My name is [Abigail] and I will be your conference operator today. At this time I would like to welcome everyone to the Q3 FY '09 Semtech Corporation earnings release conference call. (Operator Instructions) Mr. German, you may begin your conference.

Thank you, Operator. Good afternoon, ladies and gentlemen, and welcome to Semtech Corporation's fiscal year 2009 third quarter conference call. I'm Todd German, Director of FP&A and Investor Relations. We have just issued our press release announcing our unaudited results for our third quarter that ended October 26, 2008. A copy of our press release is available on our Investor Relations section of our website at www.Semtech.com. For the next 45 minutes or so, Mohan Maheswaran, Semtech's President and Chief Executive Officer, and Emeka Chukwu, our Chief Financial Officer, will be discussing those results and answering your questions. Before I turn the call over to Emeka, I want to remind everyone of the following important information: The matters we will be discussing today include forward-looking statements, which are subject to certain risks and uncertainties that we discuss in detail in our most recent periodic reporting document on Forms 10-Q and Form 10-K filed with the SEC. Those reported identify important risk factors that could cause actual results to differ materially from those contained in our forward-looking statements made during this call. This call is open to all interested parties in accordance with SEC Regulation FD. Our press release and this conference call will be our sole form to respond to questions regarding our estimated financial performance going forward. Currently, should you have any questions regarding our estimates of sales and profits or other financial matters for the upcoming quarter as well as how they might impact our income statement and our balance sheet, we will consider them now. We are unable to say if there will be another Reg. FD compliance opportunity for you to ask questions before the next quarterly conference call. In addition, during this call we may refer to pro forma or other financial measures that are not prepared according to generally accepted accounting principals. We use these non-GAAP measures because we believe they provide useful information about the performance of our business and should be considered by investors in conjunction with GAAP measures that we provide. You can find a reconciliation of non-GAAP to comparable GAAP measures on the Investor Relations section of our website. A replay of this call will be available on the Investor Relations section of our website, and we assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Thanks for your attention to this important preliminary information, and I will now turn the call over to Emeka Chukwu, Semtech's CFO.

Thank you, Todd. Good afternoon, ladies and gentlemen. Revenues for the third quarter of fiscal 2009 were a record $79.7 million, a 2% sequential increase and up 1% from the same quarter last year. As expected, revenues increased sequentially due to increase in demand for our high end consumer and competing products. During the third quarter, 60% of our revenues were derived from customers in Asia, 26% from North America, and 14% from Europe. For the third quarter, direct sales represented approximately 45% of total revenues, while distribution represented approximately 55% of total revenues. Orders went down sequentially in Q3, resulting in a book-to-bill less than 1. On the bright side, we saw a sequential increase in our communications orders driven by demand for our power management products targeted for wireless routers. Net [inaudible] orders accounted for 33% of shipments during the quarter. Our GAAP net income for the quarter was $11.5 million or $0.19 per diluted share, down from $16 million or $0.24 per share for the same quarter last year and down from net income of $11.7 million or $0.19 per share for the second quarter of 2009. As a reminder, in the third quarter of fiscal 2008, the company's tax rate was impacted by a favorable tax treatment in Switzerland due to a weaker U.S. dollar in relation to the Swiss franc. On a GAAP and non-GAAP basis, that factor contributed approximately $0.05 to fully diluted earnings per share in the third quarter of fiscal 2008. In the fourth quarter of 2009 we expect GAAP net income of $0.08 to $0.14 per diluted share. For the [third] quarter, expenses related to [equity] compensation were $3.8 million or 5% of revenue. This is a decrease of approximately $600,000 from the second quarter of fiscal 2009. The decrease was…

