Cirrus Logic, Inc. (CRUS) Q2 2010 Earnings Report, Transcript and Summary

Welcome to the Cirrus Logic second quarter fiscal year 2010 financial results conference call. At this time all participants are in a listen-only mode. Later we will open up the call for questions. Instructions for queuing up will be provided at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to Mr. Thurman Case, Chief Financial Officer. Please go ahead.

Thank you and good morning. Joining me on today’s call is Jason Rhode, Cirrus Logic’s President and Chief Executive Officer. Before we begin, I would 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, estimates for next quarter’s revenues, gross margin levels, combined R&D and SG&A expenses amortization of acquired intangibles and share-based compensation expense, as well as other estimates and assumptions regarding future demand for products and expected revenue and market share growth. These statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information the company undertakes no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise. Please refer to the press release issued today which is available on the Cirrus website, the latest Form 10-K and 10-Q as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations. All financial numbers are prepared unless noted in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial information provided in today’s call to the most directly comparable GAAP information is included in today’s press release and on the company’s website in the Investor section. Non-GAAP financial information is not meant as a substitute for GAAP results, but is included because management believes such information is useful to investors for informational and comparative purposes. In addition management uses certain non-GAAP financial information internally to evaluate and manage operations. As a note, the non-GAAP financial information the company uses may differ from that used by other companies. These non-GAAP measures should be considered in addition to, and not as a substitute for the results prepared in accordance with GAAP. Now I’d like to discuss our results. Net revenue for the September quarter was $55.7 million; audio products contributed $41.3 million in revenue. This product group includes chips used in a variety of devices such as home theatre systems, portable media players, smart phones, media-centric computers, and car audio amplifiers. As you see in the tables we issued with our press release today, sales of audio products grew 35% year-over-year and are up sequentially 67% from the June quarter as we began ramping production for a number of new design winds associated with our portable products and our multichannel CODECs. Sales of energy products were $14.4 million; this product group includes chips design for a variety of energy measurement and energy control applications. Revenue for our energy products was down 36% year-over-year, mainly due to a large decrease in sales of our energy exploration products from a year ago. However, sales in energy products were up sequentially 13% due to a broad increase across several product lines. Historical revenue breakdowns by product category are available on our website. Gross margin for the September quarter was 52%, down from 56% in the quarter a year ago and flat compared to the previous quarter. We think this is a significant accomplishment, as we have seen a large change in our product mix from a year ago as we have replaced record sales of our higher margin energy exploration products with lower margin audio products. Seasonally, sales of audio products have grown from 66% of total revenue in the June quarter to 74% this quarter and we believe our margins are a clear indication that our efforts to control product costs are working. We believe that gross margins have stabilized at these levels and expect to see improvements moving forward. Total GAAP operating expenses for the September quarter were $22.5 million compared to $19.8 million in the previous quarter. Non-GAAP operating expenses were approximately $22.4 million for the quarter compared to $20.9 million for the June quarter. As I stated earlier, reconciliations are available on our press release issued today as well as on our website. The increase in non-GAAP operating expense is primarily associated with higher employee expenses and product development costs. We don’t expect to see continued significant increases in our operating expenses and we are focused on managing our expenditures. Income from operations on a GAAP basis was approximately $6.4 million and income from operations on a non-GAAP basis was $6.7 million. We recorded GAAP net income for the quarter at $6.8 million or $0.10 per share based on $65.5 million diluted shares. In the same quarter a year ago we reported net income on a GAAP basis of $6.4 million or $0.10 per share based on 65.3 million diluted shares. On a non-GAAP basis we recorded net income for the quarter of approximately $7 million or $0.11 per diluted share. In the September quarter year ago we reported non-GAAP net income of $9.7 million or $0.15 per diluted share. We ended the quarter with 483 employees. Moving to our balance sheet, we ended the September quarter with $26 million in net receivables up from $14 million at the end of the June quarter. The increase of $12 million is inline with the large ramp in revenue this quarter and our day sales outstanding remains consistent and we continue to actively manage our credit risk. Ending that inventory decreased from $22.5 million from $20.2 million at the end of the June quarter. The increase is necessary to meet our December revenue goals and represents a solid improvement in our net inventory returns up to 4.7 times this quarter compared to 3.6 times at the end of June. We ended the quarter with $124 million in total cash and marketable securities, an increase of $1.6 million from $122.4 million at the end of June. During the last four quarters, total cash and marketable securities has grown approximately $14 million on net sales of approximately $171 million. As you recall, we have a $20 million stock repurchase program approved. We have not completed any stock repurchases under this program to date. Capital Expenditures for the September quarter were $2.5 million compared to 500,000 in the June quarter as we continue to invest in engineering tools and other infrastructure improvements. Depreciation and amortization expense in the September quarter was $2.1 million. Overall, I’m very pleased with our revenue growth and our ability to whole gross margins and improve our cost structure with the production ramps we experienced this quarter. Now I’d like to turn the call over to Jason to discuss our business operations and guidance for the upcoming December quarter.

