Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Fiscal 2013 Second Quarter Conference Call. [Operator Instructions] Before we begin today's call, the company has requested that I read the following Safe Harbor statement. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI Technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference is being recorded today, October 26, 2012, at the request of GSI Technology. Hosting the call today is Lee-Lean Shu, the company's Chairman, President and Chief Executive Officer. With him are Douglas Schirle, Chief Financial Officer; and Didier Lasserre, Vice President of Sales. I would now like to turn the call over to Mr. Shu. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us. As noted in our press release this morning, second quarter results was somewhat mixed. Net revenue of $16 million, compared to $16.8 million in the first quarter, were at the low end of our July [ph] guidance. Although the U.S. economy has continued to show moderate growth, this was not enough to offset continuing weakness in orders from suppliers of labor equipment in Europe, nor was it enough to offset the slowdown in manufacturing in China. The softness in second quarter revenues also reflects, we believe, continuing uncertainty surrounding our present dispute with Cypress Semiconductor, of which, I will say more in a moment. Gross margin, on the other hand, rebounded nicely, to 45% from 40.3% in the prior quarters. This was due primarily to a greater percentage of products with higher ASPs and higher margins that we have noted before. GSI gross margin is very sensitive to shift in product mix which, in turn, are difficult to predict from quarter-to-quarter. We expect heavier [ph] our current expectation is that third quarter gross margins will be approximately 43%, due in part to a modest decline in litigation-related expenses, which are $778,000 year-to-date, compared to $2.7 million in the first 6 months of fiscal 2012. Second quarter operating margin also rebounded nicely to 9.4% from 5.2% in those quarter. Although still well below our target range, it is a testament to the fact that we can be solidly profitable even with a smaller revenue base with which to cover fixed cost. Indeed, we have been profitable every quarter since the third quarter of our 2004 fiscal year, in a 9-year period that included the worst recession in half a century. This record of 36 consecutive quarters of profitability is particularly noteworthy in light…

Thank you, Lee-Lean. We reported net income of $1.1 million or $0.04 per diluted share on net revenues of $16 million for our second fiscal quarter ended September 30, 2012, compared to net income of $1.7 million or $0.06 per diluted share, and net revenues of $20.8 million in the comparable period a year ago. In the quarter ended June 30, 2012, we were $920,000 or $0.03 per diluted share on net revenues of $16.8 million. For the 6 months ended September 30, 2012, net income was $2.1 million or $0.07 per diluted share, net revenues of $32.8 million, compared to net income of $4.9 million or $0.16 per diluted share on net revenues of $43.8 million in the first 6 months of fiscal 2012. Gross margin was 42.6% compared to 43.9% in the comparable period of fiscal 2012. Second quarter direct and indirect sales to Cisco Systems were $4.9 million or 30.6% of net revenues, compared to $4.1 million or 24.2% of net revenues in the prior quarter, and $7.9 million or 38% of net revenues the same period a year ago. Military/defense sales, which vary considerably from quarter-to-quarter, were 7.4% of shipments, compared to 11.9% of shipments the prior quarter, 10% of shipments in the comparable period a year ago. SigmaQuad sales were 33.9% of shipments compared to 38% in the prior quarter, and 35.4% in the second quarter of fiscal 2012. Second quarter operating income was $1.5 million, or 9.4% of net revenues, compared to $880,000, or 5.2% of net revenues in the prior quarter, and $1.9 million or 9.2% of net revenues a year ago. Total operating expenses were $5.7 million compared to $5.9 million in the prior quarter and $7.1 million from the second quarter of fiscal 2012. Second quarter research and development expense was…

[Operator Instructions] And our first question comes from the line of Tristan Gerra with Baird.

Marquardt on Tristan's behalf. I wanted to see if you can talk about your market share, currently, and what market share you think you can gain next year. Given the outcome of the lawsuit.

Daniel, this is Didier. It's certainly a tough question. I would say that our market share is somewhere in the 8% to 10%, would be my guess. As far as what market share we can obtain, it's going to take some time, obviously, to gain the market share. Samsung is still shipping through the end of the year. For the general market, they will continue to ship beyond that, to some of the major accounts out there. So, certainly, that business isn't going to be turning over overnight. Certainly, we have always had a goal that we are going to try and double the company, as far as market share, over time. I just can't tell you if it's going to happen by next year or if it's going to spill into fiscal 2014. But, certainly, our goal has always been to double the size of the company.

Okay, that's fair enough. And then in terms of the RLD revenue opportunity. Could you quantify that opportunity for next year and kind of longer-term?

The LLDRAM.

