongly in our patent position and our IP and our know-how, and all of the customers and accounts who evaluate our line up, our patent line up, independently, we believe also come to that conclusion.
Our next question comes from the line of Yair Reiner with Oppenheimer. Please go ahead. Yair Reiner - Oppenheimer: Just a question on the PC front. First, can you tell us how many of the ASUS EPC models do you have won? Then just quickly on the Windows 7 opportunity, do you see that as a module opportunity? Do you see that as a chip opportunity? And recognizing really its early days still, how big do you think that opportunity could be for you overtime?
Well, first of all, Yair, we really do not have a good insight in terms of EPC. How many of the different OEM branded models goes out there and how many has got a competitive solutions that's hot for us to talk about. One thing is clear in Tom's prepared remark that we are in the mixed generation of the EPC. Regarding the comment on the Win 7, you're absolutely right, I think it's too early for anybody to tell. Frankly, the reason why is that the applications and the usability in the usage model still remains to be proven in terms of how early adapted it is going to be. Having said that, we are very excited about it because they gave us additional opportunities, touch opportunities to get increased revenue content.
Our next question comes from the line of Rob Cihra with Caris & Company. Please go ahead. Rob Cihra - Caris & Company: A couple of things even though supposed to be one question each I guess, Russ or Francis I guess, on the multimedia tax rate it's down to 8% in the quarter. Is that something that I know, you has said it would come down and obviously has been with second sourcing and that sort of thing, but I mean is that type of thing where you think it goes back up ever or is this where it comes down to or is it literally go away at one point? And I'll add one more question if it's all right.
Well, I think there's a couple of dynamics at work there. We have been stating now for the past several quarters that we do expect to see the attach rate to continue to decline and its really a function of a couple of dynamics. One is, one of the competitive dynamics were OEM's do on alternative sources. And as you recall, we essentially own that market for more than a year. The other dynamic as we move into the netbook category, there is less of a need for those kind of solutions going forward. As you know, when you look at multimedia controls, its been more of a design-driven application than a functional driven application because you can get there equivalently with those mechanical buttons and with our new dual mode TouchPad you can actually build those multimedia controls into the same real estate as the touchpad itself. So, going forward, I think that's a part of the market where everybody is going to see things slow down a little bit. But I think the trend going forward is going to reflect that.
The only thing I add to that Rob is that, obviously when you look at a netbook, there is no space for a discreet MMB. There is no real estate. So what we're driving there with our accounts is how to incorporate that functionality into the TouchPad itself. Rob Cihra - Caris & Company: One more question if I could and that's just, if you go back to your last quarterly call, I know things have changed in the notebook side for the better. But I think, Francis maybe at the time had made a comment that you thought mobile phone as a percentage of revenue would up in each of the approaching quarters. It was up in the March quarter where you still stick in without being up in the June quarter or should we just disregarded that?
Well, if you look at the way the March quarter develop, we did see stronger than expected demand from notebooks. The mobile segment actually was a little weaker than we had expected in the quarter. But as we said before, given more kind of new in the market and we have less designed wins there in terms of overall mix, you can't expect it to be more spotty for us in any one period of time. The current guidance that we have provided for the June quarter, if you look again on a year-over-year basis on the growth rates we've projected here, we still would expect the bulk of that year-over-year growth to come from the handheld category.
Our next question comes from the line of Jeff Schreiner with Capstone Investments. Please go ahead. Jeff Schreiner - Capstone Investments: I was wondering, Russ, if you could help us out a little bit, given a wide spread of guidance. Again, maybe some put and takes into the guidance?
We kind of use our backlog as a foundation for that and we look at the customer forecast that we have and the anticipated new orders during the quarter and construct a number of scenarios, and then the guidance reflects a reasonable range that we are comfortable with in terms of been able to achieve. It's a function of both markets.
And Jeff, there were methodology in terms of how we come over the guidance haven't change, since we went public, so we actually very consistent with the mechanics of how we come up with those numbers. We feel pretty comfortable the methodology has proven itself for many, many quarters now.
Our next question comes from the line of Vijay Rakesh with Equity Partners. Please go ahead. Vijay Rakesh - Equity Partners: Just a couple of questions. One, I was wondering when you look on the handset side for the March quarter at least it looks like they are initially down at least 25%, looks like quarter-on-quarter sequentially. But it looks like the (inaudible) overall numbers are up pretty significantly quarter-on-quarter. Also, you have some new LG phones ramping, so I was wondering what the dynamics of that where, how the Storm bid, etcetera?
