O2Micro International Limited
Q3 2014 Earnings Call Transcript

Published: 4 Nov 2014

[Operator:]

Good morning and thank you for joining us today to discuss O2Micro’s Financial Results for the Third Quarter of Fiscal Year 2014. If you would like a copy of the press release we issued this morning, please call Pamela Campbell at 408-987-5920, extension 8095, and we will fax the copy immediately. It is also posted on O2Micro's website at www.o2micro.com under the heading Investors. There will be a replay available till November 6, 2014 at 9

[Scott Anderson:]

Good morning and thank you for dialing into O2Micro's financial results conference call for the third quarter of 2014 ending September 30th, 2014. This is Scott Anderson, Director of Investor Relations. I'd like to remind listeners that the discussion of business outlook for O2Micro contains forward-looking statements. Statements made in this release that are not historical facts are forward-looking statements within the meaning of the Federal Securities laws. Actual results may differ materially due to numerous risk factors. Such risk factors are enumerated in the Company's 20-F Annual Filings, our Annual Report and other such documents filed with the SEC from time-to-time. Listeners are referred to the O2Micro's earnings press release and the documents filed with the SEC to understand these forward-looking statements and the associated risk factors. The statements made herein are dated information. The Company assumes no responsibility to provide updates to this information. With me today are Perry Kuo, our CFO and Director; our Head of Marketing and Sales and Director, Jim Keim; and Sterling Du, O2's Founder, CEO and Chairman. After the prepared remarks from these gentlemen, the floor will be open to your questions. Now I'd like to introduce Perry Kuo, CFO of O2Micro for a discussion of the financial highlights of the third quarter ending September 30, 2014. Perry?

[Perry Kuo:]