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q3 fiscal year 2009 performance by end market and by product group, and then discuss our Q4 fiscal year 2009 outlook. Q3 of fiscal year 2009 was another outstanding quarter for Semtech. We achieved the highest quarterly revenues in the company's history. This now represents our fifth consecutive record revenue quarter. Semtech achieved $79.7 million of revenue in Q3. This represents a 2% sequential increase and a 1% increase versus Q3 of fiscal year 2008. Non-GAAP gross margin was 54% and non-GAAP EPS was $0.24 per diluted share. We generated approximately $24 million of free cash flow or 30% of revenues, which we believe is amongst the best in our sector. We also reduced our internal inventory from 88 to 83 days. We are very pleased with our revenue, EPS, cash flow performance, and inventory management in Q3. We also successfully managed to bring our power discrete's fab back on line following the fire at the beginning of the quarter. Our fab is now operational again and materials for all our power discrete products are flowing through the fab. This is a tremendous achievement, and it's just another example of Semtech's steady execution improvement. In Q3, our high end consumer revenues were flat and represented 39% of total revenues. Our high end consumer segment includes cell phones, multimedia handhelds, MP3 players, set top boxes, digital TV games, video recorders, digital still cameras, and other consumer equipment. Our high end consumer customer base is very broad and geographically well balanced. We sell products from our protection, power management and our advanced common sensing products into this segment. We expect our high end consumer business to decline in Q4 due to the global slowdown in consumer spending. Revenues from the industrial segment…

(Operator Instructions) Your first question comes from Craig Hettenbach - Goldman Sachs.

Mohan, if I look at your October quarter results and January quarter outlook, especially stripping out some of the power discrete impact, it looks like you're doing a little better than the peers. I was hoping you could talk about some of the progress on new products and what else you think is contributing to that relative outperformance.

I think it mostly is those new product platforms and some of the new markets that we're starting to see some traction in. I would say the advanced common sensing business is starting to  we're starting to see traction in some new areas there, which is very helpful for us. There tends to be a little more stability in those markets. I think the power management business, which, for us, has been a disappointment over the last few years in terms of execution, I think is really starting to do quite well now. As you know, we bought a new general manager in and I think we are starting to see the benefit of that. We're getting some very good products out and gaining traction there. And I think just the breadth of markets that we participate in, the breadth of applications, the breadth of products we have gives us that opportunity. And then if we can continue to, as the power discrete fab comes back online here and really starts to get out material, our hope is the yields are good and the material that comes out is very good and therefore we'll see the opportunity to continue to grow that business.

In addition to the challenges of a downturn here, are there any opportunities or things that you're looking to capitalize as we go kind of through a market downturn?

Well, there's always opportunities, and one of the opportunities is customers in this type of market environment. There's two things they do. On the one hand they look for cost reduction opportunities and ways to kind of change their systems, but the other thing they look at is okay, how are they going to survive when this thing - on the other side of this. And they look for differentiated products and new opportunities with new platforms. So we have a unique portfolio and we have a fairly unique value proposition in most of the products we would bring to our customers. And often the issue is, well, we don't want to try to do something too different. But now, in this type of environment, customers tend to look a bit differently and say, you know, maybe this is the time for us to try something different in bringing wireless technology and sensing technology together with power management technology, for example, is an opportunity.

Your next question comes from Rick Schafer - Oppenheimer & Co.

Just a quick clarification question to start with. On turns, I heard you mention 35% turns from the beginning of the quarter. Can you give us a little color on maybe what the turns level is now to sort of finish out the quarter based on your guide and maybe compare it to past quarters, you know, what's typical for you?

We don't give that number out, Rick. I will say that, as we look at the 35% turns - and that's on the lower revenue guidance - obviously that's a fairly typical number at the beginning of the quarter. Obviously, our guidance takes into consideration what's happened in October and November, so the $68 million midpoint is something we feel fairly comfortable with.

You mentioned disti is about 55% of sales. Can you talk about what your exposure is to some of the smaller Asian distributors and what, if anything, you're seeing there? I was actually kind of surprised to see your DSOs kind of flat - actually down a day, I think, sequentially. Can you mention anything or talk about what's going on with accounts receivable or collections there?

So far so good. We have not had any issues with having our customers pay us on time. We did have an account that has been slow paying that we had to take a reserve for. It is not a foregone conclusion that we may not be able to get this, but that particular account has been paying slow for a long time now and so the prudent thing was to take a reserve for that. However, for the rest of the accounts that we have, our customers have been very good in terms of making their payments per our payment terms.

I would add, Rick, that, you know, our distribution base is quite broad and very global, so it's European, it's Japan, it's Korea, it's Taiwan, it's North America, I mean, there's a fairly good balance between the different global regions. And I know some regions are a little bit more impacted than others in this credit crunch.

