Jul 25, 2007
Executives
Shannon Pleasant - Director Corporate Communications William G. Bock - CFO Necip Sayiner - President and CEO
Analysts
Romit Shah - Lehman Brothers Craig Ellis - Citgroup Arnab Chanda - Deutsche Bank Satya Chillara - Pacific Growth Equities Michael Hickey - Janco Partners Craig Berger - Wedbush Morgan Tayyib Shah - Longbow Research Sandy Harrison - Signal Hill Srini Pajjuri - Merrill Lynch
Operator
Good morning, and welcome to the Silicon Laboratories Second Quarter Earnings Call. At this time all parties are in a listen-only mode.
After the presentation we will conduct a question-and-answer session. [Operator Instructions] Today's conference is being recorded and if you have any objections you may disconnect at this time.
I would like to introduce your first speaker for today, Ms. Shannon Pleasant and you may begin, ma'am.
Shannon Pleasant, Silicon Laboratories Inc. - Director Corporate Communications
Good morning, thank you. This is Shannon Pleasant, Director of Corporate Communications for Silicon Laboratories.
Thank you for joining us today to discuss the Company's quarterly financial results. The financial press release, the reconciliation of GAAP to non-GAAP financial measures, details on discontinued operations, and other financial measurement tables are now available on the investor page of our website at www.silabs.com.
This call is being simulcast and will be archived on you our website. There will also be a telephone replay available approximately one hour after the completion of the call, at (888)568-0091.
I'm joined today by Necip Sayiner, President and Chief Executive Officer, Bill Bock, Chief Financial Officer, and Paul Walsh, Chief Accounting Officer. Bill will discuss our financial results and Necip will review our business activities for the quarter.
We will have a question-and-answer session following the presentation. Before we begin, let me comment regarding the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.
Our comments and presentation today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call.
This information will likely change over time. By discussing our current perception of our market and the future performance of Silicon Laboratories and our products with you today, we are not undertaking an obligation to provide updates in the future.
There are a variety of factors that we may not be able to accurately predict or control that could have a material or adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings including the Form 10-Q that we anticipate will be filed later today that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.
Also, the non-GAAP financial measurements which are discussed today are not intended to replace the presentation of Silicon Laboratories GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations.
I would now like to turn the call over to Silicon Laboratories Chief Financial Officer, Bill Bock.
William G. Bock - Chief Financial Officer
Good morning everyone, I'm very pleased to report a solid second quarter. We were in line with or favorable to our guidance on virtually every measure, and as promised, we brought operating expenses down from first quarter levels while also growing our top line to a record $75.6 million.
We'll first cover our GAAP results. On this basis, gross margin was $45.4 million or 60% of revenue.
Research and development investment was $22 million, and SG&A expense was $21 million. Other income, principally interest income on invested cash, was $6.8 million.
The GAAP income statement also includes income from discontinued operations of about $600,000, or $0.01 per share. The resulting total GAAP earnings per share on a fully diluted basis was $0.13.
Our non-GAAP adjusted financials that follow exclude approximately $8.6 million of pre-tax stock compensation expense. Non-GAAP gross margin was within our target range at 60.5%.
The decline versus last quarter resulted from supply chain expedites, and certain increased inventory reserves. These were one-time charges and we expect gross margin to improve in Q3 while remaining within our guidance range of 60 to 62%.
As I mentioned, operating expenses were down sequentially in Q2. We had suggested a $1 million sequential decline from first quarter, but we achieved more than double that.
SG&A expenses declined as planned to $17 million, or 22.6% of revenue. This was due to actions taken during first quarter and discussed in detail during last quarter's call.
During the quarter, R&D investment also declined, coming in at $18 million or 24% of revenue. When we provided guidance last quarter, we estimated R&D expense based on the expectation that we would pull some new product mask expense into June.
These development expenses did not make it into the second quarter, but did, in fact, occur in the first week of July. Thus we're enjoying a favorable result in the current quarter but anticipating R&D investment will increase sequentially in Q3.
The lower operating expenses drove operating income to $10.6 million or 14% of revenue. This represents a significant improvement over the last two quarters, and good progress toward our long-term operating model.
