Cirrus Logic, Inc. (CRUS) Q2 2007 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2007 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will open the call for questions. Instructions for queuing-up will be provided at that time. As a reminder this conference is being recorded for replay purposes. I would now like the turn the conference over to Mr. Thurman Case, acting Chief Financial Officer. Mr. Case, you may begin.

Thank you, operator, and good afternoon. Joining me on today's call is David French, Cirrus Logic's President and Chief Executive Officer. As stated in our press release earlier today, we are limited in the amount of financial results we will be able to discuss until our special committee completes its review of the Company's historical stock option granting practices and related accounting matters. Because of the pending nature of this review, all financial numbers for the second fiscal quarter are preliminary results and subject to adjustment. As a result, we will not provide any specifics about our gross margin or operating expense for the second quarter. The special committee is working to complete its stock option review in a timely manner. However, in light of the review, the Company may not be in a position to file its Form 10-Q for the second fiscal quarter by the November 2, 2006, filing deadline, or the permitted extension to November 7, 2006. I would also like to remind you that during the course of this conference call, we will make projections and other forward-looking statements regarding, among other things, our estimates for the third quarter fiscal year 2007 revenues, cash generation from operations, as well as our estimates and assumptions regarding our future revenue growth. Please keep in mind that these statements are predictions and are subject to risk and uncertainties that may cause the actual results to differ materially from our projections. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to our press release issued today, which is available on our website at www.cirrus.com, our latest Form 10-K for the fiscal year, ended March 25, 2006, as well as our other filings made with the Securities & Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from our current expectations. I would like to mention that all financial numbers are prepared, unless noted, in accordance with Generally Accepted Accounting Principles. We believe that certain non-GAAP financial information is useful to investors because it may enhance their understanding of the results and trends in our business. We also use certain non-GAAP financial information internally to evaluate and manage our operations. As a note, the non-GAAP financial information we provide, may differ from that provided by other companies and should be used in addition to and not as a substitute for results prepared in accordance with GAAP. Now, I will turn the call over to Dave French.

Thank you, Thurman and thanks to all of you who are joining us today. As we stated in our press release earlier today, we're somewhat limited in what we are able to disclose. At this time, we are able to discuss preliminary revenue, gross margin and R&D and SG&A expense trends and some balance sheet items for the second fiscal quarter, which ended September 23rd. Total revenue was $48.2 million, up 7% from the previous quarter. Prior to the impact of any stock-option related expenses, our gross margins, as well as R&D and SG&A expenses were slightly below the mid-point of the guidance, that we had given for the quarter. Cash and marketable securities grew to $262 million, up from $252 million at the end of the prior quarter, and $225 million at the end of the second quarter of the prior year. I would like to emphasize that our diverse product portfolio and customer mix continued to provide consistent financial results during the second fiscal quarter and is helping us move toward our stated goal of 20% operating margins. Later, during this call, I will provide more detail regarding our business operations. Thurman, will now review our preliminary financial results for the September quarter.

Thank you, Dave. Our net revenue for the September quarter was $48.2 million, compared with $45.2 million in the June quarter. Our revenue by product line was as follows. Mixed signal audio products contributed $23.8 million in the September quarter. Industrial products provided $12.5 million in the September quarter. And embedded products were $11.9 million in the September quarter. Historical revenue breakdowns for those product lines may be found on our website in the Investor Section. We had no OEM customers representing more than 10% of revenue and one distributor, Avnet contributed 26% of revenue. As Dave indicated earlier, prior to the impact of any stock-option related expenses, gross margin percentage as well as R&D and SG&A expenses were slightly below the mid-point of our previous guidance for the September quarter. Interest income for the second fiscal quarter was $3.2 million, up from $3 million in the previous quarter. Our employee headcount at the end of the September remained flat at 409, as we continue to monitor employee levels, as part of our ongoing operating efficiency efforts. Looking at our balance sheet, total cash and marketable securities at the end of September increased to $262 million from $252 million at the end of the June quarter. Our total cash per diluted share increased by approximately $0.12, and ended at $2.96 per diluted share, based upon 88.5 million diluted shares outstanding. We ended the September quarter with $21.9 million in net receivables, compared with $21.5 million at the end of the June quarter. DSOs or day sales outstanding were 41 days, compared with 43 days in the June quarter. Inventory at the close of the September quarter remained flat at $21.4 million with net inventory turns improving slightly. Inventory levels at our distributors were relatively flat during the quarter, and we continued to actively manage our distribution channels to ensure proper inventory levels. Our capital expenditures were $1.1 million in the September quarter, compared with $636,000 in the June quarter. Depreciation and amortization expense totaled $1.2 million, compared with $1.7 million in the June quarter. And now, Dave will discuss our business operations guidance for the upcoming quarter.

