Integrated Device Technology, Inc. (

IDTI

)

F2Q11 (09/26/2010) Earnings Call

October 25, 2010 4:30 pm ET

Executives

Ted Tewksbury - President and CEO

Rick Crowley - CFO

Analysts

Tim Luke - Barclays Capital

Sandy Harrison - Signal Hill

Glen Yeung - Citi

Sukhi Nagesh - Deutsche Bank

John Barton - Cowen

Presentation

Operator

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» Integrated Device Technology, Inc. F1Q11 (Qtr End 06/27/10) Earnings Call Transcript
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» Integrated Device Technology Inc. F3Q10 (Qtr End 12/27/09) Earnings Conference Call

Good afternoon and welcome to the Integrated Device Technology Incorporated fiscal second quarter 2011 financial results and conference call. (Operator Instructions)

With that said, here with opening remarks is Integrated Device Technology's Chief Financial Officer, Rick Crowley.

Rick Crowley

Welcome to our fiscal second quarter 2011 earnings conference call. I'm Rick Crowley, IDT's Chief Financial Officer. Presenting with me on the call today is Ted Tewksbury, our President and CEO.

Our call today will include remarks about future expectations, plans, and prospects for IDT, which constitute forward-looking statements for purposes of the Safe Harbor provisions under applicable federal securities laws. Actual results may differ materially from our forward-looking statements as a result of various important factors, including certain risks, which are detailed in IDT's most recent Annual Report on Form 10-K as filed with the SEC.

IDT does not intend to update the information provided in today's call and expressly disclaims any such duty except as required by law. In addition, pursuant to Regulation G, any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at www.idt.com, including a complete reconciliation to the most directly comparable GAAP measures.

Also, we have made selected financial information available in webcast slides, which can be found in the Investor Relations section of our website.

Now, I'll turn the call over to Ted who will provide some second quarter highlights, and then I'll return to give you more specifics on our September quarter results and our outlook for December. Ted?

Ted Tewksbury

Thank you, Rick, and thanks to all of you joining us today. Our results once again came in better than expected in Q2, validating our strategy and highlighting the significant leverage in our operating model.

Revenue was up 5% sequentially to $166.9 million, driven by a 22% increase in new products combined with growth in our core consumer timing, communications timing, and DDR3 memory interface businesses. Our deliberate efforts to shift the mix to higher value-added products resulted in a non-GAAP gross margin of 57.3% and our highest GAAP gross margin in a decade.

During the quarter, we generated almost $40 million in cash from operations, or 24% of total revenue, and we bought back almost 6 million shares of our own stock.

As always, let me begin with an overview of our new products and design win activity for our consumer, computing and communications end markets for the September quarter. In addition, I'll talk about the four secular forces that are driving the growth of our businesses; video, mobility, cloud computing and fourth generation wireless infrastructure.

In the consumer end market, we experienced 17% growth in the September quarter. New product revenue from video solutions was up over 50% sequentially, driven by the ramp of HDTV timing controllers and seasonal increases in consumer timing.

Overall, consumer sales represented 19% of total revenue, up from 17% in the prior quarter. Video and mobility are the key secular drivers that are driving growth in our consumer business. John Chambers has called video the killer app that will account for 90% of all consumer IT traffic by 2013.

IDT is riding this trend with our timing, video post processing, frame rate conversion and power management products, all of which continue to gain design win traction in new 3D and IPTVs, set top boxes, video conferencing equipment and mobile consumer electronics. As an example, during Q2 we announced that Yamaha had selected our Vida video post processor for use in their new Aventage Audio/Video receiver.

IDT's Emmy award-winning Hollywood-quality video technology allows Yamaha to deliver an unrivalled home entertainment experience to its customers.

In the computing end market, we experienced a slight decline in revenue quarter-over-quarter. PC-related revenue decreased about 5% sequentially, with 40% growth in DisplayPort Timing controllers, offset by soft audio codec sales and lower shipments of PC Clocks as we continue to steer from capacity towards higher gross margin products.

Server-related revenue was roughly flat quarter-over-quarter, with moderate PCI Express growth offsetting a slight decline in memory interface sales. Altogether, computing represented about 35% of total revenue, down from 39% in the prior quarter.

Our diversion of R&D investment and FAB capacity away from low gross margin products like PC Clocks has paid off handsomely in gross margin expansion. I'd like to emphasize however, that we continue to participate in mobile computing platforms such as notebooks, netbooks, tablet PCs and embedded applications, where we can add value with differentiated higher gross margin products.

For example, we recently announced the industry's first single chip power management solution for LCD displays and portable consumer devices. This new product integrates an LVDS timing controller together with power management and a 4-channel driver for LED backlighting. This highly integrated solution exemplifies our strategy of combining power management with our core timing and digital expertise to simplify our customers' system designs. We also continued to see strong adoption of our DisplayPort timing controllers in the notebook segment as Intel continues to promote this standard. We recently announced a new Multi-Monitor controller which is the world's first DisplayPort based device that allows users to connect up to four monitors to a single port.

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