The LLDRAM, as we spoke in the past, it's somewhere roughly $200 million to $250 million market cam. It's been, obviously, serviced primarily by Micron. We have the parts, right now, sampled into our customer base, as we talked about before. The qual process will take anywhere between 3 months, to 6 months, and sometimes longer for some of the major customers. There have been a few quals that we understand have been put temporarily on hold due to the outcome of the ITC litigation. And certainly, the ruling that we received yesterday was very favorable. And so we anticipate those quals to be released now. So, again, we anticipate the quals to go through the end of this year, with some type of revenues first half of next year and certainly ramping in the second half of fiscal next year.

[Operator Instructions] And we, again, have the line of Tristan Gerra with Baird.

This is Daniel, again, on Tristan's behalf. I just wanted to get an idea of when you guys think we could see a rebound in U.S. wireless spending.

Well, that's a great question. I'm not sure if anybody's been able to answer that question for you. It's hard to tell. I mean, so certainly -- unlike some of the reports that we've been hearing from other companies in the market space, we have seen some light at the end of the tunnel. Certainly, our bookings are a little bit better than what we've seen that some of the other folks in this segment. With that said, the visibility in a lot of cases, in the wireless and the wire line, have been really hazy, still. Some of the forecasts have changed, certainly, within a short amount of time. And I think part of that has to do with the fact that lead trends [ph], in general, from ourselves and from competitors, are on all-time lows. So I think that -- certainly, that dynamic has allowed our customers to be, for lack of a better word, a little sloppy in their forecasts. And so in that respect -- unfortunately, we don't know -- signs are leaning towards middle of next year, but it's really difficult to say.

Next, we have the line of Anthony Cambeiro with Anthology Capital.

I wanted to ask about the process for getting qualified on a Samsung socket as a second source for whomever is already providing the other side of the source there. So if you could kind of talk about what -- how that process goes and how it may be different from a new customer, if you will, if there is any difference, that will be helpful.

Yes, so certainly not going to be uniform in the way that we obtain that market share. And what I mean is you can kind of look at it in 3 stages. Customers that use my -- I mean, sorry, that use Samsung where we're already qualified on the same socket. Customers that use Samsung that are our customers that we are not qualified at. And then, of course, lastly, a customer that uses Samsung and we're not there, we're not a qualified supplier at this point. Certainly, the first category, which is where we're already on the same socket, that's going to be the easiest transition. That's just simply a market share shift that the purchasing folks do. So that's very simple. That's done during a normal quarterly cycle, quotation cycle. The second category, which is customers that we're already a supplier to but may not be qualified on that particular Samsung socket. That's where we've already identified those and in many cases, have either started qualification or at least submitted the samples to start qualification. As we discussed in previous calls, some of those qualification efforts were placed on temporary hold, obviously, waiting for the initial ruling, or I should say initial determination, of what's happening with this ITC case. Certainly with the resounding results that we received, we anticipate that those quals will be released. And I say anticipate because, obviously, the determination came in yesterday, so we haven't had a chance to follow-up with all the customers. Lastly, we have that set of customer that we're not qualified in, but we certainly know about it, and so we're actively going after those folks. So it's going to be a process from the first category, I mentioned, which is a simple shift to the last category, which is certainly becoming a qualified supplier and getting qualified on a particular socket. So it's going to be a range of timeframes in order to start obtaining that market share.

Perfect. And on this, I'm just curious if you could comment on the idea that -- so Cypress has the largest market share today, and so it's more likely you -- if you could comment, is it more likely that Cypress is paired with Samsung as a secondary source in more customers than you are, and as a result of customers wanting to maintain secondary sources, I'm not going to give all the business to one customer, that you're more likely to win more than your fair share of the Samsung business, over time, than other competitors out there?

Probably a fair statement. Again, Samsung historically had been the number one SRAM supplier. Cypress passed them a few years back. But Samsung still has been, through this year, the second-largest. So, it's fair to say that, between Cypress and Samsung, they certainly had the highest concentration of penetration at the OEMs. With that said, I do agree with the statement you made. I think any one supplier will have a ceiling to what percentage of business they can get in a market. Certainly, if there are multiple suppliers, like there still are in the SRAM market, I should say, there will be a glass ceiling. And certainly, that's what we've said in the past, which is one of the speculation -- or one of the reasons we feel that Cypress came after us with the ITC, was they certainly didn't want to have this glass ceiling as far as share of the market. And they felt that one of the way they could get beyond that was to try attack one of the up and comers in the market. Certainly, with new products that we've had, the SQ3 and some of the high-end parts, we are having some very good traction. And certainly, I don't think they wanted to see that continue. So that's where this started from.

Next, we have the line of Eric Niche [ph] with Barclays.

I was hoping you could provide any more detail about what you think the time frame might be for the lawsuit going forward. And if you plan on trying to reclaim the $10 million in litigation expenses from Cypress, and in addition, possibly a penalty.