Thank you, Thurman. I am pleased with our revenue achievement and overall second quarter performance. We met our revenue guidance as the diversified product portfolio has helped to deliver solid results. Within the organization, we continue to generate cash from operations and make progress towards our 20% operating profit business model, by driving efficiency improvements, reducing our overall cost structure, and maintaining strong gross margins. As I've indicated to you previously, building a great analog product franchise takes time. As technology based differentiation brings with it longer cycle time from new product introduction to revenue ramp. Combined with recent and near-term new product introductions, in high margin industrial markets, and high growth entertainment applications such as digital television and portable devices, leading indicators for growth and increased profits in fiscal year 2008 are favorable. I would like to now provide brief product related updates beginning with our industrial products. This product line includes integrated circuits designed for a variety of data acquisitions, power metering, precision measurements and energy exploration applications. These products demonstrated strong revenue growth and generated our strongest gross margins. Revenue in Q2 was $12.5 million, up $4.4 million or 54% from the September quarter one year ago, and up $1.6 million or 14% from $10.9 million in the June quarter. We are encouraged by the continued strong demand for our products for seismic applications. Also, recent emphasis on industrial product demand creation in the fast-growing China market is generating revenue growth opportunity for both power meter integrated circuits and industrial measurement products. As our diversification efforts have resulted in a strong product portfolio of high precision industrial solutions, I am encouraged about our growth prospects for the industrial product line. Let me turn now to our mixed-signal audio products. September -- our semiconductor components in this product line including data converters, Class D amplification products and interface devices are used in a wide array of consumer, professional, and automotive audio applications. This product line contributed $23.8 million of our September quarter revenue, down from $26.3 million one year ago. However, sales of mixed-signal audio products grew $2.2 million compared to the immediate prior June quarter. The year-over-year revenue decline is attributable primarily to a reduction in sales of audio converters in DVD player applications, as well as the soft overall consumer electronics market. I remain encouraged by growth opportunities associated with new product sales in a number of consumer applications. We have invested heavily in new highly optimized products that will broaden and diversify our portfolio of products for growing markets such as flat panel, digital televisions, and portable consumer electronics. The digital television portable device and game console markets all represent significant revenue growth opportunity during fiscal year 2008 for our mixed-signal product line. Finally, I would like to comment on our embedded product line, which represented $11.9 million of our September quarter sales, down from $13.9 million in the September quarter one year ago and down approximately $0.7 million from the June quarter. This product line includes our audio digital signal processors, and general purpose ARM-based microprocessors for networked media servers and intelligent industrial terminals. Revenue from our audio digital signal processing products were down this quarter, impacted by generally weak consumer demand in audio/video receivers and home theater applications. In addition, we experienced previously discussed and anticipated decline in nonrecurring commercial project revenue -- commercial audio project revenue, from the same quarter last year. Growing acceptance of our ARM-based family of embedded processors in a wider array of applications drove sequential and year-over-year revenue increases partially offsetting the consumer DSP and commercial audio declines. As we foresee continuing soft demand for home theater related revenue, we anticipate embedded processor revenue will be relatively flat in the near term. Our overall expectations for the third quarter of fiscal year 2007 are as follows; revenue is expected to range between $43 million and $46 million. And prior to the impact of any stock-option related expenses, our gross margin is expected to be at the upper end of our guidance for the second fiscal quarter, and R&D and SG&A expenses are expected to remain approximately flat compared to our guidance for the second fiscal quarter. Cash generation from operations and interest income together are expected to range between $8 million and $10 million. To recap, I am pleased with the progress that we've continued to show through the second quarter. Cirrus Logic has demonstrated profit improvement over the past year and is generating good cash flow. I believe the underlying value of our proprietary, analog and mixed-signal product portfolio is strong. We have significantly enhanced the diversification of this portfolio, and we continue to make progress toward our 20% operating profit model. And now we are ready for your questions. Operator?