Thank you, Thurman. We had a great second quarter, posting positive year-over-year revenue growth of 5% and sequential growth of 48%. Our response to the difficult economy has been to focus on hiring innovative engineers and putting them to work developing innovative products. I’m extremely pleased not only by our year-over-year growth in revenue, but also by the growth in the number of new products that have ramped into production for home and portable audio application. With audio revenue growing 35% year-over-year, we expect that momentum to continue to build into next year. During the quarter, many of our customers challenged us to meet upside demand opportunities with short lead times. I’m proud that our team responded quickly to meet these challenges and due to a lot of hard work and etc effort, we were able to meet customer demand while maintaining relatively low inventory levels. I’m also pleased with our gross margin of 52%, which was at the high end of our forecast in the face of increasing demand for our audio products, showcasing the fact that we have highly differentiated and innovative products. Looking now to our product lines, sales of our energy products continued to be impacted by weak industry demand. I am however, encouraged by the 13% sequential growth we saw in Q2, and we remain optimistic about our long-term opportunities in this category. Sales of our power meter products remain a bright spot for the company and this product line looks to be gaining momentum for the next year. We expect growing demand at next year as smart grid improvements begin to rollout both in the United States and throughout Asia. We expect stronger growth for our energy products to come following the upcoming introduction of our new digital energy control products. We continue to work through the technical challenges of our first digital power factor correction or PFC product and customer interest remains high. These products are tailored to meet the specific requirements of multiple market segments, including power supplies for applications such as consumer electronics products, TVs, and fluorescent lighting valance. We expect some revenue next fiscal year, but the main objective is to gain market acceptance and build momentum and key design winds for fiscal year 2012. As we’ve discussed previously, what differentiates Cirrus Logic in this space is that we are developing highly innovative energy control products that enable increased energy efficiency and lower costs. In addition, our chips also eliminate the need for numerous passive components that make it easier to comply with the increasingly stringent regulations for stand by power from Energy Star and other global regulatory agencies. We’re very excited about the opportunities for the first products in our energy control initiative as they hit the market. In audio, as I mentioned earlier, revenue from portable and home audio products was a financial highlight of the quarter, as demand exceeded our already high expectations. We experienced continued strong growing demand for our portable products and exciting new applications. Next year, we will expand on our opportunities and build upon our recent success with media-centric mobile phone as we launch multiple new products targeting this market. Q2 revenue also reflects strong revenue growth within the home audio segment, driven by growing demand for new products as well as general seasonal recovery in demand patterns. Within the automotive segment, we’re optimistic that the market may be emerging from the worst of the global economic recession, as we’re seeing slight improvement in demand although we still have a long way to go to return to pre-recession demand levels. With continued strong demand for our audio products, we expect accelerated year-over-year and sequential growth in the December quarter. We expect that this momentum for portable and home audio products will continue into the next year. With that in mind we expect revenue for the third fiscal quarter to range between $58 million and $62 million. Gross margin is expected to be between 52% and 54%, while combined R&D and SG&A expenses are expected to range between $23 million and $25 million and includes approximately $2 million in share-based compensation and amortization of acquisition related intangibles expenses. Our long-term business model is for annual revenue growth of 15%, gross margins of 55%, and net operating profit of 20%. We expect to be very close to the revenue growth goal for this year and looking towards next year we believe we are ahead of our goal. We are also continuing to work on our product costs and managing expenses in order to achieve this overall model. As we celebrate our 25 anniversary and past accomplishments, we are confident about our future; Cirrus Logic as well positioned for long term success with outstanding engineering talent and growing revenue from new products that can be found inside some of the hottest new consumer electronic devices in the world. New products for portable, home audio and power meter applications are driving overall company growth and we’re finalizing energy products that we believe will deliver diversified revenue growth longer term. We’re executing to our vision of being the first choice in signal processing components and we’re excited to demonstrate that our growth strategy is working. Operator, we’re now ready to take questions.