Thanks Scott. We will now review our financial results for Q3 2014. Please note that financial results will be presented on a GAAP basis unless we designate otherwise. The non-GAAP results exclude stock-based compensation expenses, one-time charges, non-recurring gains and losses from discontinued operations. Our full GAAP results are available in our press release that was issued earlier today. GAAP revenue in the third quarter of 2014 was 15.4 million. GAAP net loss in the third quarter of 2014 was 2.9 million. If we exclude stock-based compensation of 548,000, the non-GAAP net loss will be 2.4 million. GAAP net loss per ADS in the third quarter of 2014 was $0.11, non-GAAP net loss per ADS was $0.09. Gross margin was 51.8% in Q3. The gross margin reflects the current revenue level and the product mix. R&D expense was 5.4 million or 34.9% of revenue. This amount excludes stock-based compensation expense of 131,000. SG&A expense was 5.6 million or 36.4% of revenues. This amount excludes stock-based compensation expense of 417,000. The non-operating income was 850,000, a 704,000 increase over the preceding quarter of 146,000. The increase of 704,000 was mainly due to foreign exchange gain increase of 381,000 due to the depreciation of NT dollar, investment gain of 258,000 in disposal, our investment shares in Etrend and cash dividend income of a level of 510,000 from our investment shares. Income tax was $250,000 in the third quarter and is mainly based on the estimated effective tax rate on taxable locations. In Q3 2014, we repurchased 347,900 ADS units at a cost of 1,030,000. Q3 2014 revenue by end market breaks down into the following percentages, consumer was 50% to 60% of revenue, computer was 15% to 25% of revenue, Industrial was 20% to 30% of revenue, Communications was less than 5% of revenue. At this time, I would like to provide some additional information. O2Micro finished the third quarter with 64.9 million in unrestricted cash and short term investments. This representation of cash equivalent of $2.40 per ADS. In addition, O2Micro has no debt. Accounts receivable at the end of Q3 was 8.3 million. Our DSO is 54 days, which is in our target range of 40 to 60 days. Inventory was 10.2 million at the end of the third quarter. This represents 120 days of inventory as inventory turnover was 3 times in Q3. From a cash flow perspective, we generated 678 cash outflow from operating activities in Q3. Capital expenditure was about 151,000 in the third quarter of computer and the software license. Depreciation and amortization was 900,000 in Q3. At the end of the third quarter of 2014, O2Micro had 478 employees, 59% of which are engineers. Before, I provide our financial guidance for the fourth quarter. I would like to address recent investor questions related to the value of our long-term investment and the real estate assets. We have conducted and completed an estimated value study of what these assets maybe worth. The property evaluation discussed here are subject to multiple risk and uncertainties including fluctuations in the real estate market, actual market demand and other unknown variables which can affect the final valuation thereof. Please refer to the Safe Harbor statement contained in the earnings release published today. O2Micro owns three real estate assets in Santa Clara, California, Shanghai, China and Hsinchu, Taiwan. We believe these real estate assets maybe worth approximately $25 million and our book value for these properties is approximately $20 million. In addition, overtime we have made several strategic investments with supplies chain and the manufacturing partners. We believe the value of these long-term investments maybe worth approximately $10 million to $20 million. In order to maximize shareholders value we are in the process of making decision in order to monetize some of these assets. In Q4 of this year, we plan to sell a portion of the real estate assets in Hsinchu, Taiwan. And if this completed, we may recognize approximately $2 million as a net increase to our cash balance. Also during Q3, we sold a portion of our shares in one of our long-term investment. We expect to sell the remaining shares in this same long-term investment in Q4 of this year. While we wait for our anticipated next significant product cycle to materialize the goal of the management team and the Board of the directors is to maximize shareholders value and we’re taking the necessary steps to do this. We will provide uptake to the additional measures to enhance shareholders value on our next quarter e-Commerce call, following our fourth quarter. At this time, I would like to provide our financial guidance for the fourth question of fiscal year 2014. This guidance reflects our best estimate for the current environment and is subject to change. This is the only one official guidance we will provide unless we update it with a public announcement in the future. O2Micro expects Q4 revenue to be flat to down 9%. We are guiding the Q4 gross margin to be in the range of 50% to 52%. Our guidance for the fourth quarter of 2014 reflects the ongoing rates in our General Lighting and Battery product line, offset by continued weakness in our Power Management business for notebook as well as typical seasonal weakness. We will continue to invest in our carefully chosen growth driver General Lighting, Intelligent Battery, Intelligent Power and General Lighting. And we remain confident that the innovation and the investment we are making in this product segment, combined with strong design win activity and the market share gain where we took a consisted growth the return to profitability in the future. Given the uncertain demand and the macro environment, we are prepared to continue to manage costs as needed. Although, we believe we have aligned current cost base on current and anticipated revenue levels, we remain very confident in our ability to support current and future customer demands and the program range. Finally, regarding our share repurchase program, we have been active in this program historically and we plan to be active going forward. At the end of the Q3, we had 14.5 million remaining in our share buyback authorization. At the end of Q3, we have the 14.5 million remaining in our share pricing authorization. Returns to shareholders are much on our mind and will continue to be a focus in the future. I would like to thank everyone for participating and I turn the call over to Jim Keim to talk more about our business. Jim?

[Jim Keim:]

Thank Perry. Good morning everyone. While we did have an issue in Q3 in our charger product which will likely affect power revenues through the first half of 2015. We never the less continue to expand our penetration in the key market areas with our proprietary products in General Lighting and Batter Management. Both product areas are projected to continue their quarterly growth in Q4 and on in 2015. Previously, we mentioned that key customers like GE, Panasonic, Toshiba, [Arashiyama] and Samsung are utilizing our product technologies in General Lighting, this customer list continues to expand that now includes other majors like Osram, TCP and IKEA as we see a broader based acceptance of our proprietary free dimming and two colored dimming products in more and more varying applications at a winding international customer base. We have also successfully introduced our TRIAC controller lighting products for the legacy dimmable fixtures and see these products being actively designed in the systems by majors. The second rapidly growing product we highlighted in our last call was battery management. Our batter management products continue to expand into new designs and applications and power tool eBike, eVehicle and appliances. Additionally, we’re seeing increasing design activity for our product in uninterrupted power supply applications and continue to see the usage of our battery management products expand at major OEMs. Despite an ongoing weak TV market, LED backlight designs continue to expand and we forecasting ongoing growth in 2015 based on our strong position in TV and the beginning of shipments in new smartphone and tablet lighting applications. As mentioned earlier, one disappointing area that is being dampening our growth has been our power products where combination of weak notebook sales and a problem in a key charger product affected our revenue growth in Q3 and will continue to impact sales in first half of 2015. Nevertheless, our new charger and DC/DC products are gaining acceptance in new tablet and note designs. We expect renew growth in this area in the second half of 2015. Finally, we would again mention that sales legacy CCFL products were less than 1% of sales and are expected to remain below this level going forward. I will not turn the call over to our CEO, Sterling Du, for closing remarks.

