Operator: Welcome to the Avago Technologies Limited Second Quarter Fiscal Year 2013 Financial Results Conference Call. At this time for opening remarks and introductions, I would like to turn the call over to Tom Krause, Vice President of Corporate Development. Please go ahead, sir.
Thomas Krause - VP, Corporate Development: Thank you, operator, and good afternoon, everyone. Joining me today are Hock Tan, President and CEO and Tony Maslowsk, Interim Chief Financial Officer of Avago Technologies.
After the market closed today, Avago distributed a press release and financial tables describing our financial performance for the second quarter fiscal year 2013. If you did not receive a copy, you may obtain the information from the Investors' section of Avago's website at www.avagotech.com. This conference call is being webcast live and a recording will be available via telephone playback for one week. It will also be archived in the Investor Section of our website at avagotech.com.
During the prepared comments section of this call, Hock and Tony will be providing details of our second quarter results, background to our Q3 2013, outlook and some commentary regarding the business environment. We will take questions after the end of our prepared comments.
In addition to U.S. GAAP reporting, Avago reports certain financial measures on a non-GAAP basis, a reconciliation between GAAP and non-GAAP measures is included in the tables attached on today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results.
Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call.
At this time, I would like to turn the call over to Hock. Hock?
Hock E. Tan - President and CEO: Thank you, Tom. Good afternoon, everyone. We are going to start today by reviewing recent end market business highlights and then Tony will provide summary of the second quarter fiscal 2013 financial results.
Now, revenue for Q2 fiscal year was $562 million, which was at the upper end of our guidance. This represented a decline of 2% from last quarter, and a decrease of 2% from the same quarter a year ago.
Here Wireless revenue declined 9% sequentially in line with our guidance. As we expected, the negative revenue impact from a major U.S. smartphone product transition was partially offset by new platform launches at certain other OEM customers.
Wired revenue was up as we expected. Surprisingly, Industrial was also up slightly and above expectations, thanks to slow but steady improvement in the industrial end market demand.
Let me now provide more color on each of our targeted markets, starting with Wireless. Revenue from Wireless was essentially in line with our expectation, declining 9% sequentially during Q2. Wireless represented 50% of total revenues. A significant product transition at our largest North American smartphone OEM was the primary reason for the Q2 sequential decline.
However, this revenue headwind was partially offset by the launch of the Samsung Galaxy S4 platform as well as certain other OEMs that ramped 4G LTE smartphones during the quarter. We have significant FBAR content in these devices and we do see increased opportunity to expand FBAR content in next-generation smartphones.
Let me elaborate on this further, if I could. As many of you know, LTE is proliferating and LTE operates in bands that are pushing traditional SAW filters to technical limits. We also now are seeing envelope tracking being adopted in some new smartphone designs. The benefit of envelope tracking, or ET, as it is known, is better power amplifying efficiencies. However, ET creates a noisier RF environment. As a result, we generally believe that FBAR provides isolation which will improve the performance of future ET-enabled phones.
Finally, service providers are also starting to adopt technique known as carrier aggregation, whereby they combine different bands to achieve much higher data rates. We see the use of FBAR multiplexes that efficiently combine multiple signals as the preferred approach for smartphone OEMs to successfully implement carrier aggregation.
Given these trends, we expect FBAR filtering will continue to be the key driver of our Wireless business, whether it be discrete FBAR duplexes or higher ASP front-end modules integrating FBAR with power amplifiers and other RF content.
Now consistent, as you may know, with our earning much higher gross margin with our FBAR products, I would also highlight that the mix of wireless has gone up from low-40s as a percent of revenue a year ago to 50% this last quarter, but yet our corporate gross margin has remained basically unchanged at around 51% on a non-GAAP basis.
Now looking towards Q3, we see the start of a very strong ramp from a North American smartphone OEM customer as they transition to their next-generation platform. Demand outside of this large customer is also expected to continue. As a result, we anticipate Q3 overall Wireless revenue to grow in the high single-digits on a percentage basis.
Next Wired Infrastructure, Wired revenues grew 7% sequentially and represented 27% of total revenue. During the quarter, we saw an early recovery in enterprise spending, mainly though from data center applications and build-out, while the traditional – more traditional enterprise networking market remained virtually flat.