As previously discussed, that long-term operating model features a target 25% operating income. We expect to make significant progress toward this objective in each of the remaining quarters of 2007.
Wrapping up the income statement for second quarter, other income in the period was $6.8 million. Our non-GAAP income tax provision was below our target range at 17%.
This was due to a one-time favorable tax audit result in one of our foreign subsidiaries. We now expect the company's tax rate to be approximately 20% through the remainder of 2007.
Income from continuing operations, therefore, was $14.4 million, or 19% of revenue, a 7 point jump over first quarter and exceeding any quarter of 2006. EPS for continuing operations came in at $0.26, fully $0.03 above the high end of our guidance range.
Let me also discuss our headcount trends. Second quarter closed with our employee base at 526, down an additional 21 from our first quarter headcount of 547.
These reductions were primarily in manufacturing operations in Austin, essentially completing the transfer of all production offshore. These actions effectively complete the structural changes needed to align our operations with the revenue run rate we anticipate in the second half of 2007.
We will, however, continue to consolidate facilities into our headquarters location during the fourth quarter. Turning to the balance sheet, accounts receivable increased to $42.2 million, driven by some nonlinearity of shipments during a quarter.
As previously discussed, we transitioned into a new ERP system on April 2nd and shipment levels were low in the first half of April, returning to normal levels for the balance of the quarter. Days sales outstanding was 50 days.
Inventory dropped to $19 million or approximately 6.3 turns. Distribution inventory also declined.
Cash and equivalents totaled $644 million at the end of the quarter. This balance reflects the payment of approximately $40 million in taxes on the gain from the divestiture of our cellular business, partially offset by operating cash flows.
Also through the second quarter, we've repurchased approximately two-thirds of our original $100 million share repurchase plan. Today we make a significant announcement regarding our cash position.
I am very pleased to report that last week our board of directors approved an expansion of our share repurchase plan, quadrupling its size to a new $400 million authorization. This program is authorized over a 24-month period and we may repurchase shares through private transactions or on the open market, depending on market conditions.
It is our intention to be active in the execution of this plan, effectively returning capital to shareholders and significantly reducing our outstanding share base. We believe this is a responsible action as it relates to our excess cash position, returning value to shareholders while retaining full flexibility for both the operation of the business and for strategic opportunities.
Necip, I'll now turn the discussion over to you.
Necip Sayiner - President & Chief Executive Officer
Thank you, Bill. Before we discuss the business results, I'd like to comment on the use of our cash as it relates to our M&A efforts.
We believe our substantial cash balance will allow us to pursue targeted acquisitions to accelerate our growth. We have ruled out large public transactions and have turned our focus to late-stage private companies.
As a result, we can meaningfully increase our repurchase program while also having a substantial war chest enabling multiple potential strategic acquisitions. We recently added an industry veteran to the leadership team giving us a dedicated management resource to focus on acquisition activity.
Mark Downing our new Vice President of Strategy and Business Development, will also be looking for untapped possibilities in our portfolio that could drive new revenue opportunities. I'm very pleased to bring someone of Mark's caliber to the management team and believe this is another positive indication of our commitment to expand and grow our business.
As you recall, we view our business in the context of the following product lines, embedded modems, voiceover broadband, broadcast, microcontrollers and timing. These product areas represented almost 90% of our revenue in Q2.
Our mature products made up the balance. Record revenue in Q2 was driven by double-digit sequential growth in both the broadcast and MCU businesses.
Let's start with our broadcast business. We continue to have a leadership position in FM radio due to our cost-effective architecture and superior performance.
Our broadcast revenue increases in Q2 were driven by increasing share in handsets, particularly among our Korean customers as FM penetration continues to rise, and strong demand in non-handset applications which represented close to 30% of broadcast revenue in Q2. FM design win activity, a leading indicator of the future health of the business, continues to be strong.
We added more than 70 new design wins during the quarter, split evenly between handset and non-handset applications. We began shipping our FM transmitter in Q2 as planned.
We're still the only supplier offering this function in a form factor appropriate for handsets and portable media players. We expect a steep ramp of the FM transmitter in non-handset applications to begin in Q3 followed by a ramp in handsets early next year.