(Operator Instructions). Our first question is from Jay Srivatsa with Roth Capital Partners. Please go ahead sir.

Yeah, hi, Dave, this is Jay. Couple of questions. Could you set the stage for us in terms of how you see the macro environment for consumer electronics? We've heard reports that the market is not very strong in Asia and also in Europe. Could you kind of tell us what you're seeing out there?

Well, as far as where it is today, I would say that consumption of semiconductors appears across a wide array of customers, in a wide array of consumer applications in Asia is slower than what many of us had hoped for during the second half of the year. Now, we actually anticipated that in July when we had our conference call that consumption appeared to be pretty slow, and August continued in that general regard. We've seen a little bit of pick-up in the customer's base that we service as well as the feedback we get from distributors that sell to other customers as well. The things are going a little bit better, but overall it seems slower than most people anticipated at the beginning of this calendar year.

And is that true in the U.S. as well or is it primarily what you're seeing overseas?

Well, the manufacturing entities that service consumer applications are predominantly overseas. There is not that much over here. There is some in Mexico and some consumer applications in U.S. But in the U.S. we serve more industrial, professional audio and to some extent automotive customers and that business actually for us is quite strong and has been throughout calendar year 2006 and remained so. So, our mix of customer types and markets that they serve here is pretty substantially different with equivalently different tone.

Okay. Looking ahead to '07 -- calendar '07; could you kind of talk to us on where you see the opportunities for Cirrus specifically in the digital TV space and maybe in the MP3 spaces? What's happening out there? How do you see that shaping up for you?

I am still quite pleased with the design in, design win trends, new product acceptance, the rate of new product, output from our engineering organizations both in mixed-signal audio and the Class-D amplifier line and the integrated CODEC plus Class-D amplifiers, low cost embedded DSPs for post-processing. We have had good introductions in all those areas over the course of past couple of months or will in the next couple of months. And customer feedback is quite strong. Manufacturing run rates, as I mentioned, are a little bit lower than what we have had hoped, even in TV which is probably one of the hotter application arenas. But growth opportunities for DTV, portable audio players and other devices, game consoles, all represent excellent consumer application growth opportunities for us in 2007. Not to mention, seismic applications look like, even after a very good year, this year look like they could continue to grow next year as well.

Okay. I know it's kind of early to look into March, but do you expect kind of seasonal softness in the consumer segment in March to have an impact in your revenue line beyond the December quarter?

Yeah. We're not guiding much of course but March is typically the slow quarter for consumer applications, and I would expect that will continue to be the case. With December looking kind of soft for us right now, and my guess is that normal -- we might have a little bit less than a normal seasonal decline in March from December, but it is very difficult to tell.

Okay. Last question, could you kind of tell us where the -- how the backlog is looking going into December now?

Yes. We provided what looks like reasonably conservative guidance based on a continuing low run rate of manufacturing customers in Asia for the holiday season, and our backlog coverage going into the quarter is equivalent to what it typically is. So, we are not pushing one direction or another based on an expectation of change in the books fill or turns business in this quarter.

Okay. A question for Thurman. There was a one-time charge of -- before the closing of the Boulder facility. Can you quantify how much that was and I presume it's below the line?

That is a -- the Boulder facility close has taken place in -- actually in Q3. So, there was no Q2 charge for the Boulder facility. And we have not -- because there are still some activities going on associating with that close, we haven't estimated a final number yet.

Yeah. We actually announced that we would be finishing off that process during the December quarter, Jay. And included in that process are some steps associated with choices by some of our employees, many of whom we offered opportunities in Austin. So, we haven't got a final determination of how many people will be moving and etcetera, etcetera, etcetera.

Okay. Thank you very much.

Thank you, Jay.

Thank you. Our next question comes from Tore Svanberg. Please go ahead with your question.

Yes, good afternoon. A couple of clarifications, and I know you can't give specific numbers. But just looking at some of your commentary, should I assume the gross margin was slightly north of 58% this quarter?

Yeah. Guidance, I think was 58 to 60 and our -- was in the press release, release that we were slightly below the mid-point of that.

Okay. And then similarly, for December, I assume, then also the gross margin would be closer to 60%.

Yes.