(Operator Instructions) Your first question comes from Vernon Essi - Needham & Co. Vernon Essi - Needham & Co: Some of these revenue breakouts see if I can get a little more data point’s audio and just to revisit, Thurman, I think you had given a figure of a portable proportion for audio. What were those figures for this quarter and previous?

For the portable audio? Vernon Essi - Needham & Co.: Yes.

We didn’t breakout portable.

We broke out audio only. Vernon Essi - Needham & Co.: I’m sorry, I thought you made a comment about the sizing of portable relative to that, but that was the main thrust of my question here? Are you still sort of on target for your original revenue projection for portable or is that assume that’s going up given the recent results.

Well, we expect to continue to increase our portable and we’re certainly meeting or exceeding our targets.

For this at the beginning of the year, I think said that we’re not going to continue to breakout portable. We had kind of set that as a growth goal over the past couple of years as we were just trying to track our progress getting into that space, but at this point, for a variety of reasons we’re just falling back to giving the real audio number, but obviously portable is a big and growing segment within the overall audio business. Vernon Essi - Needham & Co.: In terms of the energy products, obviously it’s always impossible to predict the seismic piece of the business, but can you give us an understanding of where you expect that revenue to sort of trend? We see this grow back towards where it was last year ultimately, or do you think there’s something structurally that may have changed behind the scenes in this current recession? I’m just trying to figure out how quickly we can expect things to get back to kind of a normal shipment rate versus where you used to be or do you feel that some of this maybe a long time in the waiting to come back to normal?

I think overall in the energy side of the business, we’ve seen some recovery across the product lines. It’s not gotten back to pre-recession levels by any stretch and relative to seismic that’s not the area that we’re focused on in terms of driving the company, we’re focused on power meter in particular and then energy control especially. That said, we’re maintaining whatever we think we need to do to maintain our presence in the seismic product line and we don’t believe we’ve lost any market share there, so as people start deploying, new parts or new systems, we should participate in that. We’ve heard rumor and innuendo of people starting to potentially book orders somewhere out over the next quarter or so, but we’re not modeling that at the moment. We’re trying to treat that largely as a blue bird and will be excited about it when it comes. Vernon Essi - Needham & Co.: So, it’s safe to say that none of it, you haven’t seen that hit your books yet, or you don’t have any orders right now specifically?

Well it’s never been zero, but I think we said last call it wasn’t a meaningful contributor driven in Q2, there was a little bit of it in there but it was know where near the levels we experienced before, so we’re kind of taking it as it comes on that market. It’s a remarkably tricky space to predict. Vernon Essi - Needham & Co.: Then my last question just in terms of, obviously the rate of growth here is picking up. Your operating expenses have been managed to a fairly tight range for about a year now. Should we expect that to be moving much or should we expect this to kind of be an ongoing longer term? I know it will lift a little bit on the SG&A side just in proportion to sales but in the R&D side should we expect it to be in the same range for the time being?

It shouldn’t continue to go up as much as over the last quarter. There probably will be a slight increase as you say of course for the SG&A because you end up with sales commissions and other stuff in there. We are trying to do some targeted hiring, but then again, the efficiency and engineering team is something we continue to focus on improving and you get tape outs are a pretty significant portion pretty key portion of the expense variation quarter-to-quarter. Vernon Essi - Needham & Co.: Let’s guys talk about gross margin?

