Inphi Corp
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Inphi Corporation Q2 2013 Earnings Call. My name is Lisa and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there’ll be a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. John Edmunds, Chief Financial Officer. Please proceed, Sir.

[John Edmunds:]

Thank you, Lisa. Good afternoon everyone. We would like to thank you for joining us today for our quarterly earnings call to discuss our Q2 financial results and business outlook. I’m John Edmund, Chief Financial Officer and with me today is Ford Tamer, our Chief Executive Officer. First, I will read the Safe Harbor, then Ford will you an overview of our business. After that I will you a short financial summary and an outlook for the third quarter of 2013. And then we will be happy to take your questions. Before we begin today, please note that during the course of this conference call, we may make projections or other forward-looking statements. These forward-looking statements and all other statements made on this call, which are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. These forward-looking statements speak only as of today's call. We do not undertake any obligation to provide updates after this conference call. For further information regarding risk factors for our business please refer to our registration statements on Form S-1, as well as our most recent annual and quarterly reports on Forms 10-K and 10-Q all filed with the Securities and Exchange Commission, accessible at www.sec.gov. Please refer in particular to the section entitled Risk Factors. We encourage you to read these documents. Also during the course of this conference call today, we may make reference to non-GAAP financial information. A reconciliation of this information is included in the press release and on our website, which is available at www.inphi.com. This information is not a substitute for GAAP and should only be used to evaluate the Company's results in conjunction with corresponding GAAP measures. Now to begin our review of the quarter, I will hand you over to our Chief Executive Officer, Ford Tamer. Ford?

[Ford Tamer:]

