Apr 28, 2009
Executives
Rick Neely - CFO and Treasurer Michael Hsing - President and CEO
Analysts
Vijay Rakesh - ThinkEquity Rick Schafer - Oppenheimer Steven Smigie - Raymond James Vernon Essi - Needham & Company Johnny Brown - Stevens Inc. Patrick Wang - Wedbush Morgan Securities Doug Freedman - Broadpoint AmTech Gus Richard - Piper Jaffray Evan Wang - Thomas Weisel Partners Ross Seymore - Deutsche Bank Tore Svanberg - Thomas Weisel Partners Mike McConnell - Pacific Crest Securities
Operator
Welcome to the Q1 2009 Monolithic Power Systems Incorporated Earnings Conference Call. My name is Heather and I will be your audio coordinator for today.
At this time all participant are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today’s conference.
(Operator instructions) And now I would turn the presentation over to your host for today’s conference, Mr. Rick Neely, Chief Financial Officer.
Please proceed sir.
Rick Neely
Good afternoon and welcome to the first quarter fiscal 2009 Monolithic Power Systems conference call. Michael Hsing, CEO and Founder of MPS, is with me on today's call.
In the course of today's conference call, we will make forward-looking statements and projections that involve risks and uncertainties. For example, our business outlook, including our business and financial outlook for the second quarter of 2009; projected second quarter revenues and gross margins; our expectations for the second quarter, litigation, stock compensation, and non-GAAP operating expenses, our target operating model range for gross margins and operating expenses; research and development, and selling, general, and administrative expenses; our second quarter projected business activity levels,; our expected average tax rate for 2009; our belief that MPS is well-positioned for future growth; new product introductions, potential customer acceptance and the various opportunities these present, including their impact on revenue growth rates and finally; inventory levels and projected changes in inventory levels.
Forward-looking statements are not historical facts or guarantees of future performance or events and are based on current expectations, estimates, beliefs, assumptions, goals and objectives and involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from the results expressed or implied by these statements. Risks, uncertainties, and other factors that could cause actual results to differ are identified in our SEC filings, including, but not limited to, our Form 10-K filed on February 27th, 2009, which is accessible through our website, www.monolithicpower.com.
MPS assumes no obligation to update the information provided on today’s call. We will be discussing operating expense and net income on both a GAAP and a non-GAAP basis.
These non-GAAP financial measures exclude charges related to stock-based compensation and their related tax effects. We will also discuss our expected non-GAAP research and development and selling, general, and administrative expense for the second quarter of 2009, which excludes our expected charges related to stock-based compensation.
A table that outlines a reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we have filed with the SEC. I would refer investors to this release, as well as to the reconciling tables that are posted on our website.
I would also like to remind you that today's conference call is being webcast live over the Internet and will be available for replay on our website for one year along with the earnings release filed with the SEC earlier today. We would like to start this call by reviewing our first fiscal quarter 2009 business highlights.
Following this update, I will discuss our operating results. We will conclude by discussing our expectations for the second fiscal quarter 2009.
We will then open up the call to your questions. Let's start with the business highlights.
MPS results this quarter reflect the impact of the global recession as we recorded revenues of $29.3 million, a decrease of 17% from the prior year and down 16% sequentially. However, we saw increased bookings and churns activities in the second half of the quarter, which allowed MPS to come in at the high end of its revenue guidance for the quarter.
While overall, revenue declined, MPS was excited to see that several of our new product families saw both, sequential growth and year-over-year revenue growth in Q1. In previous calls we have highlighted the tremendous number of new product introductions that the company executed in 2007 and 2008 and we continue to see both, design wins progress as well as revenue growth from these new product families, expanding our footprint into untapped market segments.
Given the normal time lags from product introductions to significant revenue ramps, MPS feels that it's on-track to see greater contributions from these new products in the second half of 2009 and even more uptake in 2010. We sampled the 25A version of our new driverMOS family in this first quarter, which is another cornerstone technology development for MPS.
This new product line opens up high-end product markets for MPS such as high-performance graphics cards, communications equipment and servers. In the manufacturing area, the lower revenue levels in the first quarter led to a gross margin of 58%, which met our expectations for this metric.
Our own inventories were down slightly from the fourth quarter at $18.6 million but inventory at our distributors dropped significantly as they trimmed their stock to reflect the new demand environment. Bottom line, non-GAAP net income was $2.3 million or $0.06 per fully diluted share.
Now let's look at the financials in more detail. On the P&L, starting with the revenue line, first quarter 2009 net revenues of $29.3 million declined 17% from the first quarter of 2008, and were down 15% sequentially from the $34.7 million recorded in the fourth quarter of 2008.
This sequential decline was slightly higher than our normal seasonal drop. We believe this was due to the current global economic conditions.
During this quarter, MPS has changed its revenue classification in order to reflect changing market trends. We will now root for a new category of revenue called Lighting Control, which will include all of our products that are directly involved in that function, such as CCFL inverters, CCFL controllers, and white LED drivers for both general lighting and high-performance LED panel backlighting.
The following revenue statistics reflect this new classification, so let's break down our first quarter by product type. DC to DC product sales were $21.2 million, down 13% from the $24.2 million reported in the year-ago quarter and down 19% from the fourth quarter of 2008.