That to me in a lot of ways is the highlight for the quarter. We kind of expected if we were way up on revenue, we were kind of expecting that to potentially be a drag on margins and to be over the top on revenue and be able to hold up margins was definitely put a smile on my face, partially that’s due to a little bit of the recovery in the energy side, that helps a lot, but is a defiantly our margin products lines, but it’s also a good indication that we managed our product costs. We’ve put a real strong focus on the supply chain side, we’ve driven costs down really pretty broadly working with all of our suppliers, so to have that margin hold up and to be able to offset and of course to improve, but especially to offset the margins for portable, that was really helpful, so just so, somebody came in and held up a sign that we actually are still on the so Vern, if you want to keep asking questions.

Your next question comes from Adam Benjamin - Jeffries.

First, on the portable audio, Jason, you guys have done a great job-gaining share there, specifically from your one main competitor. As you look out to next year, how should we be thinking about share gains that you have left in terms of end Markets. You’ve only penetrated one real smart phone, so is that an area that we should be tracking more carefully or is it more gaming? If you can give us some insights as to areas that you’re targeting that we expect to see more successes in 2010 that would be helpful.

As we said in the script we’re definitely pushing on the phone space. We think we’ve got some great technology there. We’ve got a general market part that’s essentially due back from fab any day now, so we’ll obviously got some folks that are pretty keen to see that out in the field, so that’s probably this space we’ve got the biggest bang for our buck that we’re shooting for. As well as some other products we’ve got a very neat low power switching amplifier that is at fab now targeting, well really targeting a broad variety of the portable space, but in particular is sort of driving mobile phone speakers, so for those of you listening to the call on your speaker phone you’ll be able to hear it better in the back of the taxi or what not, but in any event, so that’s we are, we did talk about a new portable game device that we were picking up this fall. So hopefully that will be a big success in the marketplace and it is remarkable how many small opportunities that are in the $2 million to $5 million range that are out there in portable audio everything from learning toys to one off navigation devices to whatever it maybe and for a company our size those are all pretty significant.

Can you talk a little bit about some of the dynamics in the marketplace? There’s some companies doing power management that are looking to integrate the audio Kodak functionality and so how do you plan on competing against those technologies in terms of integration? Do you have an integration path or how should we be thinking about the competitive dynamics that could play out there?

That was our plan briefly, but as we shopped around to the kinds of customers that we appeal to, it just really wasn’t that big of a pull on their end, and so I think you have to, there’s a couple of interesting kind of dynamics going on there. One is if you’re somebody that’s going to design in a stand alone Kodak anyway you’re clearly going for a premium audio experience. If you were just going okay, let’s make the thing as cheaply as possible and have it sound okay, then there’s a variety of different solutions you could go after to using where the audio has been integrated into the out processor or what not.

So essentially to answer your question, Jason or your answer is essentially for high end products, they’re going to want best of breed audio and you think that remains stand alone for quite sometime?

Yes, both because of the premium audio reason and then the other thing that pushes that merge is the notion that well, okay you’ve got these analog chips and you have digital chips, so let’s get it down to the system where you’ve got one big analog thing and one big digital thing. So from a process diversity point of view, it makes sense to integrate power management and audio, because they’re in similar processes, but from a functionality and device point of view it makes no sense at all. The apps processor needs to talk to the power management device intimately, that’s where all of the connectivity lies. The audio device doesn’t have a hell of a lot to do with power management per se.

Two other follow-ups, one probably for Thurman and/or Jason, on gross margin you’re seeing a good lift there, a little bit as portable audio becomes a bigger percentage of the mix. You talked about 55% as a long-term target still. How should we be thinking about the puts and takes as you go into next year to reach that target and maybe if you can put some numbers around it in terms of what drives it higher, what drives it lower, and how you’re going to get there given portable audio is growing faster than the other segments of the business?