We also expect our AM/FM sever to begin shipping in volume in Q4 as planned. Based on the strength of our existing FM tuner, complemented by new products and customer diversification, broadcast growth looks very healthy for the second half of the year.
Our microcontroller revenue increased to record levels again this quarter, growing by over 10% sequentially. Growth was driven by strength in consumer, industrial and networking applications, primarily in Asia and the Americas.
We shipped more than 5,000 development kits during the quarter due in part to demand generated from a series of customer seminars hosted globally. We believe our current mixed-signal MCU product portfolio already addresses approximately 20% of today's $5 billion 8-bit MCU fam.
New products in development will not only increase our market share potential in markets we address today, they will also expand our served market to about to about 50% of the TAM or about $2.5 billion over the next two years. Embedded modems which we forecasted to be flat to slightly up this year, performed as expected during the quarter.
We're gaining share across all of our major markets, set top boxes, point of sale terminals and fax. We've made good progress in top tier design wins for multifunction printers and believe this is a significant opportunity for future marketshare gains.
We expanded our voice family during the quarter, announcing a next-generation ProSLIC for the consumer and enterprise markets with two voice ports on a single chip. The dual ProSLIC integration and remote diagnostic capabilities further distance us from the competition.
The voiceover broadband business remained weak as anticipated in Q2, due to inventory at the European customer and reduced demonstrate from our customers supplying Vonage. We expect some recovery in this business in Q3, due to marketshare increases in Europe.
The timing business which includes clocks and oscillators, continues to enjoy strong designing activity. Our any-rate clocks announced in Q1 are expanding our content within existing customer applications and have also opened up new opportunities in media broadcast, test and measurement, and point-to-point microwave applications.
Oscillator revenue grew double digits in Q2 in spite of being limited by some capacity constraints that should be resolved in Q3. We're continuing our investments in this area, developing new products that could double our addressable market from $400 million to $800 million.
Now, turning to the guidance for Q3. We are expecting all of our major product lines to grow in the third quarter.
Total revenue is expected to be up sequentially by 7 to 11% to $81 million to $84 million. We are expecting gross margin to increase sequentially, but stay within our target range of 60 to 62%.
We anticipate R&D investment to increase due to additional new product development activity while SG&A expense is expected to remain flat in absolute dollars. We expect our adjusted operating profit will be in the range of 16 to 18%.
Third quarter net income per fully diluted share on a GAAP basis is expected to be $0.16 to $0.18. Non-GAAP EPS, excluding a non-cash charge for stock compensation, is expected to be in the range of $0.28 to $ 0.30.
We'd now like to take your questions. Shannon?
Shannon Pleasant, Silicon Laboratories Inc. - Director Corporate Communications
Thank you, Necip. We will now open the call for the question-and-answer session.
So that we can accommodate questions from as many people as possible before the market opens, please limit your questions to one with one follow-up question. Operator, please review the question-and-answer instructions for our call participants.
Question and Answer
Operator
[Operator Instructions] Our first question is from Mr. Romit Shah of Lehman Brothers.
Your line is open.
Romit Shah - Lehman Brothers
Thanks. Given that growth in Q3 looks to be accelerating pretty sharply here, why did you guys have to take inventory reserves in Q2, are the two completely unrelated?
William G. Bock - Chief Financial Officer
Romit, they are unrelated. We go through a thorough review of inventory at the end of each quarter.
In this particular case, we had some parts that aged beyond our policy and so we appropriately booked the reserve adjustment. We don't think that is related to the uptick in demand that we are expecting to see in Q3.
Romit Shah - Lehman Brothers
Okay. And just my follow-up is on the microcontroller business.
From what I understand, it takes a while to really build this business. I know you guys are in the early stages.
How have you been able to accelerate growth so quickly?
Necip Sayiner - President & Chief Executive Officer
Well, for the last couple of years we've been able to achieve growth in the order of 40% annually, and we expect to be able to continue at this rate, primarily driven by us focusing on building up the product portfolio and implementing additional sales channels across the world. The current served addressable market I mentioned to you was lower, in the order of 10 to 15% of the overall TAM a couple of years ago, but we've been building up the portfolio aggressively.