The main reason for this decline was a global drop in electronics demand in the first quarter of the year. Lighting control revenues for the first quarter were $4.7 million, a decrease of 45% from the same quarter a year ago and a decline of 28% from the fourth quarter of 2008.
Historically, the first quarter is our weakest seasonal demand quarter for back-lighting revenue. Combining these seasonality with a recession driven drop in OEM orders for in-products such as notebooks, monitors and other screens, we saw significant impact to this revenue segment.
Audio revenues came in at $3.5 million, up 27% from $2.8 million recorded in the year ago quarter and up 58% from the fourth quarter of 2008. This result reflects a success of several major consumer product manufactures in the LCD TV space who are the major customers for our audio line.
Moving down to the gross margin line, our first quarter gross margin was 57.6% compared to 63.2% in the same quarter of 2008 and 58% in the fourth quarter of 2008. Though these result is below our normal target range, it met our expectations given our current low revenue levels.
Compared to our peak revenue in the third quarter of 2008, the drop in volume translates to about two point reduction in gross margin due to relative fixed cost spread over a lower revenue base, even though we reduced our cost in our test operations in Q1. In positive economic cycles, we have operated at the mid to upper end of target range at 60% to 63% gross margin, but during difficult times we would expect to operate at or slightly below the lower end of this range.
Lets look at our reported expense and the operating margins on a GAAP basis, our GAAP operating expenses were $18 million in the first quarter. This includes $15.9 million in R&D and SG&A expense, which includes $3.3 million for stock compensation expense and litigation expense of $2 million.
Compared with the fourth quarter of 2008, GAAP operating expenses were flat at the $18 million. The expense mix changed as follows: R&D decreased by $1.
million; SG&A decreased by $248,000; litigation increased by $1.5 million. Our GAAP operating loss was 4% in the first quarter compared with an operating margin of 6% in the fourth quarter of 2008.
On a non-GAAP basis, lets look at our expenses. Excluding stock compensation, our non-GAAP operating expenses for the first quarter of 2009 were $14.6 million compared to $14.3 million in the first quarter of 2008, and $14.3 million in the fourth quarter of 2008.
The $332,000 million expense increase from the fourth quarter of 2008 was due to higher legal spending associated with O2 Micro case coming before the ITC later this year. Non-GAAP R&D costs showed a sequential decline of $952,000 as we controlled our variable costs closely.
Non-GAAP SG&A spending also declined from the fourth quarter of 2008 by a $168,000 primarily in sales and marketing as revenue produced lower commission. Our non-GAAP operating margin was 8% in the first quarter of 2009 compared with 17% in the fourth quarter of 2008.
On the bottom line, our Q1 GAAP net loss was $728,000 or $0.02 per basic share. On a non-GAAP basis we had net income in Q1 of $2.3 million or $0.06 per fully diluted share.
This result is computed with a non-GAAP tax rate of 12.5% within our expected average tax rate range for 2009 of 10% to 15%. We are proud of the fact that MPS has been continuously profitable on a non-GAAP basis excluding stock compensation and litigation settlements since our IPO in Q4 of 2004.
Let's look at some of the changes to the balance sheet this quarter. Cash, cash equivalents, restricted cash and investments were $150.8 million at the end of the first quarter of 2009, up significantly from the $115.6 million in the first quarter of 2008, and up slightly from the $150 million at 2008 year end.
In Q1, MPS had operating cash flow of a little less than $1 million as working capital increases for receivables absorbed significant cash. We spent about $1.3 million on capital in the first quarter, which was offset by cash proceeds of about $1.5 million for options and employee stock plans.
Accounts receivable ended the first quarter at $13.4 compared with $9.1 million at the end of Q4 '08, and $11.3 million at the end of the first quarter of 2008. The increase in receivables was a result of unusual changes in orders and shipments in the past two quarters.
In Q4 '08, the majority of shipments were made early in the quarter as demand dropped dramatically from November to year end. In contrast, in Q1 the majority of shipments were made later in the quarter, after mid-February when business activity picked up, thus our receivable balances increased.
Most of these receivables have already been collected as of this conference call. Days sales outstanding rose in Q1 to 41 days as a result of a shipment timing issue I just described.
We have not seen any deterioration in the credit quality of our receivables and expect to return to our normal DSO range of 30 to 35 days in future quarters. Our inventory at the end of the first quarter were $18.6 million or about 136 days of inventory on a historical basis.
This compares with $18.9 million or 118 days of inventory at the end of the fourth quarter of 2008. Our goal this quarter was to keep our internal inventories about flat and focus on reducing distributor channel inventory.
We were very successful, as inventory in our distribution channel dropped by over $4 million and came in below our target range of 30 to 45 days by the end of the quarter. We are comfortable with our internal inventory level as on a forward basis using the midpoint of revenue guidance for Q2, our Q1 ending inventory day would be below 110 days, which is where our normal operating range is.
I would now like to turning to a discussion of general business conditions. The first quarter of 2009 got off to a very slow start, as the electronic supply chain was in the midst of significant inventory destocking as a reaction to the global economic difficulty.
We started to see some small rush orders in later January, which indicated to us inventory levels are very low and some manufactures were experiencing stock-outs. This proved to be the case as larger volume churns orders increased to very good levels in later February and March and our Q1 revenue came in at the high end of guidance range.