[Sterling Du:]

Thanks Jim. Q3 revenue was in the range of updated guidance that we provided in early October. We generated revenue of 15.4 million in the second quarter of 2014, a decrease of 12% sequentially and down 17% from the same quarter last year -- I’m sorry third quarter. In terms of end market, General Lighting remains a high-growth story and our Batter Management business continued solid growth projection. Backlighting especially for TVs, monitors, remained at minimum recover from softness. Our power management business for notebook was weak as mentioned in third quarter due to the IC pop issue for major customer for charger ICs coupled with over all good management in notebook market with result of top issue we discussed awhile, there are some signs of renewed consumer interest and activities in the overall market for the notebook PC remained challenging primarily in emerging market. We report a GAAP loss of 2.9 million in the third quarter of 2014 compared to a GAAP net loss of 4.5 million in the second quarter last. We report gross margin of 51.8% in Q3, an increase from 51.4% gross margin we report in Q3 last year. During this challenging environment, we are able to increase our gross margin by 40 basis points into the both to our to our proprietary technology performance priority, high-quality as a result of core effort to streamline our cost structure profile. We continue to make significant progress in our core packaging smartphone and tablet manufacture while engaged with the several Tier 2 white-box smartphone and tablet manufacturers and we expect to realize additional revenue from this customer in 2015 next year. We have as many as six different products that we are packaging to this customer and we expect production to ramp in the current quarter. The product category now also including the DC/CT for CPU including a 6 or 8 core applications, a batter gas gauge including the fuller counting and a charger IC and a booster for micro USB to support on-the-go technology and backlighting ICs. Finally our strong engineering and the custom service presence in the Chinese market enables also to expand the custom base in this region. I’d like to highlight a considerable progress that we have made in the key growth driver. LED General Lighting business continue to grow rapidly based on two factors. No. 1, the overall replacement market for the light bulb is entering significant growth phase, is becoming well established. As a leading LED general lighting since 2009 continues to take advantage of global shipped LED lighting and the strategy to use new product innovation for such quick dimming to drive our growth. Second, again designed developing product for the General Lighting since early 2009 and we are very early entrants, our strategy engaged for worldwide OEM, ODM this market has being pay out and the both side of customer have relied on innovation reliability of other products. Following successful penetration of Japan in U.S., we are now engaged with some of the largest LED general lighting manufacturers in Chinese market. Our additional batter product are for power tool, household appliance and other products are showing stable growth and design win momentum which will translate into meaningful revenue in upcoming quarters. We’re gaining share in this market expected to be the market leader for batter management solutions. We remain very focused on product innovation, expand our product offering, develop a safer, more reliable [indiscernible] extend battery operating time and efficiency. We provide customers specific design IC for power tools such as for protection and secondary protection ICs. This product we’re developing are optimized for price for cost ratio which gain market share. Similar to last quarter, we saw meaningful number of design wins new style ramp and specific market share gains in the quarter and very pleased with the progress that we are being projecting in many our long term growth drivers including general lighting, backlighting, intelligent battery and the many products supporting smartphone and the tablet markets. In closing, we are excited about our successful across all the core power management including those growth drivers I just mentioned. We look forward to providing you more detail of progress through the remainder of the year. At this time, I’d like to thank you for listening to our conference call and turn back to Scott. Thank you.

[Scott Anderson:]

Thank you, Sir. Operator, at this point we’d like to open the call to questions.

[Operator:]

Thank you (Operator Instructions). And we will take our first question from Tore Svanberg with Stifel.