Now, we address over $1 billion dollars in addressable market, and we have a rich R&D pipeline that we believe will bring that number to over $2 billion in two years.
Romit Shah - Lehman Brothers
Bill, the buyback represents over 20% of the total market cap. How aggressive do you guys plan to be with this?
William G. Bock - Chief Financial Officer
Well, we expect to be active in the market beginning immediately in the third quarter and as I indicated, we have an authorization to a $400 million repurchase over a 24-month period, depending upon market conditions. So we expect to be active in the repurchase of our shares and the return of this capital to our shareholders.
We think that with this authorization we still retain an ample cash balance for operating the business and also for the M&A activities that Necip previously discussed.
Romit Shah - Lehman Brothers
Thank you.
Operator
The next question's from Mr. Merchant of Citigroup, your line is open.
Craig Ellis - Citigroup
It's actually Craig Ellis. Bill just a clarification to start with, on gross margins, the expediting and inventory reserves, I think impacted by about 140 basis points.
Can you break out what the specific impact of each of those two items was?
William G. Bock - Chief Financial Officer
No, I won't do that, Craig, and I guess basically the only point I was trying to make is that margins declined in the second quarter from first quarter, which was not indicative of a long-term trend. We did have some expedite charges as a result of the low shipping level that we had in the first half of April, as we attempted to get parts to customers that were delayed because we began our ramp of production in Q2 more slowly than normal, and we did book these one-time inventory charges.
But the message here is really that it's not indicative of the long-term downward trend.
Craig Ellis - Citigroup
Okay. And related to that, with inventory down 12% and deferred income to distribution down 23%, are on-hand and channel inventories where you'd like them now, Bill?
William G. Bock - Chief Financial Officer
They are tighter than where we would like them to be. So we think we will be aggressively managing our supply chain and inventory for the remainder of the year.
Because of the uptick in revenue in Q3, we're not expecting that inventories will increase substantially in third quarter, and the supply chain dynamics seem to be normal. There's not a material out-of-balance position.
But our inventory levels and, in particular, our turns statistics, are a little higher than we would ordinarily like them to be.
Craig Ellis - Citigroup
Okay. That's helpful.
And lastly for me, on the mask cost issue, the slight shift into early July, what was at play there that caused some of those mask costs to --
William G. Bock - Chief Financial Officer
We had hoped, when we guided at the beginning of Q2 that we would pull some mask expense into the quarter. The engineering team worked diligently on that task throughout the second quarter.
As it turned out, we missed June by just a few days. What that does is roll a certain amount of expense from Q2 into Q3, which led to my comment that you should now expect that Q3 will increase in terms of R&D investment, probably to a level not dissimilar than where we were in first quarter.
Craig Ellis - Citigroup
Okay. Thanks.
And congratulations on getting the operating margins up.
Operator
The next question's from Mr. Chanda of Deutsche Banc.
Your line is open.
Arnab Chanda - Deutsche Bank
Thank you. First question for Necip, a question about your broadcast business, certainly it's seems mostly driven by FM today.
Could you talk a little bit, if you don't want to talk quantitatively or qualitatively, about what the different components are, whether it's FM transmitter versus FM tuner, receiver and what impact there is from some of the integrations that are going on in bluetooth FM in the handset market?
Necip Sayiner - President & Chief Executive Officer
Sure. We are seeing growth in both units and dollars from our FM tuner to across the board, in handset as well as non-handset applications.
We see the FM attach rate continuing to increase, particularly with our Korean customers where we have also gained share over time. So the revenues continue to grow for the FM tuner product.
We are also happy to note that a larger portion of those revenues are now coming from non-handset applications, something I talked to all of you over a period of time. We are trying to diversify our customer base into non-handset applications and we've now become about 30% in non-handsets.
The FM transmitter is starting to ramp steeply in Q3. These are going into non-handset applications as well, so this will serve to move the ratio higher for non-handset in the back half of the year.
Arnab Chanda - Deutsche Bank
Okay, great. A follow-up question, the embedded modem market, could you talk a little about the dynamics of there?