Geographically, in the first quarter of 2009 MPS shift 47% of revenue to Taiwan and China and 53% to other region with Korea and Europe performing particularly well. In the new product area, the highlight of the quarter was the introduction of a new driverMOS family, which now includes both a 20A and a 25A version, that are the most powerful in their class that fit into 5 by 5 millimeter package.
This new product family will open up the high performance graphic card, communication equipment and server power management markets to MPS and the initial customer reaction has been very positive. We also sampled our first 600 volt gate driver, which works with any AC offline supply straight of the line, which could be used in end products such as power supplies and telecommunication equipment.
This innovative product is a great example of MPS's technology, capability. Another notable performance this quarter was the continued sequential growth of three of our new product families MiniMonster, battery charger and LDOs.
Some examples of where these products are going include flat panel TVs and communication products for MiniMonsters, cell phones or battery chargers and multimedia applications for LDOs. I would now like to turn to our outlook for the second quarter of 2009.
MPS began the first quarter with very weak bookings, but business activity picked up after Chinese New Year and we were able to come in at the upper end of our guidance range. While our second quarter bookings and backlog are very healthy, we remain cautious as to the underlying nature of the demand.
Channel inventories have been rebuilt but we do not yet have visibility to the likely run rate for the second half of the year. Therefore, we will continue to guide using a wider revenue range with our expectations for Q2 revenue in the range $36 to $40 million.
Gross margin is expected to be slightly below the lower end of our target range of 60% to 63%. We expect stock-based compensation expense in the range of $3.5 to $3.8 million.
We expect non-GAAP research and development, and selling, general and administrative expense in the range of $14 to $16 million. This estimate excludes the stock-compensation estimates mentioned above.
Finally, we expect litigation expense in the range of $2.3 to $2.7 million In conclusion, we are pleased to report that despite a tough economic environment, MPS performed well. We remained profitable and cash flow positive without layoffs and controlled our inventory channels closely.
We are growing revenues in product families introduced in 2007 and 2008, and continuing our geographic diversification. We are using this period to focus on design wins and introduction of very high performance new products and product families.
We feel these actions will position MPS very well for future growth. Now we would like to open up the microphone and take your questions.
Operator
(Operator Instructions) Your first question is from the line of Vijay Rakesh with ThinkEquity. Please proceed.
Vijay Rakesh - ThinkEquity
Hi guys, good quarter. Just on the, you mentioned still looking for signs of demand in the second half, I was wondering if you can focus on your product cycles.
What are the key product cycles to watch for you in the second half of the year?
Michael Hsing
Second half of the year or second half of the first quarter?
Vijay Rakesh – ThinkEquity(
Second half of this year, what are the product cycles sticking out?
Michael Hsing
In general and so far in the first quarter as Rick recommended, we have a breadth of new product line, and introduced at end of last year, and they are doing well. And in the first quarter in all of our product line, new and old, they all increased the booking quite significantly.
Rick Neely
That's right, I think once ---
Michael Hsing
So I can’t -- the second half, okay. I don't see second half I can't see it.
What will be coming in the second half of the 2009.
Rick Neely
Yes, by product cycle which you see Vijay is, obviously the notebooks are pretty weak in Q4 and Q1. So our computing revenue is low.
We are starting to see some of that come backs. So that's really market related one.
As Michael said in terms of the overall demand the biggest groups for us are really come in consumer and communications types of products, and we are doing pretty well in those end market. Though we can't predict the end market demand.
So, we have a lot of products spread across all the major markets. So, that's how we are covering our bets.
We don't know which one will go, so we have a lot of thoughts.
Michael Hsing
This is a strategic reason why we have -- we don't focus on a single market. We have so many products, the company now will have well over 200 products.
And we want to focus on a different market.
Vijay Rakesh - ThinkEquity
Got it, one last question. Your litigation expense seems to be little high 2.3, 2.7, how do you see that, do you see that coming down in Q3?
Can you give us some more color to it?
Michael Hsing
It is very difficult to predict the litigation because it has its own course and we can't really predict that. In Q3, a lot of things can happen.
So we don't want to make any comment.
Vijay Rakesh - ThinkEquity
All right, great, thanks.
Operator
Your next question is from the line of Rick Schafer with Oppenheimer. Please proceed.
Rick Schafer - Oppenheimer
Hi, guys nice quarter. I just have a couple of questions for you.
I guess the first is any comment on order pattern in the first quarter, can you give us any color on what you are seeing so far? I guess this month is almost up here in April.
Was it safe to say I guess that orders have returned to sort of normal seasonal patterns and any comment on visibility or cancellations would be great there?
Michael Hsing
We don't see any significant cancellations. But overall and across all the products and the product line, we all see the increased bookings.
And it seems February.
Rick Neely
Well, I think the other thing we see Rick is, the volatility of bookings is quite higher than it normally is. So when you talk about normal bookings, we are not seeing the kind of normal, we see periods where there is no bookings and then periods where there is a rash of bookings.
And so there is that kind of fanatic character to the bookings that we see. So it's not really not behaving in a normal pattern right now, we're in a strong segment.
But the behavior has been unusual.
Michael Hsing
That’s correct.