Thank you, John. Good afternoon and thank you for joining us. We are again good to our word in Q2 and delivered as we said we would. Q2 revenue was $24.3 million, ahead of consensus and up 8% sequentially from Q1. Q2 EPS was on target. For Q3 our guidance is $26.3 million in revenue at the midpoint, another 8% sequential gain from Q2. Before we cover the Q2 highlights, I would like to summarize some of the reasons why we remained excited about our future growth prospects. 60% of worldwide data now resides in Cloud data centers. And Cloud operators are building ever more massive data centers. Some reported in the recent Edwards Norton revelations to be able to hold 5 zettabytes of data or 5.5 trillion gigabytes. That’s the equivalent of 700 gigabytes of data for everyone of the 7 billion humans on earth, or 1.2 trillion high definition DVDs. The data has to move at very high speeds between data centers, between the data centers and the users, over increasingly long distances within data centers entirely at increasingly higher speeds between and within servers and switches inside the data center. Inphi Semiconductor Solutions help move that data at what are today very high speeds like 100 gigabyte per second and ensure that no data gets lost. As we move forward in time these speeds will increase to 1 terabyte per second and beyond. We sell our solutions to Tier-1 equipment and module vendors, we target this mission critical data movement applications. We have three product families, one Inphi optical interconnects, that’s amplifiers and drivers. Two, Inphi networking interconnects, that’s SerDes and CDRs. And three, Inphi memory interconnects, that’s registers and buffers. When I joined Inphi in February 2012, our revenue was generated by registers and amplifiers. In 2012 and 2013, we added revenue from buffer products and SerDes and CDRs inside 100 gigabyte per second modules. And in 2014, we will add revenue from driver products and SerDes online cards. The successive new product introduction doubles our serviceable addressable market from $250 million in 2013 to over $500 million in 2015. We have captured 40% market share in the past and our current design win momentum supports a 40% market share in the future. That presents Inphi with an opportunity to grow revenue at an annual compound gross rate in the range of 20% to 30% per year. This is why we are confident about the longer term story at Inphi. Now, let me tell you about our most recent quarter and our three key takeaway points for Q2. First and foremost, we are delivering stable revenue growth as we promised; second we are attracting strong new talent to Inphi; and third, we are continuing our positive market momentum for both communication and server product. Now let’s look more closely at each of those. First our Q2 financial results came in as planned. We realize this consistency needs to be a key part of running our business and our long-term plans with Inphi. Q2 8% sequential gross marks the third consecutive quarter results delivered as advertised. Inphi Q3, 8% sequential guidance will once again reflect continuous improvement, we continue to focus on investing for growth while also delivering earnings leverage in the quarters and years ahead. As a result of these investments and customer design win traction, we are still targeting $200 million annual revenue run rate exiting 2015 or approximately $50 million in revenue in the Q4 2015 timeframe. And we expect to leverage top line growth into continued operating margin improvements. The second highlight of the quarter reflect the industry recognition of Inphi improved outlook. In Q2, we successfully attracted significant technical and operational talent to the Inphi team from top semiconductor and system companies worldwide, an accomplishment that further strengthens and enables our long-term outlook. Inphi focus is on supporting mission critical communication and server applications at increasingly high speed and cutting edge manufacturing processes. This creates very interesting opportunities for top talent to develop differentiated products for our Tier-1 customers. We believe employees understand that while nothing changes overnight, particularly in infrastructure based markets, our outlook is increasingly bright and so too is the opportunity here at Inphi. These Inphi new hires also reinforce our commitment to our customers and our partners then Inphi will build high quality products to enable our customer success in datacenter, long haul and metro markets. This in turn will drive Inphi growth through the latter half of this decade and drive value for our investors. Third, we remain confident in our product pipeline and design win momentum in all three of our businesses in Inphi, optical, networking and memory. For optical interconnects, we continue to 100 gigabytes senior driver sockets to complement our 100 gigabyte amplifier wins. For networking interconnects, our first generation 100 gigabyte products are in production in CFP and CFP 2 modules, where we have captured over 50% design win market share. Our second generation 100 gigabyte networking products are winning significant Tier-1 line card design wins. From the time I joined Inphi in February 2012 until today, our communication design win pipeline has approximately doubled. For memory interconnects, we witnessed a resurgence of registered revenue growth as well as significant increase in our LRDIMM buffer revenue. We also expect the future release of the Intel IvyBridge platform for servers will show additional performance and scaling benefits for LRDIMM buffer product. We expect our DDR4 products to lead the industry from a power and performance point of view. Both very critical metrics for data centre operators. We anticipate the market for DDR4 memory interconnect to double in size from the current DDR3 market in the 2015 timeframe. Finally, as we anticipated last quarter, our strategy of focusing on Layer 1 Interconnect from fiber to memory is allowing us to align closely with Tier-1 customers now and in the future. Our future roadmap will support customers building and deploying 4 terabyte line card for switches and routers, 6 terabyte servers and 1 terabit long haul links. We are currently negotiating strategic customer engagements which can propel Inphi to a very bright future with continued revenue growth. In summary, this quarter we again delivered our commitment to you our shareholders. You could see firsthand evidence that our momentum is attracting the attention of terrific new employees and witness continued strong product and design win momentum. In short, our revenue is growing, our products are performing, our margins are strengthening and our long-term view continues to be on track. With that I’ll turn the call over to John for the financial details of the second quarter and to speak in greater detail about our expectation for the rest of the year. John?

[John Edmunds:]