As you may know, many data center customers are today moving to the next-generation 40-gigabit per second switching platforms. We believe our design win momentum in many key OEMs is allowing us to gain share in this important growth area. We believe we have strong growth opportunities for our ASIC SerDes business on 40G data center switching platforms, in particular with our largest networking OEM. On the other hand, I'd also note demand from carrier routing is still weak.
Looking forward to Q3, however, we expect data center spending will continue to improve, creating a tailwind to our SerDes business. We also expect an uptick in 40G parallel optic interconnects, which will follow these equipment installations driven by this new data center platforms. These two demand drivers we believe will allow our Wired Infrastructure target to grow mid to high single digits sequentially in Q3.
Finally, let me discuss our Industrial target market. You may recall last quarter, we guided low single-digit decline actually in Industrial. Till now, we were somewhat conservative. Revenue grew 4% sequentially and accounted for 23% of our total revenue.
During Q2, Industrial orders actually improved, but at a gradual pace driven primarily by slow but very steady increase in distribution re-sales in the industrial markets. In fact Industrial re-sales for us grew over 3% sequentially in line with our Industrial revenue growth. In all geographical regions, except Japan, re-sales in fact grew quarter-on-quarter.
Looking at Q3, we continue to see an improvement in end market demand across all regions driven through multiple applications. We definitely anticipate revenue in Industrial will continue to grow mid-single digits when compared to Q2. In summary Q3, we expect broad based improvements in all three targeted markets. Similar to Q2, Wired and Industrial should continue to trend up, but at a somewhat higher pace. The big swing factor for us is from Wireless with the ramp of the product transition at a major North American smartphone OEM. With that in mind, we expect consolidated revenue for Avago to grow between 6% to 9% over that of Q2.
With that, let me now turn this call over to Tony for more detailed review of our second quarter 2013 financials. Tony?
Anthony Maslowski - VP, Corporate Controller and interim CFO: Thank you, Hock and good afternoon, everyone. Before reviewing the second quarter fiscal 2013 financial results, I want to remind you that my comments today will focus primarily on our non-GAAP results. A reconciliation of our GAAP and non-GAAP data is included with the earnings release issued today and is also available on our website at www.avagotech.com.
Revenue of $562 million in Q2 represents a decrease of 2% from last quarter and a decrease of 3% from the same quarter a year ago. The sequential result was at the upper end of our guidance for the quarter. Q2 results were helped by improvement in demand from our industrial end market where as you know we saw primarily through distributors. This result compared to Wired revenue that came in slightly lower than our guidance. Revenue from our Wireless target market was in line with our expectations. Both Foxconn and Samsung were greater than 10% customers in the quarter.
Our Q2 gross margin was 51.2%, approximately 50 basis points above the midpoint of our guidance. This was driven by stronger revenue in the Industrial target market and better gross margin performance in our Wired market. Q2 gross margin increased 50 basis points from last quarter for similar reason.
Turning to operating expenses, R&D expenses for Q2 increased by $2 million to $88 million as a result of higher R&D investment. However, SG&A decreased by $2 million to $42 million, resulting in flat operating expenses of $130 million compared to Q1. These expenses were in line with our guidance. As a percentage of sales, R&D increased to 16% and SG&A decreased to 7% of net revenue.
Income from operations for the quarter decreased by $4 million sequentially to $158 million, and represented 28% of net revenue. Compared to the $171 million for Q2 of last year, income from operations decreased by $13 million. Interest expense for the quarter was $1 million, which was offset by $1 million gain from other income. Taxes came in at $5 million for Q2.
Q2 net income of $153 million decreased 6% from the prior quarter, and Q2 earnings per diluted share of $0.61 was $0.04 lower than Q1. The sequential decrease in Q2 earnings is primarily attributable to lower revenue and higher taxes. Compared to Q2 of last year, net income was $15 million lower and earnings per diluted share was $0.05 lower. This was a result of lower revenue and higher spending.
Our share-based compensation in Q2 was $17 million. The breakdown of the expense for Q2 includes $2 million in cost of goods sold, $7 million in R&D, and $8 million in SG&A. In Q3, we anticipate share-based compensation will be approximately $20 million. Just as a reminder, the Company's definition of non-GAAP net income excludes share-based compensation expense.