Rick Schafer – Oppenheimer
Okay. Can you tell you us what churns are, I think churns are only like 12% or some thing last quarter, what churns are at this point or from the beginning of the quarter wherever you want to give us?
Michael Hsing
I think I don't have a quantifying numbers and that Rick can tell you. In the last quarter and I mean December quarter, we have a lot of cancellations, in the last months of the quarter and we don’t have -- net booking is zero and so almost zero.
In Q1, we have a lot of erratic orders. So that's why we give a very wide guidance, we didn't know what to expect.
And it seems to have smoothed out a little bit recently but we still see not a point.
Rick Neely
And I think further, we don't talk about the percentage of churns, because particularly in this environment it's not really meaningful. Because we use that percentage, I can put out a number that you can read in our 10-K.
e started in January 1, our backlog for first quarter was $10 million. So obviously that would have told you it had normal 50-50 if you use that, we would had ad $20 million quarter in Q1, but we didn't, we had $29 million.
So I don’t think in this environment the churns ratios are about useful as a metric and we are not going to give them out.
Rick Schafer - Oppenheimer
Okay. and then this is a second question, Rick.
You have alluded to a utilization rate, I think you said cost you about 2 points of gross margin in the first quarter. Can you give us an idea what like Chengdu utilization rate is for Q2 or what you expect it will be and…?
Rick Neely
Utilization is kind of - actually they're quite busy doing a lot of work on R&D products, so it's not that the people were sitting around, and we did have a couple of weeks shutdown in Chinese New Year in Q1.
Rick Schafer - Oppenheimer
Right.
Rick Neely
So the utilization rate, the problem is, the cost in Chengdu is relatively fixed in that the vast majority of costs are deprecation and building and supply but not labor. So whether I do $49 million of revenue like I did in Q3 or $29 million in Q1, there isn’t much change in the cost but it's spread over a much different base.
So it's not really utilization, it's just a overhead to the degree that it's just a spread over a larger base.
Rick Schafer - Oppenheimer
So you do -- I guess just to be clear with that, do you see it as sort of another 100 basis points or 200 basis point drag?
Rick Neely
Yes, obviously the guidance we gave this quarter it will drop out to a small number.
Rick Schafer - Oppenheimer
Right. Thanks a lot, guys.
Operator
Your next question is from the line of Steve Smigie with Raymond James. Please proceed.
Steven Smigie - Raymond James
Hi great, thanks guys. I was hoping you could talk a little bit about how much you think of the guidance comes from the success you're having with new products versus sale of pick up at the end markets.
Michael Hsing
I think that actually we see across all the products. As I just said I don’t -- I wish I can say a lot more specific about the nature of our business is spread around, it's so far apart.
We have some more related consumer product like TVs and also the projectors, if you characterize as a consumer product and printers and as well as some as other industrial parts and [power] meters and those kind of things that we all saw a volume increase just recently.
Rick Neely
As I said, on the new products we had sequential growth, if you take [MiniMonsters, battery charges and LDOs altogether, they all had sequential growth, each one of them individually and together quarter-over-quarter. So that was -- that can show you that we are getting a good chunk of it from new products because obviously we dropped in Q1 from Q4 but we actually grew those three segments.
Now they are small but they continue to add every quarter. So, that’s -- I would not split it as Michael said, between demand versus new products.
Its both but we are very happy. The thing we focused on is a new product because that’s what we could control.
Michael Hsing
Exactly, I just want to add it. In the new product, I want to see how that new product was and that drives the margin and that drives the future revenues and we are very happy to see all the new products and when we introduced them at last year, see a very healthy growth.
At the same time also we introduced these automotive products and those has a 60 volts of [protection] and we introduced in the market and that surprisingly we see orders.
Steven Smigie - Raymond James
Okay, and it seems like US maybe double almost triple numbers of products that you introduced and just in terms of starting to generate revenue from those new products, are we in the sort of first or second inning of revenues that we are going to see from these products coming out?
Michael Hsing
Yes.
Rick Neely
Remember, as we said, a lot of the new products were late’07. The first MiniMonster is just the first couple of more in ’07 and then in ’08 we have a big search [MOSFET] way that would not show till the second half of '09 and 2010?
Michael Hsing
Well into the second or third ending, if you recollect what you said. And we will migrate to lot more product lines and as Rick mentioned the 600 volt that is AC to DC product.
And we will have more products introduced in the area. And those products are focused on a small form factors and power supply, which really can bring a value.
Steven Smigie - Raymond James
Okay, great. Thank you.
Operator
Your next question comes from the line of Vernon Essi with Needham & Company. Please proceed.
Vernon Essi - Needham & Company
Thanks for taking my questions, nice quarter. I wanted to just dive into the growth you had in Korea.
It was very strong sequentially and I am wondering if that was more leaning towards the -- which end markets I mean assuming either TV or handsets and any more color there?
Michael Hsing
In Korea there's only two of that they have a handset and the flat panel. And as you know, we have a little exposure in the handsets markets.
Yes it has lot to do with the TVs.
Vernon Essi - Needham & Company
Okay. And on that front I assume that the growth sales in audio as well as the traditional CCFL front or did you get AC-to-DC contact on the television?
Michael Hsing
Yes we did have a AC to-DC contact, I mean that increased quite a bit from Korea.
Rick Neely
In Korea, but it's not just on the [overheads]. We have a lot of power management in the Korea market.