Well, Vijay, as you know our policies. We are uncommon on specific products at that time, right? So the point that Russ made earlier about the bulk of the growth, this fiscal year is going to come from cell phone is true, okay. You're going to continue to see good momentums from our designed activities moving forward in the particular factor, and even see our ability to leverage the increasing camp in capacitive solution in the mobile phone to apply to the strength of Synaptic in growing our revenues.
Our next question comes from the line of Steven Fox with [BofA]. Please go ahead. Steven Fox - BofA: Just getting back to the design trends, I'm just curious. You mentioned that you are having a lot of success in designs that are going to ramp into production this quarter. Has the economy at all impacted the production schedules or the design activity or it's the design activity going on and the production schedules are getting delayed? Can you just talk about what's happened with that?
The problem is to say that general macroeconomic condition has no impact on any of this thing, obviously, that's probably not true in a high level sense, right? Having said that, okay, the smartphone and especially multi-touch functionality, the way that Tom describes it is indeed a trend that's getting more and more adopted. It has really driven by the fact that the functionality of those phones now has this data point where you have to have some creative innovative by using interface, right? And I also believe that's part of the segment, that the mobile has got higher margins on it. So as a caveat there, I expect okay, moving into everything as being equal. There are smartphones and the most, frankly, a multi-touch smartphones. We continue to get a higher in adoption rates compared to the other designs.
(Operator Instructions). Our next question comes from the line of Brian Blair with Wedge Partners. Please go ahead. Brian Blair - Wedge Partners: Can you just comment on whether or not you're seeing, during Q1 if you saw irrational pricing by any of your competitors? As somebody mentioned earlier in the call, Cypress has been talking of their gain, and there are lot of other guys that are starting to talk about having products out there. But I just want to get your sense of, if your seeing anything irrational in terms of what they're trying to do with the OEM's and regarding pricing?
We would characterize the current competitive dynamic from a pricing view point as being rational. They start historical trends. Brian Blair - Wedge Partners: Is there any indication as you kind of look out into the June quarter that there could be anything irrational or any of your competitors doing anything to try and gain market share through pricing moves?
Obviously, it's hard for us to predict what any competitor is going to do within the future. What I can only tell you based on the design activity today and the business we are competing for today, everybody in the market is acting rationally.
Brian, the other thing that we talked about in our prepared remarks last quarter and it's true in this quarter as well, we don't believe the competitive landscape has changed much at all. Okay, we'll participate in the consumer product area, which pricing is always very challenging, very competitive. But also keep in mind, Brian, the solution we offer to our OEM partners really requires a lot of good engineering innovative solutions. So we believe that adds values to our OEM customers. But we play in the part of the market that's very challenging. Let's not fool ourselves that any given day, there is something we got to be very careful about.
Our next question comes from the line of Kevin Cassidy with Thomas Weisel Partners. Please go ahead. Kevin Cassidy - Thomas Weisel Partners: I was just wondering about the inventory, it seems to come down quite a bit in the quarter. Is that a good level or I guess how comfortable are you with this level of inventory?
That was something we actually worked on during the quarter to keep turn as the same on an annual basis and it is actually worked out as planned. Kevin Cassidy - Thomas Weisel Partners: I guess as you have higher percentage of business in handsets, do you expect that need to change or I guess what are your thoughts going forward?
We have to remember that when you look at the inventory balance that we report, more than 70% of that is our proprietary silicon either raw dyer package form. We are generally using the same silicon across all market sectors. So servicing one vertical market versus another, I don't think will have a big impact on the way we manage our inventory levels going forward.
Thank you. Our next question is a follow-up question from the line of Yair Reiner with Oppenheimer. Please go ahead. Yair Reiner - Oppenheimer: Yes, a question on the backlog. Your coverage ratio has fluctuated a lot over the last three or four quarters between 43% to 73%, I think since March. Can you tell us some of the things going to, say, in this quarter given the really high backlog coverage?
As Francis mentioned earlier, we haven't changed the way we put together the scenarios we construct for our guidance. Again, based on the backlog coming into the quarter, forecast from our customers, which include new design ramps during the quarter has led us to the current range of 1.05 to 1.15.
Thank you. And there are no further questions in the queue.
Okay. Thanks for attending this quarters earning call. We look forward to update you again, next quarter.
Ladies and gentlemen, this concludes the Synaptics third quarter fiscal 2009 conference call. Thank you for using ACT teleconferencing. You may now disconnect.