Moving on to the balance sheet; our days sales outstanding came in at 44 days. This was down two days from the prior quarter due to our efforts in the collections area. Our inventory ended at $229 million, an increase of $21 million from the last quarter. Days on hand were 76 days. We continue to build wireless inventory in anticipation of various product launches with our smartphone OEM customers.
We ended the quarter with a cash balance of $1.22 billion, and we generated $191 million in operational cash flow. We spent $47 million on capital expenditures. We spent approximately $37 million on an acquisition in the quarter. For Q3, we expect CapEx to be approximately $67 million, as we continue to spend on our fab capacity expansion in Fort Collins, Colorado.
During the quarter, we repurchased approximately 318,000 shares, which consumed $11 million of cash. On April 4, 2013, we paid a quarterly cash dividend of $0.19 per ordinary share, which consumed $47 million of cash. This dividend was raised by $0.02 from the prior quarter, and I'd point out that since the inception of our dividend program in Q2, 2011, we've continued to increase our dividend each quarter.
I'd like to make a comment about our capital allocation strategy going forward, supported by a healthy balance sheet and strong quarterly free cash flows our focus will be to continue to maximize the return to our shareholders. Our Board will continue to consider increasing our quarterly dividend in line with what we have done in the past. We also plan to more consistently repurchase shares to limit dilution from employee-related stock issuances. In addition, we will continue to evaluate potential strategic investments and acquisitions as another way of deploying cash to maximize return to shareholders.
Now, let me turn to our non-GAAP guidance for the third quarter of fiscal 2013. This guidance reflects our current assessment of business conditions and we not intend to update this guidance. As we stated in the press release, the guidance does not include the acquisition of CyOptics business. However, new plans provide additional guidance for the acquired business after the transaction closes.
So, first, revenue is expected to grow by 6% to 9% from Q2. We see broad-based strength across all three end markets. Gross margin is expected to be approximately 51% plus or minus 1 percentage point. Operating expenses are estimated to be approximately $133 million. Interest and other is projected to be a gain of $1 million, taxes are forecasted to be $6 million. Finally, the diluted share count forecast is 253 million shares.
That concludes my prepared remarks. Operator, please open up the call for questions.
Operator: Ross Seymore, Deutsche Bank.
Ross Seymore - Deutsche Bank: Congrats on a solid quarter. Hock, just a question following up first of all on the Wireless business. You mentioned that you're going to have an initial product launch that's helping in your July quarter. How should we think about seasonality in your Wireless businesses? Last year, it seemed like all that goodness fell in one single quarter. Is it going to be a bit more spread out this quarter or any color you can give us will be helpful?
Hock E. Tan - President and CEO: I think the question – you have multiple points in this question, so let me try to address them one by one. Seasonality in the smartphone business, I believe, still exists, though very much muted these days than few years back, frankly. It's more driven by product launches – major product launches of large smartphone OEMs, more than anything else. And what we were referring to in our guidance for this July quarter is the fact that we will be experiencing – or we are experiencing I should say, we're in the midst of it – the initial, just the initial ramp of this large North American smartphone OEM in this quarter. But it is just the initial ramp. We expect the bulk of that ramp to actually occur in the following quarter.
Ross Seymore - Deutsche Bank: Great. Then as my follow-up, switching gears over on to the Wired side of the business, you gave a lot of good color on the SerDes side. The parallel optics side; and specifically, the core router side, can you just give us some color about when you think that can rebound and how much of a headwind year-over-year that still represents?
Hock E. Tan - President and CEO: Well, if you look at it year-over-year, as I say, time starts to smooth things out. We do expect service provider spending to be back half loaded this year, especially this – even for fiscal year what we see is a stream of smaller orders these days, but especially in Q2 things kind of still look weak compared to Q1. We expect Q3, right now in our guidance, to be not much different. We could be pleasantly surprised, but we certainly expect as we move beyond June, July, for service providers in China and even North America to start putting in place call routing backhaul infrastructure, which will then drive a stronger demand for our parallel optics, and that’s great. That will be a very positive development, but we do not see that as much this quarter as perhaps subsequent quarters.
Operator: James Schneider, Goldman Sachs.
James Schneider - Goldman Sachs: I was wondering if you could talk a little bit more about the Industrial business. What kind of booking trends did you see as you progressed through the quarter, and are there any specific geographies or sub-verticals that you think are doing better than others right now?