Well, at this point, in ITC actions, there's no recovery of legal fees. So, that's gone. In terms of time frame, currently, the final determination is due in February, but we believe -- we are not lawyers here, but at least we believe that, by some time, maybe around Christmas time, we'll know where Cypress' request for hearing by the entire committee stands. It could go, from our understanding, a number of different ways, they could review the entire case. They could review part of the case or they could review none of the case. About the only thing we'd say at this point is that it's definitely supposed to be over February, end of February. We know that, all along, we've been saying that we felt that violated no valid Cypress patent rights. And the outcome that we were hoping for and expecting in the initial determination came our way, and we have no reason to believe that the final determination would be any different.

Next, we have the line of Ted Moreau with Knight Capital.

Doug, this might be a hard question to answer, but I'm going to ask it anyway. You may have touched on it. But how, in light of your sort of top line, how much do you think the litigation actually cost you, in terms of, we know what the expenses are but in terms of revenue or customers. Are customer holding back? And do you get any sense that now -- is it too soon to get a sense of, now that it's resolved, that some of these delays might move forward or are they still going to wait for the final sort of litigation decision.

Yes, I guess I'll take the first crack at that and then Didier can finish. Yes, it's hard to put an answer on what we feel that we've lost in revenue, on a quarterly basis. But we have to believe that it's a couple of million dollars, potentially, maybe more. We know the level of business that we've seen in the past. We know where we haven't gotten awards of business that we typically had in the past. But it's hard to say it's all Cypress related because the market has been pretty bad for a while with Europe and activity in China. In terms of when will it come back, the initial ruling only came out yesterday. And no one has really had a lot of time, yet, to respond to it. I know, Didier, I'm sure he'll have all of his area sales managers and reps go out and knock on the customers' door again and make sure that they see that we've gotten a favorable ruling. I know I've already seen some activity, emails from customers indicating that they're starting to move more business our way. But, again, a lot of orders are already in place for, probably, the next couple of months or so, and we'll have to wait and see how long it takes to turn some more of that business our way.

Right. And, basically, I'll mirror what Doug said. Certainly, we've had a lot of contact with customers in the last day. They're certainly very happy for us. But, honestly, there were a few customers out there that were surprised by the ruling. And I say only because the very strong and misleading communications they've been receiving from Cypress certainly had them thinking that maybe there was something there. Which we said all along there wasn't, and now the judge has agreed with us. And so to mirror Doug's statements, some customers will reward us earlier than others. Certainly, there's different categories of customers. You have the customers that were involved in the case. And what I mean by that is Cypress involved them in the case by naming them in the ITC lawsuit. And then you have folks that weren't involved, but yet Cypress kept going to them and making, again, these strong misleading statements. So some of those folks have already contacted us and made it clear that certainly, they're happy that we've done very well in the initial determination. And I think that we'll start seeing some of that momentum carry into first quarter next year. Certainly, nothing is going to happen before then, the purchase orders are already placed and the commitments have been made. But I think, maybe first quarter and certainly into second quarter, I do think we'll see some of the benefit of our victory.

And, Didier, why was a lawsuit a factor in people withholding orders? Were they concerned about the viability of the company? Were they concerned about various product lines would be discontinued or not viable any longer or what was the thought process here? I suppose the market was so weak that it gave them the excuse not to do business with you, but...

Yes, I do you think that the misleading statements that were being made were certainly scaring some of the potential customers. And certainly, that became clear to us early on, that, that was one of Cypress' biggest strategies, was to try and intimidate our customers. And they even came -- went so far as to try and intimidate our shareholders. They made statements out to our shareholders. I mean, that was kind of the tactic that they took, and unfortunately, those kind of tactics work for a short period of time. And in this case, again, there were customers out there who have been dealing with Cypress for many years, and I suppose gave them the benefit of the doubt in this case, and we have never been through a process like this so they didn't know what to expect. And they were hearing conflicting information, they have us saying we absolutely aren't violating patents and they had Cyprus saying it's a blatant violation of our patents, and nobody knew who was right. Well, now, after yesterday's ruling, we're -- again, the ALJ was completely in our favor, we do have a third-party biased opinion from somebody whose job it is to get through to the truth of the matter. And so in that respect, I think customers now will understand that, again, we're a credible supplier, we're an honest supplier, what we say is true. And I think in that respect, we'll start seeing some of the benefit of that going forward.

And then one final thing, and I'll turn it back. But I know the stock reacted positively with the legal announcement. But I'm a little surprised that -- I know your results were weak and all that, but it seems to me that resolution of this would sort of mitigate and overcome any short-term economic issues in terms of your top line. I would have thought there'd be more follow through on the stock, or maybe that's coming here. Maybe it's market issues. But, I mean, it just seems to me to be such a favorable development that it should overwhelm any, let's say, softness in your business.

Well, we hope that will happen. We'll see.

[Operator Instructions] And there are no further questions in queue. I hand the call back over to the presenters.

Thank you, all for joining us. We look forward to speaking with you in January, when we will report our third quarter results. Bye.

This concludes today's conference call. You may now disconnect.