We get some help from the home audio segment, that’s been a big positive for us. We definitely get help the more energy we mix in there. So having that little bit of recovery quarter-to-quarter was helpful and then we just working our product costs through the supply chain with a lot more discipline than we’ve done historically, and that’s been a big part of it and then two, we’re not such a big company and everybody always points out the benefits of scale and that’s one of them. We ship more and more products and that helps on the absorption line. We’ve seen improvements in particular with the Apex branded products out there from Tucson, a lot of which are manufactured actually there in the facility in Tucson. There’s no silicon fab of course, but the hybrids and open frames are assembled and manufactured there. So those guys ship into higher volume and doing whatever it takes to control the costs on their floor had a significant impact on the margins out of the Tucson products quarter-to-quarter.

So Jason, is there any chance the portable audio could get to 55% itself?

Portable audio, I would not expect that to happen, no. To me, I kind of view it as we’ve got a couple of tools in the portfolio, we’ve got the rapid growth piece that portable brings to the table, and then as we deploy really pretty much similar technology in a lot of different other applications, that gives us some ability to help with the margins, but as near as we can tell for modeling and every which way and frankly pretty conservatively from the point of view of what seismic is going to do, going forward we feel very good about our position relative to margins.

Just one last question, I know you guys only give guidance one quarter out, but as you look into the March quarter right now, typically that’s a seasonally weaker quarter for your audio products. The industrial is coming back, so that should kind of offset typical seasonality and then you do have some design ramps coming in the March quarter offsetting. Can we look at that as better than normal seasonality, if not flat to down slightly, is that fair, given what you’re seeing this year?

Yes, the January quarter is inherently really tricky to predict, because of a bunch of stuff. Christmas rolls off, who knows what the retail channel is going to get stuck with in terms of inventory and then what are the Chinese going to do with lunar New Year and as you mentioned, of course in the cases where we’ve got new product ramps, that throws a tricky dynamic in there as well. As best we can tell, we’re on track to at least be approaching our 15% annual growth goal right there overall for the year, and so with the range for this quarter that kind of gives you a little bit of a sense of what we’re thinking for Q4, but typically we see something in the 10% Q3 to Q4 drop. It’s probably not that far off of that.

Just to clarify, that 15% target is also for the fiscal ‘11 as well?

Yes, and then for fiscal 2011 we feel like we’re ahead of that goal. We’ll see how that shakes out, but the way it’s shaking out right now, it feels like we’re at it.

Your next question comes from Rick Schafer - Oppenheimer.

I just think you mentioned that lead types had kind of gotten tighter, I think you said I don’t know if you used the word stretch or not. Could you talk about what you’re seeing in general in terms of lead times and are you able to meet demand, I guess in the current environment right now or are you seeing supply constraints anywhere in any particular segments?

Yes, there’s our Ops team has definitely been working nights and weekends and there’s a lot of constraints, but thus far we’ve been able to work through them and our projections are we’re not going to be the long pole on anybody’s tent, but it’s kind of spotty in terms of where the capacity crunches are. It’s not across the board. Primarily, we’ve been able to get what we’ve needed through our foundry partners more easily. It’s kind of spots of tightness there, especially in assembly and test. Thus far we’ve been able to work through it and we’ve been fables for really a long time and it’s kind of in our DNA at this point.

To clarify, you’re meeting demand. It’s just really tight it sounds like to me?

Yes, that’s right.

Any signs and I’ve got to ask the question I guess, so just based on that, any signs of double ordering from your customers, are you getting any sense of that?

No. We haven’t seen anything. Sometime we monitor very closely, but thus far, Disty inventory actually went down again quarter-on-quarter and despite our best attempt to build it up, the sell through at our Disty has been really good. So we’re not seeing any evidence of that thus far.

Then I know the gross margin things kind of have been beaten to death, but can you talk about how much maybe quantify, how much of the better gross margin outlook is mix related versus the cost improvement that you’re seeing in portable audio, particularly and then within portable audio, it’s not that you expect gross margins not just to stabilize, but actually to continue to improve there at least slowly, is that correct?