There was a transition to soft one of those reducing ASVs, but you were also getting into new applications like fax. What do we think that growth rate, that can be sort of in the short to medium term?
Necip Sayiner - President & Chief Executive Officer
We expect that business to be slightly up in the third quarter, and I think this will also be the case on a yearly basis. 2007 is looking to be slightly up from 2006 levels, primarily driven by us gaining share, primarily in the set top box market, but also driven by the new product revenue later this year.
Arnab Chanda - Deutsche Bank
Okay. And then last question, maybe for Bill, if you look at what the Company's margin structure is, it seems like companies of this type of a growth rate of margin structure can make operating margin higher than 25%, is that something, given your R&D investment, that's unlikely or how do you feel about that potential, maybe not this year, but in the future?
Thank you.
William G. Bock - Chief Financial Officer
There certainly are companies that report higher operating income percentages than our target range at present. As I've said in past calls, we're not interested in moving our target range higher until we've demonstrated that we can consistently attain the 25% goal.
So that remains our internal objective in the first place. Secondly, I think Silicon Labs still considers itself a growth company and will continue to invest in R&D significantly, so moving to 30% operating income levels or higher may not be likely in the short term.
Arnab Chanda - Deutsche Bank
Thank you, Bill. Thanks, Necip.
Operator
The next question is from Mr. Pajjuri of Merrill Lynch.
Your line is open.
Srini Pajjuri - Merrill Lynch
Thank you. Good morning, guys.
I field just a couple of clarifications. You said R&D is going to go up in Q3 because of one-time issues.
Does it mean it's going to come back down in Q4?
William G. Bock - Chief Financial Officer
No, I think that what we guided to in the last call at the end of the first quarter was to expect R&D to be relatively flat from first quarter levels across the year. So what I would suggest to you at this juncture is that it will return to first quarter levels in Q3 and then not decline in the fourth quarter.
Srini Pajjuri - Merrill Lynch
Okay. And then looks like you also received non-operating income from NXP.
Is that going to continue going forward or was it the end of [inaudible].
William G. Bock - Chief Financial Officer
This is the so-called transition services agreement that we signed with NXP where we support them in their transition to a stand-alone basis here in Austin, Texas. We have received benefit from that agreement in Q2 and we will continue to in the third quarter.
It is NXP's expectation that they will vacate our premises by the end of September, in which case the transition services agreement will effectively be complete before we enter fourth quarter.
Srini Pajjuri - Merrill Lynch
Okay. Fair enough.
Then one question for Necip. Necip, obviously you're announcing an aggressive buyback here and looks like you still have a decent amount of cash to go after smaller companies.
Could you give us a bit more color as to where in the process you are in terms of identifying any potential targets? And also, Bill, for you, what's the minimum amount of cash would you look to have on your balance sheet?
Thank you.
Necip Sayiner - President & Chief Executive Officer
Okay. We have a number of companies that we are currently evaluating, Srini.
I will have to stay away from the specifics at this juncture, but I can tell you that these companies essentially bring something new to the existing product lines we have in the form of a new product or a new functionality or accelerating some of the internal developments that we have currently. We're also exploring ways to expand our presence in Asia, so that also is part of the criteria.
William G. Bock - Chief Financial Officer
And on the cash question, I think we believe our operating cash requirements would be comfortably met with a cash balance between $100 million and $200 million, then we would also want to retain a cash balance for strategic M&A opportunity on top of that. I think that's relatively consistent with the share repurchase size that we've announced, given today's cash balances.
Srini Pajjuri - Merrill Lynch
Thank you.
Operator
Your next question's from Mr. Chillara of Pacific Growth Equities, your line is open.
Satya Chillara - Pacific Growth Equities
Good morning, gentlemen. I wanted to ask regarding this FM channel penetration happening in the handsets next year, at least with some big Tier 1 players.
Can you comment on in terms of losing... how long is the run rate for your FM tuners with the integrated Bluetooth systems out there and basically once you get designed into these handsets, how long is the time frame and also is there any changed strategy in terms of your integrated Bluetooth solutions at this point?