Thanks Ford. Now I’ll briefly recap the key financial results for Q2. As Ford stated for the second quarter of 2013, we reported revenue of $24.3 million which represented 8% sequential growth and was above the midpoint of our guidance of $24 million. Overall, both of our communications and server revenues grew sequentially in Q2. Our mix of business in Q2 reflects a modest resurgence in our server business resulting in an approximate 60-40 server communication kind of mix for the quarter. In communications, we did ship more 100 gigabyte product revenues, but also experienced either a leveling off or in some cases a decline in older 40 gigabyte in other communications components. Again, both server and communications businesses grew sequentially in the quarter. Net income in the second quarter on a GAAP basis was a loss of $1.5 million or a loss $0.05 per diluted share. This included stock compensation expense of $4.3 million and GAAP driven tax benefit of some $2.2 million. This compares to a net loss of $1.6 million or $0.06 per diluted share in the same quarter one year ago. To give you more detail and comparing numbers, I will provide you with some additional non-GAAP measures. Within the press release, you will find a specific written reconciliation as provided, but in general the differences between GAAP and non-GAAP are due to excluding stock compensation expense which in Q2 net of the tax benefit was $2.6 million, as well as some other GAAP to non-GAAP differences in income tax expense of approximately $0.8 million. On a non-GAAP basis then net income for the second quarter was approximately $0.3 million, were approximately $0.01 per diluted share. This matched the midpoint of our guidance. This also compares with non-GAAP net income of $1.5 million or $0.05 per diluted share for the same quarter one year ago. Non-GAAP gross margins for the second quarter of 2013 was 64.6% which was up 30 basis points from the 54.3% in the first quarter of 2013 but down 50 basis points from the 65.1%, we experienced in the second quarter of 2012. Our gross margins have rebounded in Q2 based on a slightly higher average ASP and reductions in cost achieved by our manufacturing operations. Non-GAAP operating expense for the quarter totaled $15.4 million. This was up approximately $0.7 million slightly less than our guidance and was primarily due to $0.9 million higher R&D investment. We added additional heads in Q2 and this long with higher foundry and prototype costs, led to an increase in spending. We plan to continue to hire critical engineering resources in Q3 and Q4, as we make measured investments to support larger OEM customers who are interested in developing products together. We again expect our Q3 operating spending to rise approximately $0.6 million, plus or minus $0.1 million. Principally due to additional heads and design and qualification activities in R&D. With regard to the non-GAAP pro forma tax provision in the second quarter our effective rate rose from 27% to 38% based on revised projections of taxable incomes by jurisdiction. The numerator, the absolute amount of tax we expect to pay out has not changed, but the denominator, the expected taxable income by jurisdiction has changed. As volumes continue ramp in 2014, we expect to be able to bring the effective tax rate back down. However, this is currently our best estimate for the remainder. Other income in Q2 was approximately $0.2 million coming mainly from interest income consistent with Q1. Now turning to the balance sheet, cash and investment in marketable securities decreased by $2.7 million for the quarter from $121.6 million to $118.9 million or from approximately $3.99 per diluted share down to $3.86 per diluted shares at June 30. This net reduction of $2.7 million in cash was the result of $5.9 million being used for property, plant and equipment offset by $4 million in non-GAAP cash flow from operations and $0.2 million non-cash decline in market value investment securities as well as $0.8 million in cash used to effectively repurchase shares from employees in return for paying out withholding tax on their behalf, which had become due on restricted stock vesting, otherwise known as stock withholding. This activity was partially offset by $0.3 million in cash proceeds from stock option exercises. The $5.9 million in PP&E purchases in Q2 is part of several projects driving a total of $9.6 million spending over the last 6 months, $5million of which was for additional lab equipment required for testing and qualifying new 100 gig products, $2.5 million in capitalized (mask sets) and approximately $2.1 million in IT equipment and tenant improvements and expanding our office facilities in California. We are currently forecasting PP&E purchases for the second half of the year to be considerably less than the first half. The $4 million in non-GAAP cash flow from operations comes from $0.3 million in non-GAAP net income adding back $1.9 million in depreciation and amortization, $2.2 million in deferred income taxes, $0.1 million in other non-cash items and a use of $0.5 million in cash for networking capital expansion. Our working capital in general has continued to stay efficient in Q2. Accounts receivable decreased $0.6 millions from $11.9 million to $11.3 million due to improved linearity of shipments in the quarter, which represented 42 days sales outstanding down from the 48 days reported at the end of March. With regard to inventory, we are up from 55 days on hand to 59 days on hand at the end of June, which implied an inventory returns measure declining from 6.5 to 6.1 times per year. Total inventory increased by $0.6 million from $5 million to still a relatively lean $5.6 million at the end of June. Payables decreased to $4.5 million and days payable moved from 107 days at the end of March to 57 days at the end of June. This was due to a large cash payment being made in Q2 for purchases of property plant and equipment. Now for the business outlook for Q3. Again, I would like to remind everyone that the following statements are based on current expectations as of today and include forward-looking statements, actual results may differ materially, we do not plan to update nor do we take on any obligation to update this outlook in the future. As a range of guidance for Q3 revenues are forecast to be sequentially up 4.8% to 11% or $26.3 million at the midpoint, plus or minus $0.8 million. Non-GAAP gross margins are expected to be relatively steady and remain in the 64.5% to 65.1% range. We expect non-GAAP operating expense to increase $0.6 million in the third quarter plus or minus $0.1 million primarily an R&D due to ongoing hiring and new product design and qualification expenses. We are currently estimating the non-GAAP effective tax rate to be 38% for the balance of the year. We are confident these components should then align resulting in non-GAAP net income between $0.48 million and $1.1 million which on approximately 31.3 million estimated diluted shares would result in estimated non-GAAP earnings per diluted share of between $0.02 and $0.04 per share. We also estimate non-cash stock compensation expense to be $4.7million to $5.0 million, this would imply a GAAP net loss in a range of $2.0 million to $2.4 million for the quarter or a GAAP loss of $0.07 to $0.08 per common share. This outlook will not be updated during the quarter and up until the time of the next quarterly earnings release unless Inphi publishes a notice stating otherwise. So, please ask your questions today during the general Q&A period. And I would be happy to answer any questions you might have. Lisa?