Vernon Essi - Needham & Company
And then just follow on the gross margin, I am trying to put my logic head-on on the statement, you will be below this certain range. Are you implying that you will be below 60% or the low end of that range you provide?
Rick Neely
Well we said slightly below the range, below 60%.
Vernon Essi - Needham & Company
Okay. Right.
Thanks for the clarification.
Operator
And your next question is from the line of Johnny Brown with Stevens Inc. Please proceed.
Johnny Brown - Stevens Inc.
Hey guys, as a follow up to that gross margin. I hate to beat a dead horse here, but since it was mainly utilization that was pressuring margins, and you can see a nice uptick in revenue next quarter, I would assume it would be an increase sequentially gross margins are probably between 58% in the low end of the range to 60%?
Rick Neely
Well, that's parsing it down to the guidance, I think that’s slightly below it we were are 58, so you can make your own conclusion. I think one thing to keep in mind, which we also mentioned in the call is that were we are increasing our revenues some and that the impact on our -- we don’t do a lot of manufacturing, we just have a test facility.
So it doesn’t have a lot, one to two points and that's going to shrink. So the rest of it is, the fact is that we're operating in a difficult environment, where price competitions are really tough.
We've seen very difficult pricing in course and outside the shop and everybody's margins and everybody there have seen. So that's why even in tough times you're just as you wrap up your revenue a little bit, you are not going to have a huge jump in margins.…
Michael Hsing
Well it's a percent of a change, it's not the price to me. And we don’t -- this is not a exact science, meaning that we wish you can put a little lot more accuracy before you guys, but it's a future business and in this kind of a messy environment, we really can't give you any predictions, any closely.
Johnny Brown - Stevens Inc.
Yes. Yes.
That’s fair enough. I think we're just trying to get a picture of a longer term, whether we were going to come down little bit higher or a little bit lower than where you have been operating.
Michael Hsing
Yes, I think that you remember I think four years ago we said that gross margin in the longer term [world] will go down. And believe me, the [world] will down from longer term.
Johnny Brown – Stevens Inc.
Okay and then just real quick operating expenses, R&D came down pretty significantly in the quarter, I was wondering if you could talk about the reasons for that and then give a little bit more color for second quarter guidance for R&D, the relationship between which one is going to increase the most, R&D or SG&A.
Rick Neely
Yes, I mean R&D and SG&A both drops significantly in Q1 because as we mentioned in the prior call, a good portion of our comp, salary costs are kind of bonus based and given the numbers that we were possible, we did make a lot of money, so the bonuses, they were lot more than normally. So the R&D number that's the main reasons for the drop.
Also R&Ds new product reduction is -- there is a fair amount of cyclicality, there is no -- we just introduced fewer products in Q1 because we don’t introduce this time in Q4, that's not a sign of anything there, its just a timing of things coming out. So with a few -- just fewer products in terms of making cost and then the bonus drops.
Same thing in SG&A, again it was much lower in Q4 primarily on the variable cost. Now Q2 as we said in our guidance, they both will go up about the same amount.
I would say that your Q2 R&D would be similar to Q4, '08 and your Q2 SG&A will be similar to Q4, Q3 even very similar to that of those revenue levels.
Johnny Brown – Stevens Inc.
Okay, thanks a lot guys.
Operator
And your next question comes from the line of Patrick Wang with Wedbush Morgan Securities. Please proceed.
Patrick Wang - Wedbush Morgan Securities
Yes thanks and great quarter guys. First off Mike, you guys had some greater second quarter guidance there.
Can you, I guess give us a sense of or even perhaps ballpark, I guess how much coverage you've got when we think about your guidance maybe to the lower end $36 million?
Mike Hsing
The last quarter, as I said we released what the percentage of our bookings, because this is very unusual time and now we sort of, as I said earlier, we got orders that's not as erratic, its much smoother than before. So we will go back to the normal mode and we don't release that number anymore.
Rick Neely
And the normal mode means that we show our guidance – that’s something the company has a reasonable (chart) making and that's the way MPS has always done it, and that’s how we doing it this quarter. So that’s where I would leave it.
Patrick Wang - Wedbush Morgan Securities
And Rick historically I mean you've been in 40 to 50% churns rate before. Is that generally the size of the coverage you've guide here and how we should think about it or something kind of in between?
Michael Hsing
I think as I said it earlier, we'd become -- its not quite at normal and we still see some erratic things happening and its close to normal.
Patrick Wang - Wedbush Morgan Securities
Okay great. And then second Rick I want to ask you a little bit talk about, a talk about gross margins a bit more.
So I think in the fourth quarter when we kind of backed out some inventory reserves and underwriting charges here, your normalized gross margins was in the 61% range and it looks like in Q1, we back up this two points we are at, its about 60%. I was wondering the delta there, if that was due to product mix with lighting and audio being at the higher or if there was some ASP pressure and then also what revenue levels you think that the underwriting charges start to rolling off so that they can cross the 60% margin level again?
Rick Neely
I think most of the things are true. There is definitely ASP pressure, we talked about that and I think everybody, every [airline] company would say that that's impacting the overall numbers, as we said I think now that we're up to the upper 30s in revenue the [step up] operation overhead will not be a significant factor, maybe half a point or a point.
