Good day. Welcome to the Power Integrations First Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Joe Shiffler, Director of Investor Relations. Mr. Schiffler, the floor is yours, sir.

Thank you very much. Good afternoon, and thanks everyone for joining us to discuss Power Integrations' financial results for the first quarter of 2013. With me on the call are Balu Balakrishnan, President and CEO of Power Integrations; and Sandeep Nayyar, our Chief Financial Officer. During today's call, we will refer to financial measures not calculated according to generally accepted accounting principles. Please refer to today's press release available on our website at investors.powerint.com for an explanation of our reasons for using such non-GAAP measures, as well as tables reconciling these measures to our GAAP results. Also, our discussion today, including the Q&A session, will include forward-looking statements, reflecting management's current forecast of certain aspects of the company's future business. Forward-looking statements are denoted by such words as will, would, believe, should, expect, outlook, estimate, plan, goal, anticipate, project, potential, forecast and similar expressions that look toward future events or performance. Forward-looking statements are based on current information that is, by its nature, dynamic and subject to rapid and even abrupt changes. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied in our statements. Such risks and uncertainties are discussed in today's press release and under the caption Item 1A Risk Factors in Part 2 of our most recent 10-K, filed with the SEC on February 22, 2013. The conference call is the property of Power Integrations, and any recording or rebroadcast of this conference call is expressly prohibited without the written consent of Power Integrations. And now I'll turn the call over to Balu.

Thanks, Joe, and good afternoon. Our first quarter revenues were within our projected range albeit towards the lower end due in large part to a drop of almost 20% in sales for computer end market, reflecting the well-documented softness in the -- in that industry. Communications revenues fell by about 10% sequentially, as seasonal patterns were exacerbated by a sharp decrease in handset sales at a top-tier mobile phone OEM where we have a substantial share of the charger business. Sales into consumer and industrial markets increased sequentially by mid- and low-single-digit percentages, respectively. These markets, which account for nearly 70% of our total revenues tend to be better indicators of overall demand trend since they encompass a broad range of applications, customers and geographies. Whereas, a more concentrated computer and communications markets tend to be more prone to quarterly fluctuations. As further evidence of an improving demand environment, we saw a sequential increase in bookings up better than 10% in Q1, resulting in a book-to-bill ratio significantly above 1. We are seeing particularly strong bookings for our high-power IGBT driver products, which are focused on industrial applications providing an indication of accelerating demand at least in certain corners of the industrial market. Based on strong order trends, we expect high power to grow nicely in Q2, and we are equally encouraged by the long-term outlook for high power as the business builds momentum behind new design wins helped by an improving demand environment for infrastructure in China. Recent design successes include a new high-voltage DC transmission link in Southern China, multiple solar inverter projects and a large-scale DP link to Germany from an offshore wind farm. We are equally encouraged by design activity across our low- and mid-power businesses. Our new LYTSwitch family of high-voltage LED drivers has been…

Thank you, and good afternoon. Since Balu has already covered the sequential revenue drivers in his remark, I will start with gross margin and then quickly cover the remainder of the financials before we take your questions. Non-GAAP gross margin increased 10 basis points sequentially to 52.9% coming in above the high end of the expected range due to a favorable end market mix, reflecting the sequential revenue trends. On a year-over-year basis, non-GAAP gross margin was up more than 400 basis points due not only to mix but also our successful cost-reduction initiatives. On a GAAP basis, gross margin increased by almost 2 full percentage points to 51.7%, as we have now exhausted the inventory that was marked up in conjunction with the acquisition of CONCEPT last year. As discussed on prior calls, we see the possibility of a slight pullback in gross margin over the middle 2 quarters of this year, as our overall end market mix becomes a bit less favorable and as some newer products begin ramping in the second half. However, our gross margin does not yet reflect the recent upward movement of dollar versus the Japanese yen, which reduces the cost of wafers from our Japanese foundries. This benefit will begin flowing through meaningfully in the December quarter and should help offset the negative effects of a less favorable mix. All told, we now expect our full year non-GAAP gross margin to be in the range of 52% to 53%. Turning to expenses. Non-GAAP operating expenses for the first quarter were within our projected range at $26.3 million, up about $800,000 sequentially driven mainly by higher payroll taxes and the fact that the fourth quarter expenses were restrained by our year-end shutdown. GAAP operating expenses were $30.8 million, including $1.1 million of acquisition-related amortization…

Thanks, Sandeep. At this point, we'll open it up for Q&A. [Operator Instructions] Operator, would you please give the instructions for the Q&A session?