On the overall basis, we do expect a slow improvement and that’s our goal, our long-term model is still 55% and we’ve made a pretty good stride, bigger stride this quarter than we expected frankly, in Q2 than we expected and we’re modeling improvement in Q3. So that’s something we’re excited about. Portable, yes, every product line that we’re shipping in high volume we expect it to hopefully slowly drive improvements, and that’s a very competitive space and it’s the highest volume space that we’re going after on the new stuff, so that puts intense margin pressure on it. So we do what we can there, but overall the model is shaking out at the 55% still very reasonable goal for the overall company.

Can you talk about since you mentioned portable audio is kind of a tough pricing environment historically, can you talk about what you’re seeing there now? Is it any signs of stability, or is it kind of the business as usual, any particular that will great?

No, it’s a perfectly reasonable space from a margin point of view. I don’t mean to cast it in a negative way. It’s pretty much business as usual and in partially the issue is we work with very keenly segment our customers, so that we’re working with, the folks that are really trying to differentiate based at least in part on the audio solutions we’re providing. We’re not really going after checkbox audio products and so that helps. We’re dealing with customers that are able to pay for the value they’re getting. We’re not going after the bottom feeder guys.

Would you feel comfortable, would you be able to tell us sort of how much of your PA, your portable audio revenue actually comes from your top customer?

Let’s see, what did we say, there’s a little bit of data there in the Q, but what we’ve said I think is that our largest customer is more than 30%.

Then if I could just ask the last one, longer term sort of at what level do you sort of see energy and your audio split kind of stabilize? I mean, is it longer term? Are you thinking of it as an 80/20 and could it happen, could you see that sort of you hit that split next year maybe as power meter ramps and as some of the new PFC products launch, kind of any idea there?

My guess would be that the gap would widen a bit further before it starts to narrow, and even within audio, the portable stuff, we did a good job of targeting that segment at a very good time, and even if we knocked the cover off the ball and everything else we’re doing, it’s kind of difficult actually to imagine anything else keeping up with it just, because that’s going so well, but at the same time, we are putting a fairly heavy investment on the energy space and on a fair number of these other audio areas we’re looking at as well. So I’d expect it to widen a little bit further before it narrows, and in terms of exactly when we start closing that gap, I’m not sure, but thus far, the overall model is hanging in there just fine and too, there is always multiple ways to solve a problem. So we’re trying to make sure we solve that problem by getting the energy products and other audio product areas to grow rather than portable not to grow.

So it sounds like you’re investing more than sort of 25%. I’m looking at your split roughly 25% sort of energy right now. Are you sort of investing more than that in terms of R&D toward energy it sounds like to me now?

Yes, in particular, or to put a slightly different spin on it. If you look at the percentage investment in energy and non-portable audio, it’s definitely disproportionately weighted in that direction. I mean, we’re staffing every opportunity that we can find in portable to make sure that we’re successful there. So it’s not like we’re leaving anything on the table that we’re aware of, but the net result of that is yes, we’re definitely spending disproportionately to make sure we’re successful in energy.

Your next question comes from Christopher Longiaru - Sidoti & Co. Christopher Longiaru - Sidoti & Co.: I guess my question is really with the new digital energy control products. Can you give us an idea of, how this is going to play out, how it affects your gross margins, your content persist? Are you going to be cannibalizing? Can you just give us a better idea how that’s going to play out?

The last thing you said is, the nicest bit about that it’s a pretty rapidly growing area, and it’s not cannibalistic to anything else we’re doing already. In fact, one of the things that’s been a pleasant surprise is how many of the customers that we talk to about, here we’ve got this new product coming down the pipe. Of course, when you’re having those conversations, you’re always talking about the rest of your product line as well. A number of the customers that are looking at PFC devices for bigger systems are also interested in adding power meter functionality into the device themselves, so like for example, in a server, they want to be able to monitor power usage on a box per box basis. So, or even in consumer electronics, with the increased focus in energy consumption and energy efficiency and things like that, people are talking about adding power meter functionality to white goods and all that. So it’s been a very synergistic sell from that point of view. Margin wise, we’ll have to see how it shakes out, I think the potential that it could be, the PFC in and of itself could be kind of in the model and in the range of the overall company model in certain applications. Christopher Longiaru - Sidoti & Co.: So that mean, around 55%?