So then you're really down to mix. On the mix side, typically the newer products and some of the more technologically innovative DC products will tend to have higher margins, and some of our older products, which typically include some of the backlighting products, tend to have lower margins just because they're older and haven’t yielded cost improvement.
Michael Hsing
And older has a lower margin.
Rick Neely
That is a mix issue, and you could see how much we really sold our products and you can use that for your mix calculations.
Patrick Wang - Wedbush Morgan Securities
Okay, great. And if I could just squeeze one last one in.
OpEx up a little bit more in Q2 due to high revenues. How should we think about OpEx in the back half of the year?
Thanks so much.
Rick Neely
The back half of the year, again you can model those – they will look similar to -- in one sense to the numbers of when we're hitting last year 35, 40 million of revenue range, which is about, which you would expect the OpEx to be. So OpEx, we actually haven’t increased our hiring significantly but its optimal and we're going back to paying bonuses and things, to reward our employees.
So that’s what will increase the OpEx back up.
Michael Hsing
It's a really, we don't have any specific visibility, it's very, very poor. And we don’t have any set numbers for OpEx and the company has a building function.
So if the company is doing well, the OpEx will go higher. The company is making less money and the OpEx will be lower.
So that’s how we operate.
Operator
Your next question is from the line of Doug Freedman with Broadpoint. Please proceed.
Doug Freedman - Broadpoint AmTech
Congratulations again guys on a nice quarter in a tough environment. Can you talk a little bit Rick about your plan for Q2?
You mentioned in your commentary that distis inventory is at the low end or below the low end of your target of 30 days. With your revenue plan, can you remind us again sell-in, sell-out and whether you are going to be increasing the amount of inventory held at distis in a Q2 as a result of your revenue growth forecast.
Rick Neely
We are in a sell-in model. 99% of our revenue is in Asia and that’s all sell-in.
So as we mentioned that will drop our distis inventory in Q1 to below our target range and the amount of drop is over $4 million. So part of Q2 number, obviously, is those guys restocking now.
In terms of where we are aiming for, that’s an interesting question because trying to figure out what the future demand of this thing have going to be is interesting question. So, we usually do a good job of being conservative and making sure we don’t put too much into the distri channel so that always been our practice.
But, again, you can certainly see some of Q2 number it is, just the distis reselling.
Doug Freedman - Broadpoint AmTech
Can you remind us what percentage of sales is being handled through distribution at this point
Rick Neely
Probably 70% to 75%. We have some larger direct customers that lot of Korea is not through distribution, but everything else pretty much is.
Michael Hsing
But I want to emphasize that 80% of the revenue is emitting by our (SAE) and our sales persons. We use the disti as a fulfillment.
Doug Freedman - Broadpoint AmTech
If I could actually so have you actually added any heads to your sales department in the quarter. Is there any headcount addition plans for the year that we should take into account given that you guys seem to be right back on track pretty quickly here.
Michael Hsing
The answer is yes. We do very conservatively because as our strategy is to expand geographical and the 50% of the market is outside Asia and in particularly in the U.S.
and the Europe. So we are cautiously adding any people in the rest of the year.
Doug Freedman - Broadpoint AmTech
If I could sneak one last one in, I know the driver DriverMOS product really has the potential to have really strong revenue addition to the company. Any interest in sharing with us what you think those projections could look like?
And if you need a controller alliance or if you are doing an internal control to support that product family, what direction do you think you are going to take with that? That would be helpful and thanks again.
Michael Hsing
So far the feedback is a very strong and it’s very clear. It is a single chip product.
For this kind of application particularly in a notebook, we're the only company who can make such a product. I can’t say it is a revolution product, but we have a technical lead by far.
Naturally, also to answer your second part of the question, the controllers that’s a piece that we don't have. But it doesn’t mean we will not sell the 25 current, it's well received in the market, but we're looking to the controller portion of that business.
Operator
Your next question is from the line of Gus Richard with Piper Jaffray. Please proceed.
Gus Richard - Piper Jaffray
Just wanted again to talk about a little bit about gross margins. Normally in the analog market, you see the pricing pressure and new designs and it seems like you're seeing it a little bit sooner than one would expect.
Can you talk about how the [ASP] pressure is manifesting itself? Is there something different here than in past cycles?
Michael Hsing
It is particularly after the first quarter we see a new projects and they negotiate a price a little more than used to be. Do I answer your questions?
Gus Richard - Piper Jaffray
So it is hitting you a little bit sooner than normal cycles on a prior cycle on a downturn?
Michael Hsing
It is particularly for the older products than existing product.
Gus Richard - Piper Jaffray
For existing products at your time.
Michael Hsing
Yes. For the newer products, we see a feasible far technical lead and that we expect to have a higher gross margin.
Gus Richard - Piper Jaffray
Then just if you talk a little bit, I think I know where the MiniMonsters and battery charges are going, but your LDO products are seeing some nice growth there. Is there any particular end market or application as like a bypass or replacement or is there something else that's a market describing it?
Michael Hsing
And we introduce some LDO is and I usually was associated with name of the rotten food. But we don't do that, don't capital our products.
We see utilize our process technology. We can design and produce some very high performance LDOs, which fits in very particular socket.
Therefore, those are products have a higher margin.
Gus Richard - Piper Jaffray
Just any color on where they are used or is it...