Necip Sayiner - President & Chief Executive Officer
Well, we've maintained for sometime that there will be segmentation in handsets between stand-alone FM functionality and integrated with Bluetooth or other functionality. And so far, this has played out as we expected and we are really not seeing any change in the behavior of the customers at this juncture in that regard, which is to say that there continues to be ample opportunity for stand-alone FM tuners.
We've been aggressively driving down the costs. Our performance, both in a stand-alone mode or in a module mode with your Bluetooth partner is superior to other competing products.
We have been able to offer added functionality with our transmitter in the same footprint as the tuner, which allows a smooth migration for these customers. So in the near to medium term we really are seeing continued growth in units for us in handsets.
Satya Chillara - Pacific Growth Equities
What about the Bluetooth/FM combination, is that, the strategy continues to be with ST micro or will you be stepping in on your own?
Necip Sayiner - President & Chief Executive Officer
No, we are not going to develop that functionality, we made that decision a long time ago, we don't think it's a good use of our R&D dollars so we're going to continue with the existing strategy.
Satya Chillara - Pacific Growth Equities
My last question on the operating margin side, you are making nice progress, so exiting Q4 are we still looking at, on a non-GAAP basis, you think you could achieve 25% operating margins? So we are expecting to make significant progress in that direction in each of the next two quarters.
In the fourth quarter, I think we're currently comfortable guiding you to an operating income level that will be north of 20%, achieving 25% remains an internal goal, definitely a stretch goal, but we think potentially achievable if all things work out correctly. But today that would take a revenue level slightly higher than I think we would be comfortable guiding you to.
Great. Thank you.
Operator
The next question is from Mr. Craig Berger of Wedbush Morgan, your line is open.
Craig Berger - Wedbush Morgan
Good morning, thanks for taking my questions. Could you just talk about on the FM tuner side, what type of ASP premium, maybe in percentage terms, might you enjoy for the FM transmitter versus the FM tuner?
Necip Sayiner - President & Chief Executive Officer
Greg, I'm going to stay away from providing product level ASP points. I can tell you that as we introduce the transmitter and start ramping it in the back half of the year, the blended ASP between our tuner and transmitter and in the fourth quarter AM/FM receiver, the blended ASP for that product line, we expect it to stay relatively flat through the rest of the year.
Craig Berger - Wedbush Morgan
For 2007?
Necip Sayiner - President & Chief Executive Officer
Yes.
Craig Berger - Wedbush Morgan
Okay. Thank you.
Next question, why are the deferred revenues down? Is that just reflecting the lean inventory levels that you referenced earlier?
William G. Bock - Chief Financial Officer
I think that would be an accurate conclusion.
Craig Berger - Wedbush Morgan
And are you able to get all the foundry capacity that you want in the second half the year?
William G. Bock - Chief Financial Officer
The foundry capacity has been tight, but we are being well-supported by our vendor and currently we don't think that will be an issue.
Craig Berger - Wedbush Morgan
You said on the mature products kind of just over 10%ish of revenues, did the D A or other legacy products, either one, see a particularly large decline in the second quarter? Or was it evenly split?
Necip Sayiner - President & Chief Executive Officer
Our mature products consist of PC modems and some networking PHYs and there was a general decline as expected in the quarter, bringing that to about 10% of our revenues. We expect in the second half that to go down to single digits.
Craig Berger - Wedbush Morgan
Great. Last question on taxes, which will you be thinking about on a go-forward basis?
William G. Bock - Chief Financial Officer
I suggested in the formal remarks 20% rate would be appropriate for the balance of the year.
Craig Berger - Wedbush Morgan
Great. Thank you.
Operator
The next question's from Mr. Shah of Longbow Research, your line is open.
Tayyib Shah - Longbow Research
Hi guys, a question for Bill. You talked about moving above 20% operating margin by the end of the year.
It looks like it's primarily going to be driven by revenue growth. What gives you confidence that you will be able to grow revenues beyond third quarter?
What's the basis for visibility for the fourth quarter?
William G. Bock - Chief Financial Officer
So this is essentially the plan we have been talking to you about since January. We knew the first quarter would be relatively flat, we expected expansion in the business in the second half of the year, we're pleased to see that the demand portfolio for Q3 allows us to guide you to the to the $81 million to $84 million level.