[Operator Instructions] The first question we have comes from Vernon Essi of Needham & Company. Vernon P. Essi - Needham & Company, LLC, Research Division: I just wanted to the revisit, Sandeep, your comments on the gross margin as it relates to the mix going into the second quarter. And I guess, as I hear it from your statements, you have a handset drop occurring, which would, in theory, sort of improve the mix. And then going into the third quarter, it's not clear to me what would be working against that, and then it almost seems that it washes out at the end of the year. Can you just walk through the mechanics of that again, please?

Yes. So as we had given guidance at the beginning of the year, we had expected our Communication business to increase, which, based on the macro trends and what happened with one of our key customers, that impacted it in the other direction. However, we still believe that the Communications segment will grow for us in the coming quarters. And given the -- what -- how mix can impact us, plus or minus, that's why you're seen the range we have given from 52% to 53% at this point of time. And as far as yen impacting us, that'll start happening us -- and benefiting us more in the fourth quarter, but as we had indicated to you, in the first quarter or so [ph] or beginning of the year, that we also have new product introductions coming in the second half. And typically, when new products come out, the margins are lower, and they have a kind of an offsetting effect to the benefit we would get from the yen towards the end of the year. Vernon P. Essi - Needham & Company, LLC, Research Division: Okay. Can you remind us what the new product introductions would be specifically?

We don't generally discuss new products until they're out in the market. Vernon P. Essi - Needham & Company, LLC, Research Division: Okay. And then just my follow-on question, a lot of attention paid to the LED industry recently at Lightfair a couple of weeks ago, and you obviously have a pretty sizable market share of the LED driver market for incandescents. It seems as though your growth rate has been consistent, but I'm curious. I know it's a question I suppose, but have you seen any signs that we are sort of at an inflection moment? We have a very -- obviously, a major North American vendor's now out there with a low-priced bulb. Have you seen any responses in the market that would lead you to believe revenue could accelerate in 2013?

Well, we certainly have seen signs in terms of the Lightfair and so on, a lot of activity, but in terms of actual revenues inflecting, we haven't seen that yet.

Next, we have Tore Svanberg of Stifel, Nicolaus. Evan Wang - Stifel, Nicolaus & Co., Inc., Research Division: This is Evan Wang calling for Tore. I was wondering if you can comment a little bit about the -- your TV design win. Could you give us some idea about maybe the timing of this design win, as well as the revenue potential?

Well, the -- timing wise, the design win occurred in Q1, and typically, it takes 1 to 2 quarters before it ramps up. It is the largest PC standby design win with Zero standby -- sorry, TV standby. What did I say? I said PC, sorry. So it's the largest TV standby design win we have won with Zero standby, and we are enthused because it's one of the largest TV makers. And they usually set the trend in the market, so we are very optimistic that other companies would go for Zero standby because of that. Evan Wang - Stifel, Nicolaus & Co., Inc., Research Division: And for my second or follow-up question, I'd like to ask about the handset that Vernon Essi mentioned earlier. At -- the California Energy Commission had put out a document talking about the California quality bulb. Could you comment on that requirement and whether you have any distinct advantage in fulfilling or for meeting that quality requirement for eligibility for the rebate?

Yes. We certainly meet all of the quality requirements of California Energy Commission, and I think what they're trying to do is make sure that the type of bulbs that are sold in California made significant minimum thresholds in terms of efficiency, in terms of efficacy, in terms of dimmability and so on and so forth. And it is in reaction to some bad experience that they've had with CFL lamps where there were a lot of lamps sold with claims of long life that didn't happen, and the quality of color was not so good. So they're just taking precautions. It's suffice to say, we meet all of those requirements.

The next question we have comes from Ross Seymore of Deutsche Bank.