[Evan Wang:]

This is Evan Wang standing for Tore. Thank you for taking my questions. I would like to just start with a question on your inventory days. It is up slightly for quite a bit for second or third quarter in a row. Can you provide us with your rationale on why inventory is up so much and what your plan is?

[Sterling Du:]

The inventory we have somewhat increased this current year in Q3 over Q2 lets us to prepare some more wafer to support the new product range. And the new product range, that probably need some more time so from Q3 to Q4, I expect that the consumption of the inventory in Q4 will be lower than Q3. And this inventory more or less in the [typing] area.

[Evan Wang:]

Okay, great. Thank you. And then in your prepared remarks or in the press release you mentioned about cost reduction. I was wondering if you can give us a little more color on that as to whether your OpEx for this quarter establishes a new base or if the cost reductions are more temporary measures.

[Sterling Du:]

The cost reduction is as mentioned that we continue to do some majors and do some trimming on the by-project basis as product growth. So the OpEx area actually that we reduced not in a big amount, but sequentially that’s quarter by quarter that we’ll continue to lower down our breakeven point. So I would think that this is our trend from this quarter through the next quarter and next year.

[Evan Wang:]

Okay, great. And in this environment for O2Micro how do you, can you talk about how you manage to retain talent at design -- analog design talent?

[Sterling Du:]

We have the major architect in U.S. base office. There we also have quite a number of analog engineered designs which as we has been with companies as many as like 10 years. The 10 year in China -- Chinese offices and does spread over to several cities. We’re seeing that several offices probably have very stabilized and also the turnover rate is below the market value of market data and in some offices like Shanghai probably not easy to retain. But fortunately a strategic plan will since we started the design center in China we do have a few inner city as our major design team location and that few cities it’s relatively much more stabilized this is from environmental point of view and internally we do provide the continuous training and are also providing very challenged project and fulfill that people feel achievement and that also including the environment offer support from the management team and also from our HR team and make people to understand the situation of the whole environment and the new market and the new potential opportunity. This is how we keep the people feel that and which is true once we overcome and that will become very high potential successful product development in the market penetration.

[Evan Wang:]

Okay, let me ask just one more quick question, then I will hop back in the queue. You had mentioned that the free dimming products enjoy a higher margin and help to balance the overall margin for your LED products. Can you tell us that approximately how much of your LED revenue right now is from free dimming and how is that specific product group growing?

[Jim Keim:]

Well, let me simply answer. In the past phone calls we have indicated that we have anticipated getting our general lighting revenues up to about 15% of the total revenue. As we went up the year, we are in fact close to that guideline and we have done that by focusing not on the highest volume very low cost product rather on our free dimming and our proprietary technologies in general lighting and with that we've been able to enjoy good margins in general lighting that are actually above the corporate guidelines at this point.

[Operator:]

And we'll take our next question from Dane Lewis with San Francisco Investment Management.

[Dane Lewis:]

Thanks for taking my call. I have two questions. First, so Sterling, the stock is trading at a 30% discount to cash and it seems that the message from investors is that they have little or no confidence in a turnaround, which I think is understandable given the four years of revenue decline. My question is, can you tell us why you are confident in a turnaround in 2015?

[Jim Keim:]