Hock E. Tan - President and CEO: Jim, Industrial, as you know, after two quarters of not very great movement in trends, we started to see last quarter actually a reversal in resale, and I'm referring to resale globally. As I mentioned, Industrial actually grew 3% at resale last quarter sequentially. What we're seeing in order patterns is we very much expect the same to happen this quarter. A point of fact for geographies, North America was strongly recovering. North America sequentially was growing high single-digits last quarter and momentum continues today. Europe and Asia Pac was also growing, at least mid-single digits in Industrial. The only market that was down last quarter was Japan, and that's because of the yen. Now that the yen has kind of stabilized at a fairly weak level, we're actually seeing Industrial turn around this quarter, in fact, for Japan. So, Industrial looks like an improvement, but the way we see it, it's a very gradual, but steady improvement.
James Schneider - Goldman Sachs: Then as a follow-up, on the networking side, you talked about several of the product cycle drivers like 40-gig that will benefit you in the July quarter. Can you talk about how much of the benefit for the July quarter is product cycle versus end demand driven, and whether you think you can sustain momentum in that segment into the October quarter as well?
Hock E. Tan - President and CEO: The only one we see here is almost like the – maybe they're really not two markets, but we almost see like two segments to this enterprise networking market. There is this new data center build-outs by people providing like cloud computing, social – basically social network, stuff like that, and then there is the more traditional corporate enterprise, what we call corporate enterprise sign. That sign, the ladder is still pretty flat. We find companies are still not spending that strongly, but holding, sustaining. But on the data center side, we see a lot of build-outs, we see increasing level of build-outs and that's giving a lot of growth to the business we are in because these guys are adopting for large part of this new generation products in 40G, where we have a lot of market share. I think we're benefitting from – so the best answer is combination of both.
Operator: Terence Whalen, Citi.
Terence Whalen - Citi: If I could I'd like to just take a little bit of a step back regarding the FBAR business. In particular you provided a slide at your Analyst Day that showed collective or cumulative unit shipments at FBAR. What that showed is periodically over the past two or three years you shipped about 1 billion or between 1 billion and 1.2 billion pieces. My question is, is that an accurate understanding of that slide presentation? Can you help me understand that within context of your plans to quadruple capacity between '11 and '13 because that would then imply that your unit output would go from about 1 billion per year to several billion per year? I just want to understand if this is an accurate understanding, if you could help me refine that?
Hock E. Tan - President and CEO: I guess the point of what you're trying to say is the volume. Our volume shipments of FBAR, is that increasing pretty strongly or dramatically? And the answer is, yes. It has been and especially with more and more LTE rollouts in more and more countries beyond North America, definitely yes. As also with the coming into place of techniques, as I mentioned, of envelope tracking and down the road next year, probably next year carrier aggregation and adoption of carrier aggregation by handset OEMs enable that, even more so. So, we are – that's a good reason why we're increasing our capacity. Now to be fair, we should also say that penetration of FBAR three years ago was at a much lower level than penetration of FBAR today. So, it's our volume increase that you are kind of highlighting and it's kind of demonstrated with our capacity increase that we just put in place is also a factor not just of end markets growing, as I indicated here, but also the fact that – and the fact that number of smartphones are increasing is also a reflection of the fact that the content of FBAR in each smartphone is also increasing.
Terence Whalen - Citi: Then if I could ask a follow-up related to that. So, if I did the math, then it's clear that pricing on FBAR is coming down because obviously the volume growth of quadruple is so far ahead of the revenue growth of FBAR. So, I guess my question is, as pricing is coming down, it seems like you are able to maintain margins. So, I guess, my question is, as we go forward, looking even outside of the top two customers, what's your perspective on the growth potential outside of top two, is it potentially greater? Also, what's the implication for margin for business overall, given the pricing dynamics going lower on really sort of extraordinary volume growth here?