Michael Hsing
Those are for wireless side and same time are for, you see some products in a desktop, not a desktop computers and any box, the LDO is used for conditioning the line. So that's where we are targeting to.
Operator
Your question is from line of Evan Wang with Thomas Weisel Partners. Please proceed.
Evan Wang - Thomas Weisel Partners
I am calling in for Tore. Congratulations on the quarter.
I have a question about your new Lighting Control unit. Could you give us some quality to believe and maybe breakdown among your CCFL, LED product or discuss how they performed in past quarter?
Rick Neely
As I mentioned before, we just reshuffled that a little bit, Evan. In fact, if we look at our 10-Q on the back, I think it's an item five, page 38 of the 10-Q.
There is a table that shows that reconciliation going back. To summarize it, primarily lighting control right now is and has been a major product of MPS in cell inverters.
That's been our first product the company ever made and it's still a significant product for us. The reason it is in there is that's the direction the market is heading for lighting of netbooks and notebooks and lot of other things.
So, the [wider it is], is not a large number, it's probably 1 million to 1.5 million in recent quarters. So the rest of it is traditional backlighting products that we have.
Evan Wang - Thomas Weisel Partners
One other question is about your ASP. You mentioned about some ASP pressure.
I was wondering if you could talk about your expectation going forward. Do you expect that pressure to significantly increase or have you already seen that and it's basically just going to be ongoing?
Michael Hsing
Yes. Always we see pricing pressures.
Pricing never go up, it only can go down. As I said in the last question, we do see some higher pricing pressure in the last couple of months.
I think you are aware of it. A lot of the major supplier, they have lowered the price.
MPS, by no means, will give up.
Rick Neely
The difference in the recession versus in boom times, people are moving pretty quickly to get designs and things out. They're always are cost-conscious, but they may not ever get around to really negotiating on the power management shift that hard.
In the recession, they go for every penny from everybody, and that's why the ASP pressure is tougher in a recession on everybody. How long that's going to last is anyone's guess.
Operator
Your next question is from the line of Ross Seymore with Deutsche Bank. Please proceed.
Ross Seymore - Deutsche Bank
Any big difference between your three segments as far as what's going to drive the growth in the second quarter?
Michael Hsing
When we see the audio of DC to DC and actually they are very much the same. I think the DC to DC wakes up little more than the first quarter.
Rick Neely
Right. There is a little bit of a pick up on the computing side.
We’re actually doing very well in communications products with modems and switches and wireless and set-top boxes. So we see a recovery in our business in communications.
So that should do well. Computing will pick up a little bit.
And then as Michael said, the DC/DC which spreads over a lot of different places is going to get back to [normal].
Ross Seymore - Deutsche Bank
Would you get cared to give just a rough estimate on your end market split by those sort of segments computing, communications, handsets, et cetera?
Michael Hsing
It's a very difficult and we try to do it. And so far we are not success with our auditors.
It's by just the nature of the product that how we document it internally, and it's difficult for us to track. Once it goes to a Fox.com, he is a large contract manufacturing, then you don’t know where the product goes.
Rick Neely
We can rank them for you though. In terms of those percent, there's a thing that people may – because historically, we did a lot of business in the computing, that’s actually number three of those three.
Now the biggest is consumer and then not too far behind is communications. We were actually dong a lot more in communications and people probably know.
Computing is actually number three of those three. So, we can rank those and their percentages were hard to define, but we can tell you the ranking right now.
Michael Hsing
Auditors won’t let us to say.
Ross Seymore - Deutsche Bank
You guys put handsets in consumer or communications?
Rick Neely
Communications.
Michael Hsing
Yes, handsets in the communication, but we only have a very small portion of it in the handsets.
Rick Neely
Handsets were not big business for us.
Ross Seymore - Deutsche Bank
Then a couple of housekeeping questions. What do you guys expect stock comp and your tax rate to be for this full year?
Rick Neely
For the tax rate we gave the range of 10% to 15% non-GAAP. I think we were 8% in Q1, so we were thinking 10 to 15 as the range I’ve been giving people for tax rate.
Stock comp wise, we would forecast the midpoint around 3.6 or so. It's probably going to stay in that general range.
It obviously depends on what the stock price does and some of the other factors in the model, but we don’t expect a tremendous amount of increase in shares granted. But we’ll just kind of flatten it from where we are.
It would be a good deal.
Operator
Your next question is from the line of Tore Svanberg with Thomas Wiesel Partners. Please proceed.
Tore Svanberg - Thomas Wiesel Partners
A few questions, first of all, just coming back to the distribution inventory. So you feel like you’re going to be in balance with distribution orders in the June quarter or are you just going to continue to under ship them in the June quarter?
Michael Hsing
In general, we believe we can manage the inventories much better than our distributors and particularly for those new products. And now that inventory in the distributor is very, very low.
It really depends on the order pattern from our customer and we may or may not, I'll get Rick again to add something, but now not only if it’s all time low, it’s a very low now.
Rick Neely
And I think Michael is correct. We transferred the conservative side on the disti inventory as we have a good facility in China that could rapidly build and deliver products.
There is no reason for us to stack them up, but this season we don't. So, recently, we pretty much in '07, '08 except for that fourth quarter when they had everything fell apart for everybody, we were under that 30 days numbers.