As in my today's conference speech, I talked to the growth driver which is we have great confidence for those, number one for general lighting we established markets since 2009 and the free dimming is a proprietary or the patent protection and right now we start to see from the major customer from the different countries such as Panasonic they not only demonstrate they also put in a commercial to promote this. Among these general lighting people like to look for the differentiation from a vendor A to vendor B and free dimming does provide those opportunity people can use and providing a special value add and product to consumer and to couple with the free dimming we also have the track we have one of the best [tracking] to support the conventional track compatibility product and then we also have to address the regular commodity light bulb product. We have a very complete product portfolio to serve Chinese manufacturer enabling them not only to produce the proprietary free dimming and also high end tracking and they also can provide in a commodity the consumer market centric light bulb. So in general lighting we have our 3D strategy so we feel confident for that. And for the new white box smartphone and tablet market they are using the two core and a four core CPU for starting from this year within 12 year -- this 12 months changed a lot. We're seeing that like MediaTek we are seeing that like QUALCOMM and the many other CPU provider they enter the six core, even eight core CPU and when you look at that as about 21 plus when you look at 21 or 20 plus or 20 watt and plus power consumption, that’s stepping into the notebook area. So O2Micro start to provide CPU DC/DC for the notebook many years ago which is about 15 years ago. We're providing both Intel CPU so we have enough talent, we can fetch this market, so that's why we are invited to provide CPU DC/DC for the existing CPU vendor and who has their own peer power, power range in IC co PMIC. However for the six core and eight core due to product performance and power efficiency will tie into the anticipation so they need a third-party help. So by the CPU DC/DC, we have an opportunity to provide in a charger because when a CPU becomes more power hungry CPU many need the much bigger battery. Then how you going to charge the battery within a limited time so then you probably heard us from our peer group and also a major CPU company like QUALCOMM mentioned about their quick charging battery charge and we are one of the people providing those. And that is the third IC we can do for these applications and don't forget we have very strong in effect lighting, a bay lighting for one stream for the smartphone tablet while [indiscernible] is shipping for one of major smartphone player in the U.S. and we’re also providing the same the part and similar family -- same part in the same family and to the tablet PC and smartphone white-box second-tier in China. So this area we address is multi-hundreds million units per year and this is there already for O2Micro, so we feel confident for that. And certainly in the battery power, the battery power is Hitachi, which is from the nature of stable growth and also high gross margin. So you can see that we increased 40 base point from the same quarter last year. During the environment very tough and people probably compromised the pricing entry together -- the balling, but when came into the market because of proprietary and also we do provide in best quality, so people still pay for the premium for gross margin. So then the last one is the TV, the TV is softest of many years, but then we figure out the new way and the new product coming out, we’re going to see our attachment rate will continue to gain and also upside the next year. So you can see that this 300 million minus plus the TV unit number per year and that really is a price fixed space which is utilized before 2011 they’re using our CCFL lighting and we transfer -- converted to the LED and right now we’ve gained the market share back and that is exceeding past my existing customer relationship, which is the three platform so we feel confident that for next year we go into recover the [budget]. I hope that answered your question, Dane.

[Dane Lewis:]

No, that is good. Thank you, that is helpful. So my other question is, just looking at comparable semiconductor companies, and by comparable I mean small caps with similar gross margins in the 50% margin rate. These companies have sold for two to three times revenue. And because O2 is losing money I suspect it wouldn't venture as close to that, but I think 1 or 1.5 times revenue seems like a reasonable estimate which, given your $60 million run rate now, is $60 million or $90 million. And if you add the $75 million in cash and investments and the extra $5 million for the real estate, plus the IP portfolio, the math translates to 140 million to 170 million in value for the Company which is $5.00 or $6.00 per share. And that is no value for the IP portfolio. I mean it sounds a little ridiculous to ask the question with the stock trading at $2.00. But, Sterling, if you were offered $5.00 or $6.00 or more per share, would you seriously consider selling the Company? And if not, why not?

[Sterling Du:]

I will prefer to deeper discretion to our internal discussion and actually we have some discussions with the Board and also executive members with us. And that’s not something my personal at this moment answer you.

[Operator:]

(Operator Instructions) And we’ll take our first question from Lisa Thompson with Zacks

[Lisa Thompson:]

I just have a few little questions here and there. Can you talk -- first off, can you talk a little bit specifically about the smartphone business? Have you gotten -- have any more success in getting design into anything or other any interesting prospects out there?

[Sterling Du:]