Mohan, would you feel comfortable giving kind of a range? I mean, is it roughly 10% or is it 20% exposure to sort of the smaller Asian distis?

We don't have a number, but it is not that much. We do have some large scale distributors that we work with, and the smaller guys do not really represent a significant portion of our revenue.

It sounded like industrial, it sounded like you were still seeing some good strength and actual growth you're expecting in that business sequentially. Can you maybe highlight a couple of bright spots out there that you're seeing, any place where you're seeing actually visibility improve or at least stay pretty stable?

I would say stable rather than improve. I think some of the medical area is doing okay. I would say some of the industrial sensing is doing okay. The wireless area for us, because it's a fairly  we've got new products and are attacking some new markets, I would say it's a fairly good opportunity for us to take share. And then obviously the whole power discrete space, our whole play there is taking share. So the more throughput, the more output we can get, I'm confident that we can continue to grow that.

Your next question comes from Doug Freedman - American Technology Research.

Clearly, the market's trying to figure out here when we're going to see bottom. It sounds like you saw some - I don't want to put words in your mouth, but was there an acceleration of slowdown in November? Is that the right way to characterize it? If you could sort of help us understand what you guys might be looking towards that'll sort of signal to you that you have sort of, you know, we've got behind us some of the worst news as far as where the true demand levels are out there.

I think your characterization is reasonably fair, Doug. I think a slowing down of orders, a further slowing down of orders in November is a fair categorization. I would look beyond December and hope as we go into Chinese New Year that we'll stop to see a little bit of a pick up. Obviously, it's a hope. One doesn't know exactly for sure. I will look for signs like inventory at distributors, the POS exceeding inventory pull in from us. I would look for a little bit more acceleration of bookings, obviously, just a general uptick in momentum. And I think the other thing is just the tone from customers. You know, at this point in time when customers tell us, for example, that well, Circuit City is going under, we don't know if they're going to pay us, those type of things, the general tone makes them nervous and therefore there's a feeling that things aren't quite right. I think at some point that tone will change and they'll say well, it's not great, but I think now we have firm demand in this area and therefore we want to commit to doing a little bit more in terms of orders and stuff like that. I think we're looking for those types of signs.

All right. And it's sort of safe to say right now we just haven't seen them?

I think that's fair, yes.

Can you talk to me a little bit about what your present thought is as far as the shutdown schedule, if you have one? Sort of what is your ability to sort of temporarily or variably adjust your spending levels, seeing as that we really don't know when we're going to sort of see bottom or how far it's going to go down.

Yes, Doug, I think you've just touched on one of the nerves that we have. We have recently implemented a shutdown during our fourth quarter. But we do have a lot of things that we look at. Obviously we have to look at the planned bonus payments, the accrual rate, how we are tracking through our plan, so we'll probably have to take that down. We have instituted, obviously, a hiring freeze. We're no longer bringing in new employees unless it is absolutely critical. And we have other things, but Doug, I think it's pretty important for us not to lose sight of the fact that this stuff is going to come to an end at some point, and for us here we want to be one of the companies that actually comes out of this thoughtfully, performing very well.

On bringing up the discrete's fab, with the fire, is it safe to think that because you installed new equipment or upgraded equipment that you actually might see some better performance than you had historically seen there when that business does come back? Is that the right way to think about that business going forward?

Well, I mean, it's a possibility, Doug, and it's obviously a hope for us. The first thing we have to see is is the material coming out and is it good material and is it yielding well? Hopefully, if that's the case, then the opportunity for us to improve upon yields and get more capacity out is there for us. The fab for us in the power discrete business really wasn't the bottleneck for us, so from a capacity standpoint I don't think we're going to see too much benefit. But I think the improvement in yields could come, could be a benefit to gross margins.

I did notice on the balance sheet there was a jump in temporary investments and I apologize if you mentioned it in the preamble, but I missed the explanation of the jump from the $30 million to $90 million in the temporary investments.

Yes, I think we're just moving our investments around in response to what obviously is going on in the capital markets. There isn't really anything else to that. We're just going to keep things as liquid as possible.

Okay, so that's more liquidity to your investment base, not a renaming of what we've seen with the securities markets?

No, no.

Your next question comes from Ross Seymore - Deutsche Bank Securities.