Hock E. Tan - President and CEO: Let me try to answer that as simply as possible. The drive to more and more FBAR usage in handsets is largely driven by requirements, is driven by the changes in – technology changes in the industry, the architectural changes in the industry for making smartphones; less so specific OEMs. Those certain specific OEMs may show a preference for FBAR, but it’s also because of performance. It tends more, from our perspective, to be driven more by the fact that LTE as a global thing is happening and to replace 3G, or carrier aggregation, as I mentioned, is happening by all and when it happens, it will take – it will be something that most service providers, carriers worldwide will adopt as envelope tracking, because it saves power on handsets. So, all those issues are driving it. Just as we mentioned in last conference call, certain bands, like in Europe the European band, LTE band, drives 100% into FBAR, like co-existence problems between TD-LTE and Wi-Fi and WiMAX band in China also drives it into FBAR. Those are technological trends not unique to any specific OEM. So, to answer you, the fact that two large OEMs may use it now, it's just a reflection of the fact that the entire industry will be trending towards it.
Operator: Vivek Arya, Bank of America.
Vivek Arya - Bank of America Merrill Lynch: Hock, I think you mentioned Samsung was a 10% plus customer. If I'm not mistaken, that’s for the first time or at least it's been very infrequent that they have been a 10% plus customer. The question is, do you see them adopting more FBAR across their portfolio, as they are much larger than Apple, but they have not used FBAR as much because of their product mix? But the question really is, do you just see them adopting more FBAR in future products?
Hock E. Tan - President and CEO: There are two parts of it; first part, I didn't say it, but Tony did, but it's still true. Yes, last quarter Q2 they became 10% customer. Number two – and by the way it doesn't mean they will stay there forever, and by the way it's the first time they showed up for us. On to the answer to your bigger part of question, I cannot really respond to it, not because it is proprietary to a customer, which it is, as much as the fact that their architectures will be what they choose to adopt. Having said that, obviously, they do adopt what industry technology architectures will drive them to do. But it's not for me to say whether they are going to use more FBAR or not. Frankly, this thing might change over time, but it's more a niche, more a function of when the industry trends, technological trends, tend to drive them more than anything else.
Vivek Arya - Bank of America Merrill Lynch: As my follow-up one more on your analog industrial business. As I look over the last few quarters, I think your reported sales have either been much stronger or much weaker compared to the original guidance, and I am curious what causes that disparity? Is that purely macro? Is it a function of just that you have to go through a distribution channel? Is it anything (indiscernible) process? The question really is, do you think you have enough scale and breadth of products in that business to be successful longer term?
Anthony Maslowski - VP, Corporate Controller and interim CFO: Again I will answer this question, its Tony. It’s that yes. We have seen probably more of the follow-through with re-sales. So again some of the predictability is a little tougher for that and then also again we wanted to see kind of steady trends from our distributors as well. So that's what's caused that.
Vivek Arya - Bank of America Merrill Lynch: In terms of just the breadth and scale in that business. Do you feel comfortable with that or do you think more inorganic drivers will be needed for that?
Anthony Maslowski - VP, Corporate Controller and interim CFO: Well I think, again, the business is solid, but also we are looking at opportunities.
Operator: Romit Shah, Nomura Securities.
Romit Shah - Nomura Securities: Can you talk a little bit about your acquisition of Javelin Semiconductor, why you did it and how this strengthens your position in Wireless?
Hock E. Tan - President and CEO: Well, it’s really about a technology acquisition. It's we are acquiring 15 very, very good, very experienced, very solid RF CMOS designers and that's really the main reason we are acquiring it.
Romit Shah - Nomura Securities: What do the RF CMOS designers do in terms of expanding your opportunity in Wireless?
Hock E. Tan - President and CEO: Good point. Well, as you may have seen in some of the architectures – your roadmap to architectures there are more than just power amplifiers and duplexes in the RF, what people call the RF run and between antenna and the baseband on the transceiver baseband. There are a lot of other components and as you put in more and more bands operating within each circuit in any handset you start to need things among other things, things like switching, tuning, various other things that will be very helpful and also interfaces. As you know to operate envelope tracking you need certain kind of interface and in fact people call it (unit) interface that requires pretty tricky CMOS designs, and those kind of CMOS designs are pretty tricky because a lot of it done in normal traditional CMOS process, but RF CMOS process which is slightly different and obviously requires some expertise and experience in it. We figure we do not have enough expertise in-house and this is a good way to acquire those pool of talent at a fairly inexpensive price.
Romit Shah - Nomura Securities: I guess, rightly or wrongly I think of FBAR as the answer for high-end phones. Having said that, there has been a lot of reports that would suggest your largest customers are trying to broaden their flagship models into the mid-tier segment of the handset market and I was just wondering if you could talk about how you are positioned for those opportunities down the road.