So, we're back to that being well under the 30 days numbers. So, we're back to kind of levels that we're in the past and that's kind of where we want to keep it.
Again, it’s not totally in our control. It’s been difficult for the distributors and ODMs to gauge end market demand.
So, there's a bit of a guessing game going on there, but our practice is to try and keep that channel fairly linked.
Michael Hsing
To answer it little more clearly for the second quarters, no, we are not going to restock that inventory in our disti because the orders are erratic and I think that we can manage a whole lot better than our distributors. So, this is not.
It's still kind of in the abnormal time.
Tore Svanberg - Thomas Wiesel Partners
Then just want to understand the utilization going forward, so obviously, your own inventory is going to be down a lot in Q2. So, when do we start to see an uptick in utilization?
Would it sort of start halfway through the quarter and then you get the full benefit by Q3?
Rick Neely
Thus far in Q2, you won't see much of an impact of our revenue we'll be closing. And again, we have a facility size for the $40 million plus that we did in the second half of '08, and we're closing in on it.
So as we're closing in on those types of numbers that will shrink.
Michael Hsing
And you particularly mentioned that Q3, I don't the pendulum swings back and we don't know. We are very, very cautious.
Frankly, I am very worried. Ordering patent is very strong and Q3 is difficult to say.
But whenever, as I said, the market is up or down, we will react in.
Tore Svanberg - Thomas Wiesel Partners
My follow-up question, looks like you are doing a great job outside of Taiwan and China to gain some share and you mentioned that Korea and Europe is particularly strong. Do you expect that trend to continue throughout the rest of the year?
Were those two regions really driving this growth?
Michael Hsing
Europe, well. Because we've said live on TV we have very little to do with the handsets.
And that relates to consumer behaviors, and in this market I really can't tell.
Operator
Your next question is from the line of Michael McConnell with Pacific Crest Securities. Please proceed.
Michael McConnell - Pacific Crest Securities
Should we look at the pricing situation is more driven by the competition with respect to their own utilization. I imagine some of your competitors running at the price utilization rates.
They're pricing it at their variable costs. So is there a threshold we should think about with your competitor's utilization rates, where they're more apt, at least looking historically to maybe ease up on the pricing pressure and the quoting, the quotes you're giving your customer base?
Rick Neely
That's a new question, because that's something that we've seen. Again, to remind people on the gross margin side, one other things we looked at is, we're at the lower end of our target range.
So we looked at what other companies were doing in the analog space, and we are still number two in the industry by the way. So we're not outside of the leader, we are number two in the industry.
So though we're not where we want to be, we are still doing pretty well. So to that end what you pointed out that the gross margins are particularly somewhat larger comparative to have around fab to drop fairly significantly, and therefore, they are covering that by doing some very low price deals.
And that typically goes away as soon as they get their fabs up to and if they are down to 40% to 50% utilization level then you might go sell them up, you get 70% or 80% where they stop doing that. Typically, I don't know.
I can't predict their behavior, but that's usually what I have seen in the past in my semiconductor experience. So yes, I think we are in this period where the dealing looks now right in the market is based on those types and as the business goes a up little bit more, they reduce their capacity, and therefore, they don't need to that kind of pricing.
Michael Hsing
Eventually, that clears out. But that's the point of my comment about during the recession there is more of this price competition.
Michael McConnell - Pacific Crest Securities
The second question would just be with respect to Q3, we have a pretty difficult sequential comparison just given the end of restocking activity and the big growth, we're now expecting for Q2. Seasonally, that's your strongest quarter from a sequential basis.
Should we, without having lot of visibility mute our expectations if given a tougher compare with Q2 for topline growth?
Michael Hsing
I wish I can give a clear answer. We just scratch our head.
We don't know what to expect and --
Rick Neely
I will agree with Mike. We don't know what to expect.
But one of the things I can look at is, nothing in the last six months has behaved historically. In another words, this historical model say, Q3 up x% or whatever.
I would be cautious in using those. Look at a couple of fact that I just see, one is the, I think the world gross domestic product is forecasting a decline in 2009 for the first time since World War II.
The portion 500 had an 85% drop in fibers last year for a first time ever. So there is lots of general economic news, I think you would say, wow, this is not a period to use historical model so that's probably one thing I would point out.
Michael Hsing
I think, I interpret Rick's answer. We really rely on you guys to tell us what is the expectation.
Michael McConnell - Pacific Crest Securities
But I guess suffice to say though, looking forward beyond kind of the restocking dynamic we're seeing with Q2 after two very difficult quarters for the industry and now the big growth in Q2 and second half growth, at least your topline should be more commensurate with end consumption. Is that fair to say?
Rick Neely
I think that's probably…
Michael Hsing
I think that we always hear, I have a fear that the pendulum swings back. And because I am too shocked that last October-November and I guess sort of a waking up and I see, okay, the pendulum is going to swing back.
I really have a fear about that.
Operator
Ladies and gentlemen, this does conclude the Q&A portion of today's call. I would like to turn the presentation back over to your host Mr.
Rick Neely for closing remarks.
Rick Neely
Thank you, everyone for attending and for your questions. We look forward to talking to you next quarter.
Thanks a lot.
Michael Hsing
Good bye.
Operator
Well, ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Have a great day.