[Operator:]

(Operator Instructions) And your first question comes from the line of Tore Svanberg with Stifel Nicolaus. Please proceed.

[Erik Rasmussen:]

Hi, guys, it’s Erik Rasmussen calling for Tore, nice steady results and guide. Wanted to get back to what you said in the prepared remarks, you seemed to have seen during the quarter a surge in your memory business, can you just talk a little bit about that what some of the dynamics both in the register and the LRDIMM side?

[Ford Tamer:]

Yes. Hi, Erik, this is Ford. On the register side in Q1, there was a shift of some memory that went from server to mobile tablet application and we’ve seen that come back in Q2 to server type of centric application and we expect this to come back continue to improve in Q3 and Q4. So, that’s, what’s happening on the register side. On the buffer side, we are getting increasingly -- increased support from different vendors realizing the benefit of the buffer and we are more bullish on it, on this prospect given -- even increased benefit that we’re seeing in IvyBridge. That is your question?

[Erik Rasmussen:]

Yes, no, that’s great. If we’re looking at then you do split that seemed like the communications -- both your businesses kind of bounce back and forth which ones are -- represent the lion share. On the comp side, the 100 gig seems to be -- an optical in general seems to be a lot of optimism there, a lot of the vendors (CMN) and Infinera and so on are reporting a lot of growth in that area, can you just share with us some of the things you’re hearing from your customers as well on in optical?

[Ford Tamer:]

Eric, you are totally right. I think we are seeing good increase in 100 gig deployment and continued deployment or 100 gig driven by LTE, China Cloud, we are also seeing as John remarked, a decrease in 40 gig spending so which is offsetting some of the growth in 100 gig. So overall that, overall communication business is still growing nicely but we had a bit of 40 gig decline which tampered the growth.

[Erik Rasmussen:]

What is the split there between the two right now if you have to say if you can?

[John Edmunds:]

Typically Eric, we don't breakout these numbers. I think predominantly on the communication side, what we sell is about three quarters or more what we sell is in 100 gig base now and then the balance is in 40 sometime get long haul and some high speed components of the ship. Okay?

[Erik Rasmussen:]

Great. One last question if I can, on the DDR4 side, can you just give us an update what you’re hearing back from customers to the competitive environment and is anything changed on that front? Thanks.

[Ford Tamer:]

Yes, I think right now, you’ve got multiple vendors being qualified on the 0.92 spec; you’ve seen some vendor make announcements about this. We also have -- we also have a 0.92 product going through qualification. And then we expect more spec changes between now and the final release of the DDR4, so that’d be further risk. These are very critical decisions for the memory makers because this DDR4, DDR3 has been around for four years, will last another two, three years. These are decisions they’re making for six, seven years, very mission critical decisions and power and performance are going to be paramount. And we do feel that we have a lead on power and performance, both very critical metrics for data center operator. So, the wins will be decided over the next 6, 9, 12 months and we feel, we’re in a pretty good position based on our current power and performance metrics.