Hock E. Tan - President and CEO: People use FBAR in handset or smartphones, where be they high-end, mid-range smartphones, even low-end smartphones a lot of times, very often because from a technical perspective there's limited choice. If it doesn't work, you don't get your signal, you won't get your signal, and the phone may cost $1,000 or $200, it just won't work. As I mentioned in an answer to an earlier question, a lot of the drivers towards increased use of FBAR over SAWs, over the last few years especially, has been driven by technical considerations; not just pure preference in performance, not just technical considerations, because if you can't make it work in that level, if you can't make duplexing work well in Band 7 LTE in Europe, except with an FBAR, you’ve got no choice. You’ve got to put an FBAR in. The same applies when you try to run TD-LTE band in China with Wi-Fi. You are going to have a lot of interference, as no getting out of it and it's pretty recognized in industry today, which is exactly why you need an FBAR filter just to be able to address what we call that issue of co-existence of two spectrums. So it's mainly driven technically less by economic considerations.
Romit Shah - Nomura Securities: Just lastly from me, could you give us an update on how the CFO search is progressing, and do you think you are close to making a decision on a permanent CFO?
Hock E. Tan - President and CEO: We are still moving along. This has only been two months, three maybe. Still we are in the thick of it.
Operator: Blayne Curtis, Barclays Capital.
Blayne Curtis - Barclays Capital: Just a question, I think you answered this, but you’re clearly seeing the strong demand for FBAR. Do you expect the mix to move further to FBAR? Then, Hock, could you just talk about, have you seen any indications, a lot of talk about other competition versus yourself and TriQuint? Have you seen any of those products in the market?
Hock E. Tan - President and CEO: Well, we don't – on FBAR, on your latter question, I guess, SAW is our biggest competitor frankly, SAW filters. By the way, I mean, FBAR today in a total environment of handsets market, of which they are like over 1.3 billion, 1 4 billion units per year, by far the vast majority of handsets uses SAW filters. So, in my guess, our approximate guess for FBAR penetration is probably only about barely 20% at this point, which is hard, because in the same phone you can have multiple bands. You can have both in the same phone, SAW filers and FBAR, which makes it even more tricky to estimate it. But the fact of the matter is, SAW guys and there are people like Murata, Taiyo Yuden, Epcos, they are all largely SAW guys. They are still – they are in this area. We do see some FBAR on entrants. As you mentioned correctly, we have licensed TriQuint to do, and we are probably with one or two other guys who tried to do it, but do keep in mind, obviously, two things. One is we have lots of IP around it, huge ticket of IP on FBAR. But more importantly, in my view we're being doing this thing now for 15 years. We are now in our eighth generation of FBAR process. We like to believe we will outrun, outcompete, anybody in this market in a straight marketplace. But just in case it doesn't work, we have pretty strong IP to fall back on.
Blayne Curtis - Barclays Capital: Then on the Galaxy S4, I was surprised to see European LTE band which had an FBAR in a U.S. phone. It seemed a little early for LTE roaming. I was just curious if you thought that was a one-off for you that you would see more LTE roaming and European bands in more global phones?
Hock E. Tan - President and CEO: We do see the European Band 7 being used increasingly and that's much more than Europe.
Operator: Doug Freedman, RBC Capital Markets.
Doug Freedman - RBC Capital Markets: Congratulations on the strong results. Hock, if you could talk a little bit; you mentioned your TD LTE. We're looking and waiting for China Mobile, the world's largest carrier, to roll this out. What is your exposure both to the base station side of the business and to the handsets they will have when they move to TD LTE over there? Any update you can offer us as far as timing and expectations would be fabulous?
Hock E. Tan - President and CEO: Well, I think I know as much as you do really and every one of us do in regard to that. I think we are pretty sure that there is a big large installations happening that will be, as they put it – as they call it, (termit trials), and it is a very large volume that they're putting – installing for trials currently, and it's interesting how they're building it up, but they definitely are. We think our exposure to it comes in three ways; interesting enough. We sell components, I think from our RF multimarket components, our low-noise amplifiers, muxers, even small signal amplifiers occasionally into those base stations that are being installed. I heard something like 200,000 is the war that's going on for trials. That's still going on. That's fought and won. We also see in related to that structure that once those base stations are in and things are starting to operate and the licenses are in, they have to do backhauling of those signals, and that's why a lot of our call routing would have an opportunity to participate in. Finally, of course, with TD-LTE, handsets need TD-LTE. And those TD-LTE handsets operating in those bands, those spectrum, tend to have very strong coexistence issues with Wi-Fi, which is also a very prevalent spectrum and very common spectrum in China among other things. So, great opportunity of co-existence or FBAR. So, we're going to get it in three ways. Right now, when we think it will happen, I don't know. My guess, what I've heard as many of you have heard is probably later part of this year.