Mohan, you talked a little bit about your fourth quarter expectations by product type, and two of the products appear to be flat and the other two down. Given the down 10 to 20 guidance overall, it seems like the two down segments are clearly down quite substantially. Can you give us a general idea by the product type, such as handsets, computing, etc., how you see that playing out for the fourth quarter?

Yes, I think consumer and computing are the two that one sees as the most problematic for Q4, for us at least. And I would say within those areas, it is hand-held, which is the biggest issue, but I think also general consumer products - TVs, set top boxes - I would say is also a general concern. And then I think in the computing space I think it's mostly the notebooks and desktop computing.

And I know you guys changed a few quarters back to the new breakdown of by end markets. Can you give us a rough estimation what handhelds are as a percentage of the total or wireless handsets, if you want to think about it that? I believe it's a relatively big part of consumer, correct?

Yes, correct. The consumer is 39% and it's the material piece of that.

Like 25% out of 39%, something like that?

27% of the 39% is hand-held.

And then, Emeka, on your side, what are your expectations for what you'll do with dollars of inventory in the fourth quarter?

Our plan right now is to continue to drive our internal inventory down, obviously because of the software revenue outlook. So in the fourth quarter, it should be down. I don't have the range, but we're definitely working on bringing that down. However, obviously, in terms of the days of inventory, it's probably going to be up.

And then the last one for me, a little bit more housekeeping, on the gross margin in the quarter and in your guidance, other than the charges for the fire, are there any either inventory writedowns of any abnormal size or under utilization charges, etc.?

In terms of the guidance?

Either in the quarter and in the guidance.

No, we don't really have any significant inventory writedowns in the guidance. We've been doing an extremely good job of managing our inventories. The guidance, what is really driving the guidance is the fact that we're getting much lower revenues from our power discrete and then obviously lower absorption overall because of lower manufacturing activity. On the bright side, on the positive side, we are expecting an improvement in margins because of the better mix of revenue, and since the power discrete line is back online, the absorption from that fab is going to be higher in Q4 than it was in Q3.

Your next question comes from David Wu - Global Crown Capital.

I'm sorry, I didn't quite get the - what is the guidance for the GAAP gross margin given your revenue outlook in Q4? And can you also talk a little bit about what kind of tax rate you'll be looking forward to fiscal 2010?

We did not provide any guidance for GAAP gross margin. The guidance we provided was for non-GAAP. We guided to 53.5% to 54.5%. And with regard to the second part of your question, at this point my estimation is that our tax rate on a non-GAAP basis, it's probably going to be in the 22% to 23% range and on a GAAP basis it's going to be in the 20% to 21% range.

I see. Even with the R&D tax credit?

Even with that, yes.

The other thing I was wondering is, Mohan, have we seen any cancellations or outright cancellations or a lot of rescheduling in the months of October and November? And if your revenues do not bounce back in the next six months, I was wondering what kind of variability is there in the - I know you outsource company, but is there any effect on your gross margin other than product mix, the fact that your revenues look lower?

Well, I'll handle the first one and ask Emeka to handle the gross margin question. Cancellations and reschedules, we've seen some more push outs, I think, within the quarter, but customers being a little bit nervous about taking product, distributors nervous about building inventory, and really that's slowed down. So we've seen a little bit of push outs there; nothing substantive at this point. I would say that that's a relatively good sign compared to what I've seen in previous downturns, so we'll see how that plays out in December. I think it's going to be a key period, and then January, obviously. And then the gross margin question?

So, David, on the gross margin side, one of the good things about being [fab-led] is the fact that most of our manufacturing expense is variable. So that should already be an impact. There is a small portion of our manufacturing expenses that is fixed and so, with the lower manufacturing activity, that is less of an absorption. But we don't expect that to be significant. I think we've been very clear with regards to our gross margin story being that it really depends on the mix of our revenue. If we're getting a favorable mix of the higher margin revenue, our gross margins will expand and vice versa.

What is the customer lead times these days for you? In other words, how do they order and expect to ship? Have we changed materially from last quarter?

Visibility has definitely gotten worse. I would say we're seeing, specifically in the consumer and computing segment, you know, 2 to 6 week type of order lead times when historically that's probably been 6 to 8 weeks, so it's definitely come down. And I think the opposite side of that, though, is the supply chain lead times, what we actually build, our ability to turn our material in that type of order lead time framework, has also improved somewhat because of availability of materials at fabs and the back end as well.