Yes, Lisa, we have one design in the U.S. base but however we do have malleable in microchips design and also already have small production expected in end of the year for the smartphone tablet and their application is varies. They probably first one screen size they found a regular typical smartphone to all way going to the big tablets and including a mini size and also some big screen smartphone. And they functionality also varies which we like because we’re not that only single one application some is designing the what they call the box over the TV, BTT, and which is more power box and they probably become regular tablet by different name because they are in white boxing. The historical net scale of this market when those Chinese CPU vendors they providing the solution and they also providing the design for the whole system including some mechanical design, so that enables Chinese based system integrator very quickly turning to the production. This is a little different from a notebook, in terms of food chain. So what we engage with multiple CD providers in China and then they are providing the whole design turnkey to the system integrator. And the system integrator comes out with the end product to the various sector or worldwide emerging market or U.S. marker, European market including Chinese market, so it’s important to understand when we say that we have many desire activity which is, we emphasized how we go with CPU play phone and then the CPU play phone will be turnkey to the whole thing to the accessing greater and turning to the market with the couple of months. So when you talk about significantly, we have been in several famous branding plan. I would say the smartphone and tablet, mostly tablet at this moment because they more use 8 core CPU in China including [Crew pad] and including a [Tokugawa]. A [crew pad] is famous for decrypting capability. So that’s pretty liked by the government, official because nothing could provide enough encryption security of confidentiality. So [Crew pad] ran on gaining market share and the several new play phones from [Crew pad] is using our ICs, just to give an example. So I hope it answer your question.

[Lisa Thompson:]

Yes, great. Sounds good. And one thing you said about a product in the LED business, something about two color can you tell me what that is? Two color dimming?

[Sterling Du:]

The two color is emphasize that, first of all, from the typical to the two color, it try to save the cost, because when use the product two color is causing simplify the circuit of the design and then start providing much easier entrance to the white color, because right now we see all the colors, typical is a blue light and using that coating and it because white LED but two color they’re using the red, and yellow and its white accepting and because of the easy manufacturing of the LED pad the cost is optimized. So this is for the two color technology. So that’s why the show -- will be deep inside because they’re finding the different LED to challenge different way of [indiscernible].

[Jim Keim:]

Lisa, this is Jim Keim, let me just mention, Sterling mentioned the fact that one of the company utilizing this going to be running some advertisements on TV we’ve been told, so we’ll give a copy of that and actually put it up on our website so you can see it it’s very well-known branding company as utilizing this and actually there are several other large OEM using at this well. So we’ll put it up so you can see it just as soon as the ads run. I understand that will happen sometime this next month, November.

[Lisa Thompson:]

So, what is the product? Like, I don’t get it. Like why would somebody want one of these? What do they do?

[Jim Keim:]

Well basically for instance some people like to have a light which generates light in a -- for instance a better situation you can go from white light to light green soft, blue light so it gives you a very soft light that some people like.

[Lisa Thompson:]

And then how do you switch it from one color to the next? How does that work?

[Sterling Du:]

Our light provides several options including immediately toggled with change the color, but depends of the end user -- manufacturer how they design. All we provide is a option they can use for example the vendor A maybe using a switch to toggle, then you can toggle from the yellowish bright light to the more bluish and another vendor maybe they just give you -- they tuned to the color to people desire to use. But we’re providing the driver ICs to providing 2 people cans chose color colour wavelength.

[Lisa Thompson:]

Okay.

[Sterling Du:]

In fact, the activity demonstrated led by strength in the TV applications front.

[Lisa Thompson:]

So this is -- so that will be sold in the US? Are your free dimmable being sold here yet?

[Sterling Du:]

Yes, yes they are and as a matter of fact the company running the 2 color ad will not be an U.S. Company, it will be foreign company. But one large U.S. Company is already moving production with the 2 color so they will have this as well.

[Lisa Thompson:]

That’s nice. Who is selling your free dimmable in this country, what brand do I find that in?

[Sterling Du:]

Jim?

[Jim Keim:]

Yes, we’ll have to give you the retail mains -- we work with the supply base that supplies into retail, but I can have a talk with these dealers and find that out. So they if they are available now, yes.

[Lisa Thompson:]

Cool, hat is good. All right. And can you just clarify -- I couldn’t quite catch -- you sold off some stock or the investment in which company was it and that you are going to sell again this quarter?

[Sterling Du:]

It’s Etrend, a Taiwan based company.

[Lisa Thompson:]

Etrend?

[Jim Keim:]

Yes, Etrend listed in our 20-F under one of our long term investment where they’re all listed on that.

[Lisa Thompson:]

Okay and that’s a public company right?

[Jim Keim:]

Yes, this busy in Taiwan stock market.

[Lisa Thompson:]

Okay, cool. All right, great. That is all I have for now. Thank you.