[Erik Rasmussen:]

Thank you very much.

[Operator:]

Your next question would come from the line of Quinn Bolton with Needham & Company. Please proceed.

[Quinn Bolton:]

Hi, Ford and John. Quick first question is, follow up on the LRDIMM that Erik asked Ford, you mentioned you’re seeing some increase interest there in the LRDIMMs, I assume to that surround the launch of the Ivy Bridge platform but can you say what’s driving that increased interest, is it just folks having a better seeing a performance advantages of LRDIMM in the new IvyBridge platform, is it the premium over RDIMM just finally started to come down, what’s driving that better interest in the solution?

[Ford Tamer:]

Yes, Quinn. I think you’re right is probably all of the above so it’s a probably three factors increased understanding of the benefits of the LRDIMM buffer on the current Sandy Bridge platform, reduction of the premium between RDIMM and LRDIMM and expectations for the upcoming IvyBridge. So, I think all three are contributing, we continue to work with partners on both the software ecosystem and the memory and server ecosystem partners to publish and publicize the benefits of LRDIMM buffer and we believe that’s paying off.

[Quinn Bolton:]

Great. And then shifting over to the optical side before you mentioned the activity on design in with the SerDes online cards, when do you see this or these activities that could result in production next year or is the line card opportunity where you’re looking at several ports of 100 gig on the line card, is that more of a 2015 opportunity at this point?

[Ford Tamer:]

Definitely a 2014 opportunity Quinn. So, this would be a next year opportunity. We are pleased with the progress we’re making and design wins on the SerDes online cards at major Tier-1 customer worldwide and we look forward to do revenue next year.

[Quinn Bolton:]

And is that for sort of top of rack switch architectures or can you talk about what type of boxes you’re seeing these Line Cards go into?

[Ford Tamer:]

These are definitely for aggregation type of boxes that would be predominantly topper rack and end of row.

[Quinn Bolton:]

Okay, great. And then lastly you talked about hiring engineers and looking for opportunities to more closely aligned with some customers especially around some longer term development opportunities, I’m just wondering, do you think you’re looking for this customer development programs, would you anticipate receiving NRE funding when you enter into those customer relationships or is it more benefit to Inphi simply closer realignment with that customer and hopefully it locks you into still first position for those future designs?

[Ford Tamer:]

Quinn, we don't really discuss the details of this strategic engagement with customers. We wouldn’t enter into them just because of NRE, I mean we enter into them primarily for the strategic value that this could bring to us in 2015, 2016 and beyond. So, some of these are very transformational and would get us much closer to Tier-1 customers worldwide. So, we’re pretty excited about these new developments.

[Quinn Bolton:]

I guess, without getting into the specific, I guess, my question, I think you guys in the past said you’re spending 3 million plus on the 100 gig products before you have revenue sort obviously pressures the income statement in the near term, would you expect that level of spending on some of these strategic relationships or would you be able to offset some of those development costs in -- with some type of revenue stream?

[John Edmunds:]

Well, Quinn, this is John. Thanks for the question. I think you have to step back from the investment in a 100 gig SerDes and our investments in communication area and really see what we hope sort of a little bit of a rolling thunder kind of a campaign to generate revenue here. So, we started to see growth from the SerDes business through the course of this year and we think that each given quarter, each given year is going to build (inaudible) in terms of increased cumulative volume and I think that’s what we are seeing in design wins right now as we’re having very good success with our second generation gear box, first generation gear box is doing great and that’s what is driving this year’s revenue and next year’s gear box is going to add to that as Ford mentioned particularly on the Line Card deployment begin. As we look at the strategic opportunities in front of us then, we are looking to try to balance, the additional investment required and still generate some level of earnings leverage overall relative with the revenue growth that we’re generating. So, as I said balance over time that we are looking to achieve and we’ll look for different ways to get to that but I think you have all the investors, they understood these strategic opportunities, would encourage us to take this up.