Doug Freedman - RBC Capital Markets: If I could change gears and look at your Industrial exposure, what do you think we should consider the Industrial market growth to look like this year and next? Are there any product cycles or inventory coverage changes that could impact your growth rates in the time period?
Hock E. Tan - President and CEO: Well, that is something very good to predict. As evidenced by last quarter, we were thinking last quarter continuing to be relatively flattish to a slight decline, which is what we guided, and lo and behold, we were somewhat wrong. I call it conservative. I mean, we showed a low-single-digit, 4%, I guess not that low, increase sequentially in our Industrial business and we are predicting around the same, maybe slightly higher, this quarter, and it’s more a reflection of a sense of conservatism than anything else. I'll be honest, because we could do better, but we could be back at that. But what we are seeing that rate of orders, rate of resale, I should add, that we track through our distributors worldwide, which is where most of our Industrial are sold, is running around that pace, mid-single-digit.
Operator: Ian Ing, Lazard Capital Markets.
Ian Ing - Lazard Capital Markets: Hock, you mentioned Wireless improving gross margins to 50%. Is that largely mix more FBAR, less PAs, or is there some structural changes there? Could the mix going forward potentially shift back to PAs, given that you sell PADs, which is a key building block and also with CMOS PAs with Javelin?
Hock E. Tan - President and CEO: Wow, you got thousand little points in there; I'm not sure where to start, but let me start number one. I didn’t say my gross margin is going to 50%. I am sorry, you may have misheard. What I meant was perhaps where the 50% was used was that, the mix of our Wireless revenues last quarter versus the same quarter a year ago was 50% versus low 40s, and in spite of that mix of Wireless, our overall corporate gross margin remained at 51%. Just to clarify that. But our gross margin on Wireless, I did not say at all that it was 50%. It doesn't mean it isn't. It's just that we do not disclose separately gross margin by product end segments, if you don't mind. But to answer your question, yeah, there is definitely improving gross margin in our Wireless business as the content of FBAR increases, and whether it's increase of content through discrete FBAR duplexers or filters versus in the form of a PAD, it helps. Obviously, with a PAD as you call it, PAD being a power amplifier duplexer module, that makes it somewhat dilute the overall mix, but the trend is all in the right direction. What we do see and recognize is, and that's a point I was trying to show – make in my opening remarks earlier is that, even as our Wireless business as a percent of total revenues do grow, the improving gross margin we are seeing in our overall Wireless business because of a favorable product mix will continue to improve, and that we definitely have been seeing, which basically reestablishes our longer-term model, which is that we will grow as a Company long-term, and we will over time expand our gross margin. Okay? Now, will things revert back to more power amplifiers? That's never say impossible, but all indications are architectures of next generation smartphones as we foresee, as we have visibility on is obviously pushing in a direction that we view as they are favorable from our overall product mix in Wireless.
Ian Ing - Lazard Capital Markets: Then from a follow-up on the Wireline side, there is a lot of noise around silicon photonics whether it's from Cisco, Arista or Mellanox. But my specific question is, Arista, it looks like in their latest offerings in SDN, they did go with a big cell solution. So do you see basically them transitioning to silicon photonics once the technology is ready or (let us know if they) stick with the current incumbent solutions?
Hock E. Tan - President and CEO: By the way, that big cell solution you mentioned is my solution. You know that right?
Ian Ing - Lazard Capital Markets: We know. Yes.
Hock E. Tan - President and CEO: But I don't know. They may think about that. But silicon photonics, while there is a lot of splash on it is still a very difficult technology to implement and that description is still being implemented. I mean that product have been sold, silicon photonic, I would then say there are more talk about it, headlines about it, than there are actually lots of products around it. It could be very expensive as opposed to a big cell solution. Point of fact we believe the big cell solution we are providing to Arista in this recent launch is which we think is a very, very proprietary and creative solution, is a very low cost affordable solution, which is the benefit of parallel optics as we implement right now.