Your next question comes from Steven Smigie - Raymond James.

You talked about some potential share gains on some of the discrete products. I was hoping you could talk about, I guess, what would the organic growth over the next couple of quarters potentially look like there? I think you have mid to a little bit longer lead times there, so what would the organic growth look like and then what would be your potential growth with adding in the capturing the share?

I don't have the detail with me, Steve. I do have it, but I don't have it with me. But let me just give you a framework to think about this. I think of the next quarter for us, quarter or two, Q4 and Q1, it's going to be more just getting our fab and operations back on track to see how much throughput we can - how much we can supply. Then, as you know, in the power discrete business one of the things we've done is we've entered the space business. That was a new market for us that we started to participate in this year, and many of the customers have asked us to build more products, to come out with more of the products in that area, so that's our intent. Obviously, if we hadn't had the fire we'd have had probably a little bit more momentum there. So part of the goal is increase the business in the space market and then the rest is just take share away as much as we can from some of the other segments. As to how much, the SAM is not really growing as much as some of the other businesses, but I think we can gain share in this market more so than in the other businesses. I don't have a number that I can give you at this point.

Okay, but I guess I would say it looks like in this environment that business is somewhat growing versus a, you know, obviously consumer and computing falling off, so it's still growth, even in a negative environment?

Yes. Yes, because this business, for us, I would say, is very much a share increase strategy, right? So even if the market does not increase, our strategy is to continue to drive enough products and new products and enough capacity so we can support customer demands in a bigger way. We have plenty of backlog. The customers, we know, want more material from us. In addition to that, we're entering the space market. So there's opportunity for us. We have to be able to execute well on our end.

And then turning to the gross margin then, assuming you're going to keep filling the capacity as you get your fab back online there, I guess I would think maybe the gross margin goes up a little bit over the next couple of quarters as that happen? I was also hoping to talk about the gross margin and some of the new products you've had recently, is that below corporate average, so does it sort of get a net neutral gross margin?

So the first part is if we get more power discrete products out and we get our fab back online and operations improve, yes, I think gross margin - that will have a positive gross margin impact on the company. Then the second part of the question is most of the new products that we have coming out now, both in power management and advanced common sensing and, of course, in protection, are either in the model or above the model range. So I think we should start to see gross margin expansion. Obviously, we need the whole market to come back a little bit for us.

Obviously, the advanced common sensing, much higher margins, but I was thinking that was a little bit further out and I thought some of the more recent wins might have been on some computing and handset platforms and the margins there might be a little bit lower than some of the other wins. I mean, clearly with the downturn in those businesses, maybe those design wins don't get traction here, but I guess that's what I was thinking, sort of shorter term I was thinking of some of the computing wins that you had gotten might be a little bit lower margin?

Yes. No, that's true. I think you meant the power management, right? Advanced common sensing, the margins tend to be in the model or the high end of the model. Power management, we are still getting some wins in the computing space and they tend to be lower margin, that's correct.

Your next question comes from David Wu - Global Crown Capital.

I just want to ask one last one, which is if we have a relatively long recession according to the minutes we read today from the FYMC meetings, in other words, if we have a 16-month recession and it lasts through, at least in the U.S., it lasts through the third quarter of next year, how soon can we see a Semtech - your product line, your product mix and your customer mix  [inaudible]. Are you leading or do you lag if, for example, we get the first lift in either third or fourth quarter of calendar '09?

I think, David, really, to be honest with you, that's a very tough question to answer. We will look at this quarter by quarter. We have a very broad business, as you know. What I expect, if we're going to have a recession for that long and depending on what our customers do, they're going to still design and build products and systems, albeit at a lower level. I think if they're going to stay in business, they're going to have to continue to utilize their assets. And so my sense is they'll start to or try to do things a little bit different, and in some businesses that may actually help us. I'll give you an example. As I mentioned, the advanced common sensing business, where some of those new markets - take AMR as an example - it's been a fairly slow growing market because there hasn't been a lot of drive to change the infrastructure in the industry, but this is an energy saving, this is a way of energy harvesting, for example, and I think customers will move to that quicker. That could help us. I think in power management, I've always said this is an embryonic space. There's plenty of opportunity for customers, if they really wanted to, to re-architect their systems and bring about much more energy efficient power into their systems, and this could help us. So I don't think it's going to be, for us, the way I look at it, even in a protracted downturn, there's opportunities to still gain design wins and get momentum. The question, of course, is can you grow the company and that's a challenge when you're in a recession, but I think we can still do quite well.