[Quinn Bolton:]

Thanks for the additional color.

[Ford Tamer:]

Let me -- this is Ford, let me add to that. I think we are looking to get to this $200 million annual revenue run rate existing get 2015 or $50 million revenue in Q4, 2015 and we do expect continued operating margin improvements for 2014 and 2015. So, as we make those investments, you still should expect the top line growth to result into continued operating margin improvements.

[Quinn Bolton:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed.

[Bob Gujavarty:]

Hi, this is Bob for Ross. Thanks for taking my question. I was curious how you see kind of 3Q playing out, do you see the trends in 2Q kind of extending meaning maybe a little bit weakness in 40 gig, 100 gig and can you do well and then buffer continue to kind going to the market as they get some frequent platform shipping, just curious how you see it?

[John Edmunds:]

Yes, Bob thanks for the question. We do have some momentum in new products coming not only with the first generation SerDes shipping and CDR one platforms. But we also have new products being introduced in the quarter particularly in the driver space and so we do expect continued growth on the communication side as combination growth in the market and growth and new products being introduced. We’re also anticipating that IvyBridge will enable more growth on the server side once it comes into play here and that’s as a result of primarily of additional technical capability, speed capability that will be enabled by the IvyBridge platform itself, which will be an improvement over Sandy Bridge. So, I think once all that takes place, you’ll see those, all those factors contributing to growth in the second half here.

[Bob Gujavarty:]

Okay. And just maybe a quick follow up, yeah, I think in the opening script Ford, you mentioned, you kind of expect that the momentum in 2Q on the memory buffers, (inaudible) continue in 3Q and I think you even suggested it might continue into 4Q, could you kind maybe expand on that comment, is it, do you really sense some kind of inflexion here or was that more just a hopeful comment?

[Ford Tamer:]

I think we didn’t give guidance into Q4, so I think we’re trying to stay away from predicting the – a lot of them might take this time, but we were as I said, pretty, we do believe IvyBridge will help the momentum of the buffer.

[Bob Gujavarty:]

Great, thank you.

[John Edmunds:]

One of the thing that add to that Bob, I think is, while we’ve had improvement here in LRDIMM volumes, the attach tax rate overall is still going to be 1% to 2% through the course of this year. So, as IvyBridge gets introduced hopefully that improves but that’s really the range of dynamic that we’re looking at.

[Bob Gujavarty:]

Great, thank you.

[Operator:]

(Operator Instructions) Your next question comes from the line of Doug Freedman with RBC Capital Markets.

[Doug Freedman:]

Great. Thanks for taking my question guys and congratulations on meeting all the metrics. Ford, it sounds like you were working on programs when you say there were transformational that we could be in a situation where in a few quarters you will have a material change and sort of this slope and a curve of your revenue growth, am I reading your words correctly there or is this something that is going to layout in sort of slowly over time and it would just be able to continue the momentum that you’ve already established.

[Ford Tamer:]

Doug, I think we are cloning right now for being boring and stable and the predictable and so we, we’d like to deliver on continuous incremental improvement every quarter to get to our goal to exit the 2015 of the run rates I was discussing. So, we don't believe that would be a huge spike anymore but we are predicting right now incremental continuous study growth.

[Doug Freedman:]

All right. Is there any sort of season, as you guys get into some new markets, is there any seasonality that you think we should be aware of or concerned with and trying to trend that momentum that you build?

[Ford Tamer:]

Infrastructure base -- businesses are typically more stable, Q1 tends to be a little bit softer but and Q4 tends to be a bit stronger. So, that’s at the high level what you should expect. Some of this transformation projects we are talking about could potentially even change the company in a sort of late 2015, early 2016 is that the timeframe.

[Doug Freedman:]

Okay, so there are – we’ve got some time to get our arms around what they maybe and how they contribute. John for you if you could, what is the present rate of share graph, how much, what should we sort to be taking share account goes over the next year or two that sort of percentage that you guys are -- as you are acquiring talent that I should be thinking about in using?