There are sockets I think, it could look like 55%. I think most of the higher volume stuff is going to be substantially lower than that, but the caveat that we have said about the PFC business is, PFC is interesting in and of its own right, but the bigger potential for it is as a vertical platform for all of the other stuff. So for example: LED lighting, laptop supplies, lighting balliests, etc. So there’s a lot of different areas that need to have PFC in them and PFC also brings with it a number of other opportunities in those same sockets. So for example, if you’re doing power supply for TV, if you can incorporate the auxiliary supply that enables the overall TV to achieve a couple hundred milliwatt power consumption when it’s off and still power the INFRARED devices that need to be driven so that your remote control works when the TV is off, then that’s something that’s substantially more valuable to the customer, and that’s the real goal for the PFC space. So that’s why we said in the script, the real key point for PFC in over the next 9 to 12 months for sure, we want to capture some sockets and actually ship some devices and get some revenue out of that space, but the more important thing is that those engagements bring with them a lot of learning about the market and meaningful customer engagements, so that we can really develop the road map to drive long term stuff. Christopher Longiaru - Sidoti & Co.: As far as when this starts to contribute to revenue, you’re thinking a year to 12 months out?

Yes, probably in the 12 plus month range. You said meaningful there. Yes, we hope we certainly are hoping for and driving for revenue sooner than that, but whether it’s going to have a meaningful impact on the top line, it’s probably going to take a while.

Your final question comes from Tore Svanberg - Thomas Weisel Partners.

Two questions, first of all, I know you usually don’t give out bookings and backlog numbers, but can you just qualitatively talk about your visibility going into the December quarter please?

I guess the only negative about it would be we’re not quite sure how good it could be. Relative to the range we’ve given, we’re extremely well covered, we’ve taken a very conservative approach to it simply from the point of view of Christmas is tricky to predict and all that, but we’re covered for this range better than I could remember ever having been covered before.

Just given your gross margin guidance for the December quarter, it does seem like it’s not just going to be audio that drives the growth, but also the industrial business should contribute to the growth in the December quarter.

I think we are modeling some growth in the industrial, the energy business, so that’s part of it, but really, it’s driving product cost reductions across the board, slight mix changes within audio, and even within portable, frankly, so margins are tricky to give a real helpful outlook on other than they appear to be going up.

Then as we look at the smart phone opportunity, how should we view that for Cirrus Logic? Are you going to be in selective models here and there at the high end, or could this potentially become something that gets designed into several different large tier 1 smart phone OEMs?

As I said, we’ve got just gotten our general market mobile phone kind of an audio, basically the device that we’re trying to promote is the controller of all things audio for a phone, so all of the mixing and muxing and what not that goes into making an audio-centric phone an enjoyable experience. We’ve got one of those that we’ve just gotten back from the fab, we’ll be promote it to the general market, and exactly how that goes which customers see the value. Again, we’re marketing premium audio, so we’re not targeting or have any illusions that we’re going to be in the phone that AT&T gives you for free, so I suspect it will end up being at the higher end of the market, and fortunately that happens at the moment appears to be the most interesting piece of the market as well.

As far as opportunity for that product line especially next year, should we assume this to have sort of a similar success as you did in maybe MP3 portable audio, or do you think this is more of a smaller TAM if you will?

I think the TAM is probably at least as big, I mean effectively, well for a lot of reasons, we’ve effectively got a pretty dominant market share in portable media player it would be probably unlikely to achieve that in overall mobile phones. That would certainly be nice, but that’s probably unrealistic to hit that same percentage of market share in mobile phones, but if you segment it narrowly enough to phones that are differentiated based on audio, then that’s certainly a reasonable goal.

There seem to be no further questions at this time. Please continue with any further points you wish to raise.

Okay, thank you operator, and thanks to you all for joining us on the call today.

This concludes the Cirrus Logic second quarter fiscal 2010 conference call. Thank you for participating. You may now disconnect.