Operator: Steven Chin, UBS.
Steven Chin - UBS: Hock, just couple on the Wireless growth opportunities ahead, in terms of some technologies coming down the pipeline. So, you mentioned carrier aggregation as an important technology that the service providers maybe implementing in the near future. I was wondering if that would provide and opportunity in terms of 3G smartphones that may use the HSPA+ type technologies and include carrier aggregation. Does that expand the TAM for FBAR beyond just LTE, one at a time?
Hock E. Tan - President and CEO: I am not sure I understand your question, could you perhaps rephrase it? I may have heard some of it, but would you mind perhaps rephrasing it to make it clearer?
Steven Chin - UBS: Sure, no problem. So, I think some of your comments regard carrier aggregation as a wireless technology that maybe included in future phone networks maybe a part positive for FBAR adoption, and I assume that's primarily – whether you are primarily referring to LTE 4G. But for 3G technologies, I believe that carrier aggregation may also be included in with revisions of the HSPA+ in newer technologies. Is that something that is also included in your comments about FBAR growth opportunities? Or was it only 4G that you were referring to?
Hock E. Tan - President and CEO: Thank you for clarifying. That's what I thought you said, but I appreciate you, making it clear. Now when I say that, I include both 3G and 4G.
Steven Chin - UBS: I guess how soon would you expect there to be some mid-to-high end smartphones that are 3G only that support the carrier aggregation to start using FBAR?
Hock E. Tan - President and CEO: Well, see the challenge, a lot of the challenge, a lot of the (strife) to put in place carrier aggregation, because implementation of carrier aggregation is not a trivial process, is driven by 4G or LTE spectrum, because as we all know 2G was easy. All the big easy chunks of spectrum were given. 3G followed thereafter, and a lot of the big chunks were given away. What's left when we – by the time we reached 4G was slivers and chunks, little bits here and there scattered all over, and that's when the challenge of – to the carriers shows up, because for LTE or 4G you don't have chunks of it. You have little slivers of bandwidth or spectrum scattered all over the spectrum, some of them very far apart, but none of them quite combined to a fat channel, and that's when carrier aggregation really drives it. So, it's true if 4G or LTE is what creates an impetus towards looking at carrier aggregation, because carriers have multiple slivers that they need to put together in making into one big, fat pipe. In 3G and 2G there's less necessity to do that.
Operator: Vijay Rakesh, Sterne Agee.
Vijay Rakesh - Sterne Agee: Just one question here. Looking at the FBAR side, obviously, we're getting – making some nice strides there. Just wondering, how do you see your content in smartphones now last year versus this year, and how do you see that next year as you see envelope tracking, carrier aggregation and all that come in? And also, if you could comment on CapEx for next year, how that's looking too?
Hock E. Tan - President and CEO: I'll answer the first part. Tony will take the second part on CapEx. Well, it is increasing, there is no question. The content of smartphones, but it varies from OEM to OEM, how they design it, how many bands they wanted to stick into one smartphone which varies between low-end smartphones and high-end smartphones, but on average across the spectrum of smartphones because of more and more bandwidth especially more and more bands as LTE comes in, and you have to interoperate with 3G and 2G, CDMA, all that stuff and co-existence, Wi-Fi and a few other things that comes in television broadcasting. The content will increase and we have been seeing that, which is why I say, the penetration of FBAR into smartphones will continue to increase not just because – obviously not because of the high growth of smartphones but also the content in every smartphone will continue to increase.
Anthony Maslowski - VP, Corporate Controller and interim CFO: And then regarding CapEx for this year we're above $200 million, we are just starting to look at our next expansion plans which would go into next year for FBAR capacity, and that’s probably the biggest single swing in it. So, we are either going to be slightly below $200 million for coming years and then we will plateau from there.
Operator: I will now like to turn the call back over to Tom Krause for any closing remarks.
Thomas Krause - VP, Corporate Development: Thank you, operator. Thank you everybody for participating in today's earnings call. We look forward to talking with you again when we report our third quarter fiscal 2013 financial results in August. Thank you.
Operator: Thank you for your participation in today's conference. This concludes the presentation everyone may now disconnect and have a great day.