Your next question comes from Sumit Dhanda - Banc of America Securities.

On the gross margin front, on the reported number for Q3, the 140 basis point decline, you highlighted the mix, and then the impact from your power discrete business, I guess my question is, it did come in lower than expected, although heading into the quarter you had anticipated strength in high end consumer and computing. Anything else that was a factor from a mix perspective or a pricing perspective?

No. It was purely mix. I think the computing business actually probably did better than we expected, so yes, that was just it.

The other question for you, Mohan, when the Reynosa fire occurred it obviously highlighted the hit to the business, a couple million or two or three million in Q4, but you also expressed some optimism that some of that business may be "recovered." Any better sense you have of that as you head out in Q1 given that typically you have better visibility in this business given your high backlog?

I would say, Sumit, it really does depend on how the fab operates. I'm very optimistic because the way the team has executed to date has been really outstanding. We secured a fab backup and running in a short period of time, get material flowing, and we're doing quite well. So I'm quite optimistic that we can come out - that the products will come out and will yield well, they'll run very well and be acknowledged by our customers as good quality materials and therefore we'll be able to ship more than we had anticipated. But at this point we're still saying that in Q4 we'll see about a $2 million to $3 million impact from what we had originally anticipated Q4 power discrete business would be.

And then along those same lines, you know, you highlighted the potential for continued share gains here into 2009. Given that you really have only one competitor in this market, what in particular do you think differentiates what you have to offer versus the competition?

Well, I'm not sure that there is a differentiation other than there's only two guys in the space and one of them has a fairly strong position and there is a lot of interest from the customers in making sure that they have a second source. That's one. I think our ability to perhaps bring other products to the table as well is an opportunity. And then, obviously, when you have a short supply chain that can deliver a shorter cycle time and good pricing, I think that's also an opportunity.

On the new product front, any update on the WiMAX and the GPON opportunities? Has the visibility there decreased because of the global slowdown? Is that really an '09 ramp? Because I think about six to nine months ago you thought it might ramp in the second half of '08.

Yes. I would say its decreased, but I said this earlier on the call, that I think if this is going to be a protracted recession, one of the things that could happen is that some of these new markets may accelerate quicker. Two things happen. When you go into a recession, everybody pushes out their infrastructure investments. They have no money; they don't want to do it. And then, as you get into the recession and as we spend a couple of quarters really in this environment, I think the customers will start to say well, we have to accelerate the markets that are going to help us come out of this thing. And I think WiMAX and AMR and some of those markets may actually get adopted faster. That's kind of my hope.

In terms of the slowdown in bookings, any difference in terms of how the profile looked OEMs versus distributors and, within distributors, have the more cash-strapped, call it, Asian distributors been a bigger source of problem from a slowdown perspective? Any color you can offer there?

I would say weaker bookings from distributors is very noticeable. I wouldn't say it's necessarily just Asian, though. I would say it's pretty broad. Yes, distributors are very - the bookings from distributors are very soft at the moment.

I will now turn the call over to the CEO of Semtech for any closing remarks.

Let me summarize by saying that Q3 FY '09 was another outstanding quarter for Semtech. We achieved a record quarterly revenue for the fifth consecutive quarter, and three of our four business units grew sequentially. We also increased our cash balance by $5 million and repurchased another $20 million of our stock, while generating $24 million of free cash flow. Finally, our 48-year history is evidence that Semtech is a very resilient company that can withstand even the most challenging market conditions. While the environment is certainly challenging, we are confident that as new product revenues gain traction we can increase share, grow our earnings at a faster rate than revenue, expand our gross margins, and generate cash. With that, I would like to thank everyone for participating in our third quarter conference call. I look forward to updating you all next quarter. Thank you.

This concludes your Semtech conference call for today. You may now disconnect.