Okay, great. And looking at some of the growth rates going forward, you did only mention embedded expected to be flattish. Now, what about industrial and mixed-signal audio here in the December quarter? Do you think industrial can still grow?

Probably it's more flat for the December quarter with embedded probably slightly down still for the December quarter, and mixed-signal audio slightly down for the December quarter.

Okay. And on the embedded side, do you expect that to be flattish near-term, I guess because of the processors for the home entertainment? How big is that still now and what kind of an overhang is it? I am just trying to understand when that business is going to start growing again?

We don't actually break it out, and I don't have the numbers right in front of me here. But the DSPs, it still represents some business. It's my belief that it can't go down much more from where it will be in the December quarter, but it's still an important business for us.

Great. And then maybe going back to the backlog question, I do assume you're being conservative on the guidance, but do you anticipate to get some level of turns this quarter or these next couple months?

Yeah. Actually the requested lead times from our customer community has certainly shortened over the course of past four to eight weeks, suggesting that there is some normal scurrying about in Asia to try to get certain things expedited through manufacturing facilities in time for the holiday season in North America, Europe and elsewhere. And that's a good sign. Certainly, bookings are higher than where they were in the August timeframe. So, yeah, we're going to get some turns business this quarter, and we've guided with an assumption that there will be some activity through all of November and even into December. If you recall last year, Tore, I don't know how much -- how close you were looking at us last year, but in the December quarter last year and in the prior year, in the month of December, we were favorably surprised at the rate of turns bookings in the final month of that third fiscal quarter. I have no idea if that will continue to be the case this year, but there is a reasonable chance that we'll be surprised favorably again in the third month of this quarter.

Okay. And I think you said the distribution inventories are relatively in good shape. Can you maybe just elaborate a little bit on that?

Yeah. We've been managing that certainly looking very closely since the December quarter last year, where it looked to us that the inventories had gotten too high. And then in the March quarter, we definitely -- I think they had come down slightly, but they were -- we definitely consider them to be too high based on a manufacturing run rate at that relatively slow period of the year for consumer applications. So, we've been working our POP or Point of Purchase distributors in Asia in particular, inventory levels since March aggressively, and they've continued to come down slowly in total through that time period. And I think they are -- one could argue about where they ought to be assuming a very poor Christmas sales level or purchasing level in retail in the US. If Christmas turned out to be a little bit better or people prepare for a post-Christmas inventory restocking in US electronics big-box retail in a meaningful way, I would argue inventories are too low, so somewhere between modestly too low and about right.

Great. And then just finally you talked about DTV and portable as an opportunity in next year. Just so we get a sense, when should we expect to see some ramps there? Is it first half? Is it second half? And should we even start looking out for some big names?

We've already begun the ramp during this year on both those application arenas. DTV, we've been talking about the possibility of getting the $10 million this fiscal year, if not above that. We're running slightly below that right now, a couple of million dollars a quarter, up from basically zero a year ago. So, that's still moving in the right direction albeit, a little more slowly than we've had hoped. In portable, again a year ago, we didn’t have any revenue. This year, we've had hoped for a few million dollars, originally a little bit higher. The customers that we're selling to continue to have difficulty selling against the biggest brand in the marketplace, so we are a little bit behind where we hope to be. But it is definitely ramping. Next year, I think that it will ramp even more in portable above the ramp rate in dollars compared to this year. As far as big names and we're selling to some big Asian brands right now, as far as selling to any big US portable audio brands this year, we don't have any business there this year. But we're working very hard to offer a leadership product at a leadership price to offer leadership capabilities for the big players in that space to differentiate their product, and I think we have a good chance to generate some revenue in this next year.

Great, thank you very much.

Thanks.

Thank you. Our next question comes from Craig Hettenbach with Wachovia. Please go ahead.

Thank you. Dave, if you can just discuss gross margins outlook, despite the revenue short fall, looks like gross margins will be up. Can you just break that out in terms of maybe some mix issues or any other things that you're seeing from maybe savings on the manufacturer or back-end front?