This is Mike Chu for Ross. I know it's hard for you to see sometimes where your products are actually being used until after the end of the quarter, but on the softness that you saw in 1Q, in the Communications and competing segments from a handful of customers, do you see this as a pause? And should we expect to see some snapback in these areas on normal seasonality, perhaps continuation of the ramp in your design wins in both the handset side and on the PC power supply side?

I think I would agree because if you look at the decline in the computer segment of 20%, that seems like a little bit of overreaction because what happens to the supply chain, there may be inventories in different places, and since we sell to a power supply manufacturer, it is very possible that they are reacting probably more than they should be because of the slowdown. So that's a possibility. And that could also be true in cellphones, but it's hard to tell because there is so much fluctuation on quarter-to-quarter for various reasons. For one thing, we don't necessarily follow the shipments of chargers, again, because of the long supply chain and also the timing of purchase of chargers. Secondly, that market is volatile because the share of business that goes to a particular vendor can change quarter-to-quarter. Even their ordering patterns can change. They can buy a lot in one quarter and not buy as much in the next quarter. So it's very hard to determine on a quarterly basis what happens. It's much easier to say in the long term. We have -- we are very optimistic about this market because the trends in this markets are going in our direction, higher power, smaller size and so on.

Okay. And then on my follow-up, I just wanted to ask you about -- in your last call, you had mentioned some strength that you were seeing in China, that high level, we've been seeing a little bit choppier macro data out of that country. And I was wondering if you'd or seen any change in the environment there for your products.

Yes. We had 2 China customers ramping in Q4, and 1 of them is not as ramping as fast as we hoped. And the second one, again, that ramp rate is not as high as we hoped, so it looks like there was a slowdown in Q1. Certainly, the shipments of phones have slowed down across the board by, I think, low single -- double digits. So that has an impact at a macro level for us.

Okay. And on the -- I guess, on China, the industrial side as well, the IGBTs, any change in the demand patterns you're seeing from -- in that segment as well?

Yes, we are. It's actually positive. The IGBT driver demand in China is growing very nicely. We expect our high-power revenue, which is basically IGBT drivers, to grow in Q2 relative to Q1 very nicely.

The next question we have comes from the location of Andrew Huang of Sterne Agee. Andrew Huang - Sterne Agee & Leach Inc., Research Division: I guess the first question is, on the weakness in the computer end market, can you see -- say whether or not that was exclusively standby power supplies? Or was it primary as well?

Well, it was primarily standby power supplies. That is the largest portion of our revenue in the computer segment. The main power supply was also down but not to the same extent. It was down. The programs we are in were down, but we also got some new additional business. So the overall impact was less in the main power relative to the standby. Andrew Huang - Sterne Agee & Leach Inc., Research Division: Right. Do you think that computers should rebound in Q2?

That's a good question. It's always hard to predict the macro market. If I assume that there has been some overreaction on the PC standby, it could potentially rebound. Andrew Huang - Sterne Agee & Leach Inc., Research Division: Okay. Okay. And second the question, my follow-up is related to your TV design win, and you -- I guess, you described it as having Zero standby power. So can you show us how that works? Like you have the TV that's kind of waiting for the remote control signal. How do you have it running on Zero power?

Good question. It will be hard for me to explain that without going into technical details. But it's suffice to say that our LinkZero product is used to reach that Zero consumption, and the receiver for the remote control is still on, and it periodically checks to make sure that it's not receiving any signals. But most of the time, there is nothing going on.

[Operator Instructions] Next, we have Christopher Longiaru of Sidoti & Company. Christopher J. Longiaru - Sidoti & Company, LLC: So my question had a little bit to do with PC once again. In your opinion, at this point, judging from what you've seen going into April, would you call you're computing revenue kind of a bottom at this point? Or do you expect -- within your guidance that you gave for June, is there some continued weakness in PC?

Well, that's the same answer I gave earlier. It appears that this might be an overreaction. In which case, it could come back some in Q2 but no way to be absolutely sure. But in terms of share, we have actually grown our share in PC standby in Q4. So certainly, that would again indicate that there is a possibility it could come back given the level of decline we have seen in Q1, which seems to be quite a bit more than actual demand. Christopher J. Longiaru - Sidoti & Company, LLC: That makes sense. Can you comment on inventories and how they trended over the course of the quarter and into April?