[Operator:]

And we’ll now take our next question from Tom Sepenzis with Northland Capital Markets

[Tom Sepenzis:]

I apologize, but can you run through the segment breakdowns again real quick?

[Jim Keim:]

So, in the third quarter consumer was 50% to 60% of revenue, computer was 15% to 25% of revenue, industrial was 20% to 30% of revenue and communications together was less than 5% of revenue.

[Tom Sepenzis:]

Okay. And LEDs, the LED business, that was up subsequently on a revenue basis or was that down?

[Jim Keim:]

Jimmy LED Backlighting or LED General Lighting?

[Tom Sepenzis:]

General lighting.

[Jim Keim:]

General lighting, yeah. General lighting is continuing to expand as I mentioned, we expect end of the year at this point somewhere in the 12% to 14% area in terms of total revenue will be LED general lighting and we expect general lighting to continue to expand quite rapidly next year. I currently project and this is a rough estimate. But I would expect that the general lighting in the first half will probably be somewhere in the 15% to 20% of our total revenue base in the first half of next year.

[Tom Sepenzis:]

Okay. But sequentially just from a top-line perspective was it up or down?

[Jim Keim:]

It was – I’d have to go back to look at the exact number but it’s basically growing quarter to quarter.

[Sterling Du:]

Yes, we’re seeing it.

[Jim Keim:]

Yes, we’ve seen quite rapid expansion of the general lighting product area.

[Tom Sepenzis:]

And then can you talk about just the timing of some of the smaller form factor wins of smartphones and tablets next year?

[Jim Keim:]

So, the timing will be really starting from Q -- before end of this year and -- but there is not a cycle, they’ll be using one play phone and then expand to other play phone. And there we also go to the second CPU provider, they also design our ICs. And then they also go to the third CPU provider. So, we have three CPU providers utilize our power ICs for the smartphone/tablet. And each of the CPU providers, they also keep to the different application and different platform. So that will be initially maybe the cycle maybe longer little bit, like couple of two quarters, and then on, you will see the multiple effect because when the people start to go to multiple play phone and multiple CPU vendor and that growth will be -- expect will be much higher. The key point, real time you want to follow up. If you look at the eight core or six core CPU which is the CPU is more powerful the percentage penetration rate for those that would be the key. Once the people use six core to eight core and they need the third party CPU DC/DC and then they also needed a much bigger the [family] and that will be put the professional for power IC vendor in such as O2Micro so this will be good for the final constrain.

[Tom Sepenzis:]

All right, thank you. And then just looking down the road a bit, I suspect the answer is this they shouldn't have any impact on you, but I just wanted to ask. Synaptics and others that handle the touch panels and now are beginning to integrate display drivers, I'm wondering if that would have any impact on the backlighting business if they are planning on integrating that as well or if that will stay -- do you think will stay a separate component?

[Jim Keim:]

That will stay separate because the people can easily get the driver for the screen and the touch screen IPs this too. They’re probably in the same board, they may not be put in the same IC because too many ping count. But the backlighting driver ICs due to power consumption generate the heat dissipation they most would stay in a different port for reason No. 1, they can chose different phone vendor the reason No. 2, it’s easy to maintain the particle, you don’t have to put away the whole display panel because you have less complicated ICs inside the panel and the reason No. 3, is then your heat dissipation is easy to design for the heat pipe. So for those we don’t see right now the people want to integrate backlighting into the display at this moment in the smartphone/tablet but however in the future probably if they have a newer technology or something, want to assembly makers skill, which is that’s the future factor.

[Tom Sepenzis:]

Great, thank you very much appreciate it.

[Operator:]

Thank you. And there are no further questions in queue. At this time, I’d like to turn the call back over to Scott for any closing remarks.

[Scott Anderson:]

Thank you all for your attention this morning. Please feel free to contact me at area code 408-987-5920 extension 8888 with any follow up questions. So have a good day and thank you again for your attention. Good bye.

[Operator:]

This concludes today’s conference. As a reminder, a replay of today’s conference is available until 9 AM Pacific Time on November 6, by calling 1888-203-1112 or 1719-457-0820 using passcode 7266590. Thank you for your participation