Let's see. That's a broad question. Yeah, our gross margin model just to come back to that is 60%. I think we're operating naturally right around there right now. Our guidance is obviously a little bit difficult to interpret because we've got some issues with the report as we mentioned earlier, but we're operating about where we want to be. We've continue to drive some savings on the wafer level, on the die cost level that we anticipated during this year, so all those cost reductions have come through about as planned. Back-end costs have gone a little bit the long way this year with metal adders from the assembly, people with freight adders based on energy cost increases during the year, from our freight people and from the assembly people. And so we've lost a little bit of ground there, but even net of all that our management and distribution channels as we've had some changes there when Memec got acquired by Avnet, as well as the putting on of a couple of new distributors around the globe, have allowed us to continue to provide great value for our customers and manage pricing quite well so their margins are moving up as we anticipated; plus mix is favorable. We -- not long ago, we used to talk about the Company being two-thirds consumer applications and one-third industrial, and it's probably closer to half and half now.

Okay. And then on the operating margin front, with the slowdown overall in the industry here, that could put a little pressure on you guys getting to your 20% target, recently closed the Colorado design center. What other levers are there for you to pull that if sales remain sluggish over the intermediate term for you to help improve the operating margins?

Couple of things. One, is if sales remain rather sluggish in consumer, which is a reasonable bet, at least in the immediate timeframe here, our margins tend to be higher because industrial tends to run higher margins. Number two, the diversification of our product portfolio anyway has been shifting -- we've been shifting our engineering resources more towards industrial applications and again with the possibility of generating higher margins, and we've been pushing on that for a couple of years now, and the effect is starting to come in which is again a slow moving issue in proprietary analog component. Thirdly, if business continues to be slow throughout the industry, costs, utilization of assets throughout the industry and therefore costs in our outsourced model will tend to be on a downward trajectory which we'll tend to try to take advantage of. And finally, on the operating model, we spend a lot in R&D and SG&A, and we think that a lot of the engineering development programs have a great chance of paying-off with better than market average growth. Those areas that do work out will be good for further investment, and those areas that don't work out, we may want to slowdown some of the investment levels in those areas, it is just based on if the market is growing more slowly, the opportunity space is lower and therefore it would want lower investment levels overall. So, we've got a lot of ways to continue to work that as well as the efficiency issues just in dealing with 404 Compliance, now that we're fully compliant, we maybe got some opportunities to be more efficient in the financial area. We continue to look for ways to streamline our operations in terms of how we run the Company, narrowing the number of sites that we service in the U.S. from used to be a year ago California and Colorado and Austin; now starting from the November time period on it will just be Austin which is much simpler to run, much more efficient. There is just a lot of things that we can do to drive very consistent improvements in the efficiencies of our operations.

Great. And then last question if I could on the seismic front you know that market remains healthy. Despite some of the movements in oil prices out there, what is your sense for backlog of your business there and has visibility shifted a bit or not?

Visibility has continued to get better, and I don't think that our customer base ever started with us anyway pursuing a capital expenditure plan that tied even as yet with the $70 a barrel kind of oil, they are still playing catch up, and the lead times on, in the marine area just getting ships and engines and crews up and running is the limiting item, and there is as much as a couple of years of lead time there. So, our customers are still reacting on an up-swing level to increasing energy costs and oil value overall, so these trends that are more recently downward in per barrel crude costs are not an issue that are going to directly affect our business.

Thanks for that color.

Thanks.

Thank you. Our next question comes from Jason Pflaum with Thomas Weisel Partners. Please go ahead.

Hi guys, this is Alex Kim calling in for Jason, I think the majority of my questions have been answered. But just one real quick question on the geographic breakdown, I know you said that self consumer generally being weak across the board. But maybe you can add some color with respect to that on a geography-by-geography breakdown?

Yeah. I would love to. Part of the problem is we don't really see end-market or end-consumer geography market data because we are selling to manufacturers in China that build product that sells in Europe and Asia and U.S. and everywhere else; so, it's really difficult for us to tell. So, other than what we would read in the press about retailers doing relatively well in one geography or another, we really don't have a good feel about one geography or another.

Okay, that's fair. And then just looking in your outlook, I know that you said that obviously mixed-signal audio or home theater was coming in a little bit softer than your expectations, is that primarily based on home theater? Or is there any one multiple devices that you can attribute that to just trying to get a little bit more granularity?

Well, for us we sell to just about every retail brand, so it's pretty broad-based. There is a couple customers in the higher end arena that are doing -- continue to do pretty well. Our biggest customer is both, and we've seen them continuing to do pretty well. Otherwise, we see a pretty broad-based slowness from just about every customer in the home theater space, so I probably wouldn't call out any one area as being any weaker than others.