We don't have perfect visibility into Q4 at this juncture, that's still a bit far out, but the dynamics of the business suggest to us that we should continue to grow from third quarter into fourth. We've intentionally done the restructuring around our operating expenses to design them for the exit rate we will have this year, because we didn't feel it was appropriate to cut deeply into our infrastructure only to have to rebuild it within six months.
So we are expecting and counting on revenue growth into fourth quarter but today it's still too early to have ideal visibility into exactly what that level will be.
Tayyib Shah - Longbow Research
And then the ProSLIC product family, which is going into traditional phone line, when do you expect to see meaningful revenues from that?
Necip Sayiner - President & Chief Executive Officer
The first half the business was weak, and the reasons were some inventory burnoff at a large European customer. We see going into the third quarter demand from that customer picking up, both on the ProSLIC side as well as the voice DAA side.
So there's certainly a rebound for that business in the third quarter. We continue to hold our share on the client side and we are making in-roads with the central office customers with our quad ProSLIC.
I expect that the new product we just announced this quarter, the dual ProSLIC is going to also better position us in gaining share in the cable modem market where we have relatively low share at the moment.
Tayyib Shah - Longbow Research
When do you think that the central office side can be a meaningful growth driver?
Necip Sayiner - President & Chief Executive Officer
Well, it is contributing to revenues this year. It is modest.
We see some growth in that business, but a very large portion of our business in voice is still driven by voiceover IP adoption, and that's where I would see growth. On the telecom side, there's not port growth.
Our growth essentially will come from taking share away from the competition.
Tayyib Shah - Longbow Research
Thank you.
Operator
And the final question for today is from Mr. Sandy Harrison of Signal Hill, your line is open.
Sandy Harrison - Signal Hill
Thanks for fitting me in there. Just a quick question on some of your newer products, you talked about some timing and so forth.
But I know you were also working on power products and with the addition of Mark from power company, maybe you can talk a little bit about what you guys are doing there?
Necip Sayiner - President & Chief Executive Officer
We have the POE products we've talked about, so we are aggressively working to get design wins with those products as we speak. We have also been making some modest investments on the component side, we've announced the isolators.
There will be another announcement coming very soon on a similar product as well as some follow-ons. Clearly Mark's power background will help us in terms of guiding the direction of the power investments in the future.
Sandy Harrison - Signal Hill
A quick follow-on on the broadcast business, it's pretty clear that obviously you guys are looking at opportunities not just in the handset market and with a sort of a 30/70 penetration rate today or breakout according to the different markets, what is it ideally you think it would look like, is it 50/50, 60/40, what would you like to see from a handset to non-handset in your broadcast business?
Necip Sayiner - President & Chief Executive Officer
I think as we exit this calendar year, that will shift more towards non-handsets. I think over the medium term we probably will have a balance between handset and non-handsets, and call it 50/50.
I think long term, our strategic focus is really to build a sustainable business in the non-handset applications.
Sandy Harrison - Signal Hill
Great. And then just a final question, on the handset ramp you talked about it being '08.
When you talk about it being '08, is that based upon what you see from your platform perspective or is that what you see from a product perspective as you introduce it?
Necip Sayiner - President & Chief Executive Officer
I'm sorry, I missed the first part of your question, are you referring to the new products in broadcast?
Sandy Harrison - Signal Hill
Or just you were talking about, as you had said sort of late '07 or '07 is you're non-handset ramp in the broadcast and '08 is now sort of your handset ramp. Is that where you say '08, is that because of your visibility or is that because of your products?
Necip Sayiner - President & Chief Executive Officer
This comment was specifically on the FM transmitter. We have won about 12 design wins the previous quarter and added a few more to it last quarter.
And those were primarily non-handset. And these are all expected to go into production in the third and fourth quarter of this year.
The handset win that we got with a large OEM, on the handset space, is going to go into production in the first half of next year.
Sandy Harrison - Signal Hill
Great. Thanks again, guys.
Operator
At this time I'd like to turn the call back over to Ms. Shannon Pleasant.
Shannon Pleasant, Silicon Laboratories Inc. - Director Corporate Communications
Thank you very much for joining us, this now concludes today's call.