Yes, I mean, we had slowed down a bit in the fourth quarter and pretty much if you look at -- if you're looking at our internal inventories, we are within that. Now as far as the channel inventories, obviously, they tended to go up during the quarter because of the PC abruptness that -- the slowdown that we saw, and that's why the weeks in the channel went up. Christopher J. Longiaru - Sidoti & Company, LLC: Got. Okay, that makes sense. Right. And then just in terms of your TV design win, are there others going on here? Or was this one that was ahead of the curve because they went and beat the standard? As you said, they went substantially above and beyond what the standard requires. Or do you think this is a trend for television manufacturers that they're going to continue to go above and beyond this standard?

We are clearly seeing a number of manufacturers going well beyond the requirements of the standard. In fact, I would go as far as to say that the OEMs are the ones who are driving the spec at this point not as much as standards. Although, standards do a play a role because it applies to all manufacturers, and generally, the large OEMs tend to be drivers in terms of energy efficiency. Whereas, the smaller ones will be followers.

The last question we have comes from Sumit Dhanda of ISI Group.

This Jason Jones for Sumit. I didn't hear you guys comment on the order patterns in the quarter other than the totals. Can you comment on that at all, the linearity of bookings?

Yes, the orders were very significantly high in January and came down pretty much to half of the January levels in February. And then we saw it ramp up back again, and then the month of April has been fairly strong again.

Okay. And I know you don't like to talk about it, but the turns for the quarter, can you comment on those with the slight miss to the midpoint?

Looking forward, yes, somewhere in the low 40s.

Yes, Jason, Joe here. For Q1, the turns, based on the shipments we did, turns were in the high 40s. Of course, we recognized less revenue than what we shipped during the quarter as we mentioned on the -- in the script. But for Q2, in order to meet the midpoint, if we assume that shipments and revenues are equal, it would be a requirement somewhere in the low 40s.

Okay. And then sorry, just one last quick one. The deferred income is getting up bit there a little bit. Is that reflecting this effect of the PC business in the channel also?

Yes. And that's the weeks in the channel going up.

And could you just repeat what that number was for the week? I missed that. I'm sorry.

About 6.5 weeks.

Next, we have a follow-up from the location of Tore Svanberg, Stifel, Nicolaus. Evan Wang - Stifel, Nicolaus & Co., Inc., Research Division: I had meant to ask about the handset. The sharp decline that saw, would you characterize that as a pushout of a program that you're expecting to ramp? Or was this an ongoing program?

This is an ongoing program with one of our Tier 1 customers who saw a significant decline in shipments in Q1.

[Operator Instructions] Next, we have a follow-up from the location of Andrew Huang of Sterne Agee. Andrew Huang - Sterne Agee & Leach Inc., Research Division: Can you -- I seem to remember you talking about getting a primary power supply design win for the TV this year. Is that correct?

That is correct. Andrew Huang - Sterne Agee & Leach Inc., Research Division: And is that still within your expectations for this calendar year?

It is, I believe, our second TV design win, and it is again, a large company. But we are in our first program there. So we are encouraged that we got into this company, and we will -- we are optimistic that we'll get additional models as we go along. Andrew Huang - Sterne Agee & Leach Inc., Research Division: Okay. And can you give us a sense of what the dollar content is in the primary TV power supply as opposed to the standby power supply?

Good question. I don't have it with me, but it is not a very large revenue component. But it is a very significant strategic design win. Andrew Huang - Sterne Agee & Leach Inc., Research Division: Okay. And then my follow-up is, for the remainder of the year, Sandeep, can you give us some color on how we should think about OpEx through the end of the year?

Yes. I think through the end of the year, there should be a gradual increase from the guidance we gave for Q2, as we continue to make investments in R&D.

At this time, it appears that we have no further questions. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Gentlemen?

Okay. Thank you, Mike. Since we have no more questions, we'll end it there. Thanks, everyone, for listening. There'll be a webcast replay of this call available on our website at investors.powerint.com. Thanks, everyone, for listening, and good afternoon.

And we thank you, sir, and to the rest of management, for your time. The conference is now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, and take care, everyone.