Okay, great. Thank you.

Thanks a lot.

Thank you. Our next question comes from [Raoul Conwalker] with Needham & Company. Please go ahead. Raoul Conwalker - Needham & Company: Hi, guys, good afternoon.

Hi. Raoul Conwalker - Needham & Company: I just heard -- earlier you mentioned that industrial and consumer contribute about 50-50% of your revenues. I was wondering if you can give any more details, more granularity along end markets?

No. We don't really track that in a method that's auditable because customers, we do an interpretation of business, when we see a customer that's buying an automotive grade product, yeah it's easier to see that it's automotive, but our -- the grade of our product selling into industrial might be the same as what we sell into consumer application, so it's kind of difficult to tell, not to mention we have some customers that build for a wide array of products that might sell an industrial, consumer, automotive and others. So, it's kind of difficult to tell, and so we don't break that out at a finer level of detail, it's more of a rough approximation that we've tried to provide historically just so people can get a feel. And that's about all we can do without leading one to believe that the science behind that estimate is more precise than it actually is. Raoul Conwalker - Needham & Company: Okay. And you have mentioned that you saw broad-based weakness or slowdown in the consumer space. I was wondering did you see any competitive response because many of your analog peers have repeated the same team. So, did you see any intensification in competitive activity?

No. Actually we haven't, and on the other hand, most of the big cap analog names have such a broad-based emphasis that it might not typically be in the same application arenas where we're strong, most of the major analog companies that are bigger in nature don't tend to focus quite as much as on audio application which is our main theme, and in precision industrial applications, actually that market has been pretty good for us. But keep in mind, Raoul, that usually the applications that we service which are almost -- I don't know the exact percent, but over -- well over 90% of our revenues on proprietary products, so with relatively long customer design cycles. So, we don't have the kind of day-to-day pricing pressures that a company would have, if they're selling into commodity type applications, because we just simply aren't in businesses like that. So, it is not so surprising to me that even in the face of softer business conditions that we don't actually directly see any change in competitive behavior out there. Raoul Conwalker - Needham & Company: Okay. Thank you, guys. That's it.

Thank you. Our next question comes from Nimal Vallipuram with Hapoalim Securities. Please go ahead.

Hi. This is Nimal here. Hi, Dave. Hi, Thurman.

Hi.

I have a couple of questions for you. Number one is that I am trying to get a better idea as to, not the actual demand for the semiconductors. I think there are a number of companies have indicated that there is a softness. I am trying to get an idea from what you're hearing on the customers is that actual demand for the consumer electronics item. Because the companies who have reported so far have reported in almost every end-market, unique demand continues to be reasonably robust without nitpicking PC market, handset market, consumer electronics market. We haven't heard any companies talking about any major slowdown. But at the same time, semiconductor companies which sells into consumer electronics market have clearly indicated that the fourth quarter is going to be far below the early expectation. Is this because the first half there was an over build or is it because the actual demand from the customers itself is slowing down for the consumer electronics item? From your vantage point, is it at all possible to give us any color of what is happening in the marketplace?

I have opinions which are based on discussions pretty consistently with a pretty broad range of customers and distributors that inventories overall were a little bit too high in the first half of the calendar year. And that people wanted to take those down through the summer months and that has limited semiconductor component consumption through the third calendar quarter, and remains an overhang a little bit in the fourth calendar quarter for most companies that sell into a broad range of consumer applications. I also get a feeling that retailers that are servicing end-markets are trying to run inventories in electronic components, which might be of a kind of, what would I say, stressed value of inventories kind of category. In other words, if they buy stuff and they don't sell it for Christmas, the value goes down after Christmas. Products in that category, I think most retailers seem to be willing to run a little bit leaner going into the holiday season this year in the belief that they can always sell aftermarket, they can always sell to gift cardholders, they can always online, sales, things like that. And that way they don't run with inventories which may be volatile in terms of the value that they might maintain after what could end up to be a good or not good Christmas depending on what happens. But, so I think people are trimming inventories a little bit. I think semiconductor inventories are overall not too bad off right now. I think distribution inventories are pretty good overall, and I think retail inventories are not bad. I just think people are trying to run them tighter. I also think that in consumer actual unit volume for most consumer applications is lower. It is not just a pricing pressure issue that you may be hearing from some other semiconductor company. I strongly believe that to be the case. And if it were -- and that's based on understanding where wafer loadings are coming in. For most of our, well colleague companies that buy wafers in the consumer space out there, seems like wafer loadings are running a little bit lower.