[John Edmunds:]

Yes, generally Doug I use about 2 or 300 shares, 2 or 300,000 shares a quarter as incremental dilution to consider overall. We are obviously granting shares to new employees as they come in and as a stock price is rising a little bit, we can wrap it so much smaller amount shares, if all that works? But in general and we tried to measure and both use stock to attract new employees as well as continued to retain the great talent that we have been acquired.

[Doug Freedman:]

And my last question for you John really is on the gross margin side, is there any sort of change to the dynamic as far as the push and pull on the direction of gross margin of any of the products moving up or down or have they state relatively in the same range as we’ve been communicating?

[John Edmunds:]

Yes, I think communication does tend to have a little higher gross margin and tend to maintain that and we also have some fixed testing cost that scale a little better with the communication side of the business. And so, I think as the business continues to grow on the communication side, we should see some headroom on the gross margin and in particulars as we’re introducing new products.

[Doug Freedman:]

And then on the memory side, the LRDIMM little bit above RDIMM or is that going to be around at all?

[John Edmunds:]

The ASP is still relatively high and LRDIMM and so the gross margins are very good there and so that’s complementing the RDIMM business very nicely on the gross margin front.

[Doug Freedman:]

Terrific, thanks guys.

[John Edmunds:]

Okay.

[Operator:]

Your next question comes from the line of Sundeep Bajikar with Jefferies. Please proceed.

[Sundeep Bajikar:]

Hi guys, thanks for taking my question. Can you first of all give us some color on how you see the ecosystem preparing for deploying 100 gig, would you see in the market in terms of your customers that you think is going to help accelerate update of 100 gig, is it primarily upgrades in existing deployments or new greenfield deployment that you’re hopeful of?

[Ford Tamer:]

I think there is a few trends on the CSP side of the business, we believe that we’ve captured over 50% market share for the future design win revenue and you should see as to get into those type of market share numbers, sort of late this year, early next year. On the CFP2 business that should get the production in the second half of this year and obviously there will be two solutions, a (fixed) base solution and a silicon photonics base solution and we do believe that silicon photonics will help accelerate some of the adoption on a 100 gig. And then finally, on line cards all the trends I have talked about above more data, higher speed, longer distances will accelerate adoption of 100 gig into the line card into the 2014 timeframe and beyond.

[Sundeep Bajikar:]

Okay, I guess, yeah, maybe just a follow-up, I’m curious if the line cards or even the modules might be going into boxes that are already installed in the infrastructure or are you looking for a new greenfield deployment primarily to take up the new products?

[Ford Tamer:]

Inter boxes already installed in infrastructure.

[Sundeep Bajikar:]

Okay, great. And then if next question on the server side, can you share with us what you’re doing differently in terms of ecosystem enabling to help increase the penetration of LRDIMM in IvyBridge and beyond relative to Romley for example?

[Ford Tamer:]

I think we’re doing more of the same Sundeep, the results are just paying off, this new technology take sometime to get wedded and adopted by CIOs of these large data centers. And so just its just sort of adoption time that is finally catching up with us and helping us.

[Sundeep Bajikar:]

And are you getting more help or less help from your ecosystem partners in those efforts in sort of the next platform versus the previous one?

[Ford Tamer:]

Definitely more help and we do believe that DDR4 will see even increasingly more help. So, the excitement level on LRDIMM are growing and we’re excited about that.

[Sundeep Bajikar:]

Great, thank you very much.

[Operator:]

There are no additional questions at this time. I would now turn it over to Mr. John Edmunds for closing remarks.

[John Edmunds:]

Thank you, Lisa. Inphi plans on attending the Oppenheimer Conference in Boston on August 14, the Morgan Stanley Conference in Boston on August 21st. We’ll be marketing with Piper Jaffray in New York City on August 22nd, the Jefferies Conference in Chicago on August 28th and the Deutsche Bank Conference in Las Vegas on September 10 through to 12th. Ford and I will like to thank you for joining us today, we look forward to speaking with you again in the future.

[Operator:]

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Great day.