So, it looks like the 2006 scenario to some extent is folding, unfolding similarly as to what we saw in 2004. Is that a fair description?

I understand what you're talking about, Nimal. No, it is nowhere near as bad as 2004 in my opinion. Certainly for our company, we feel pleased because we went to auditable inventory level assessments at our distributors and we check our customers regularly for inventories over in Asia. And so we have managed it pretty aggressively since March. If we didn’t -- if we had not put in methods to avoid getting into the problems that we saw of inventory in 2004, we might have had a substantially worse problem. My presumption is that others have done similar things with some level of discipline, maybe more, maybe less. But, I also don't think just generally speaking that the inventory overhang is anywhere near what it was in 2004. But again, that's opinion product, and I don't have a good science on proving that out.

Now, I do understand. Just a final question, Dave. Can you give us an update as to what is going on in the low-power application markets? Any new design wins out there, anything you can talk about?

Well, we have a lot of good customer engagements. We have got -- from the largest brand names to some more obscure brand names throughout Asia. But we feel very good about the merits of the product and the technology we brought to market. The ability for the customers to run a better sounding product at a lower cost and maybe even build product more thin or more attractive for various reasons for the end-customer. I think we're going to make some pretty good inroads in driving substantial revenue gains in calendar year 2007 in that marketplace. I think overall, the market is not bad right now for worldwide consumption of low-cost as well as high-value music and portable media players.

Just finally to Thurman, other than what you have said on the press release and in the conference call, can you add anything more on this options probe?

No. I really can't.

Okay. Thanks, Dave. Good luck.

Thanks a lot.

Thank you. (Operator Instructions). Our next question comes from [Andrew Smith] with Wachovia. Please go ahead.

Yes. Do you have an existing buyback plan and if not, is there any talk for the next Board meeting of one?

We do not have an outstanding and approved stock buyback program in place. This is something that we would naturally review on a regular basis at the Board level in terms of one-way to most appropriately deploy the assets of the company. And I am not sure whether we'll talk about it the next Board meeting or not, but we will discuss that subject on a general basis at the very least.

Thank you.

Thank you.

Thank you. Our next question comes from [Don Rode] with Esquire Technology. Please go ahead, sir.

Hi, Dave.

Hi, Don.

The cash flow from operations was $10 million and was that correct for this quarter.

Cash flow?

Yeah.

Yeah. Our net cash flow was $10 million plus.

And you are talking about 8 to 10 for the December quarter. Now -- so In terms of margins, at this level of revenue, call it whatever the -- somewhere within 1 million on either side of this, is this then the operating model for this level of revenue that you can probably achieve unless you have a dramatic change in business mix?

In terms of operating margin or cash flow as a percent of sales, you mean?

Yes.

No. The operating model of the company is 20% operating profit, and the cash flow model should actually be approximately the same as that if not a little bit higher. If our revenues end up hovering around where we are, which we believe we have reason -- or we have reason to believe that we can grow past that next year, but if this were the stable operating revenue level for the company, we would be driving towards a 20% operating margin level at this revenue level.

Even at this revenue level.

Yeah.

And let's say, I mean again assuming all things being equal, how much time -- I mean you're at -- sorry, I forgot, I can't add. How much time would it take you to get there, how many quarters?

A couple of quarters, if we really decided we had to operate at 20% margin.

And I understand, if you see growth opportunities you don't want to cut it short. So therefore it could be -- actually, more revenue might delay is more. I understand that. But you're talking a couple of quarters, not a couple of years.

Correct.

Okay. All right. Thank you.

Thank you.

Thank you. At this time, we have no questions. Do you have any closing remarks?

Thank you, operator, and thank you again all for attending the call here today and thank you for your questions and your interest in Cirrus Logic. And that will end our call for today.

Thank you. Ladies and gentlemen, this concludes the Cirrus Logic second quarter fiscal 2007 conference call. Thank you for your participation. You may now disconnect.