Oct 27, 2010
Executives
Shannon Pleasant - Director, Corporate Communications Bill Bock - SVP of Finance and Administration and CFO Necip Sayiner - President & CEO
Analysts
Anil Doradla - William Blair Craig Ellis - Caris & Company Adam Benjamin - Jefferies Craig Berger - FBR Capital Terence Whalen - Citi Arnab Chanda - Roth Sandy Harrison - Signal Hill Sanjay Devgan - Morgan Stanley Srini Pajjuri - CLSA Brendan Furlong - Miller Tabak Ian Ing - Gleacher & Company
Operator
Good morning. My name is Valerie and I will be your conference operator today.
At this time I would like to welcome everyone to the Silicon Labs third quarter earnings conference call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.
Miss Shannon Pleasant, ma'am you may begin your conference.
Shannon Pleasant
Thank you and good morning. This is Shannon Pleasant, Director of Corporate Communications for Silicon Laboratories.
Thank you for joining us today to discuss the company's financial results. The financial press release, reconciliation of GAAP to non-GAAP financial measures, 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 our website. There will also be a telephone replay available approximately one hour after the completion of the call at 800-642-1687.
I'm joined today by Necip Sayiner, President and Chief Executive Officer; Bill Bock, Chief Financial Officer; and Paul Walsh, Chief Accounting Officer. We will discuss our financial results and 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 overtime. By discussing our current perception of our market and the future performance of Silicon Laboratories and our product with your today, we're 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 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 this week 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 at 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.
Bill Bock
Good morning everyone. Revenue of $120.2 million was within our revised guidance range.
Operating results continue to be strong and share repurchase activity remained high. Earnings came in at the high end of our revised expectations.
While revenue performance in the second half of this year is below our previous estimates, we are positioning the company for the recovery and demand and new product ramps we are anticipating in 2011. Necip will discuss the business environments in detail during his comments.
Let me start with the current quarter GAAP results which include approximately $10.3 million in non-cash stock compensation charges. Third quarter GAAP gross margin was 65.5%.
R&D investment for the third quarter was about flat at $30.8 million. SG&A decreased to $28.6 million.
GAAP operating income was 16.1% in the quarter. Other income was negligible, the tax rate was 6%, fully diluted GAAP earnings per share therefore was $0.40.
Turning to our non-GAAP results, revenue of $120.2 million represented an 11% sequential decline driven primarily by weakness in consumer Audio and Access products, as well as softening in our broad base business due to general economic headwinds. We expect these conditions will continue into the fourth quarter.
Despite the revenue decline, gross margin remained robust at 65.8% in the period. We expect gross margin to be at the high end of our target range in the fourth quarter.
Operating expenses represented 41.1% of revenue declining to $49.4 million. Specifically, R&D was about flat at 26.4 million and SG&A decreased to 23 million.
The reason for the decrease versus our July expectations was largely related to lower variable compensation expense and also fewer then anticipated hires. We expect operating expenses to increase in the fourth quarter particularly in R&D.
We have a large number of tape-out schedule as well as the addition of the Chipsensors team we acquired this month. In aggregate, this will add about 1.5 million in the quarter.
Operating income for the third quarter remained strong at 25%. Other income was immaterial.
The tax rate was 18%. Net income declined to $24.5 million for the quarter or 20.4% of revenue.
Resulting Q3 diluted earnings per share was at the high end of our revised guidance at $0.53, a very solid operational result given the unanticipated decline on the top line. Turing to the balance sheet, accounts receivables declined to 63.8 million or 48 days sales outstanding.
We have no known collection or bad debt problems. Inventory increased to 38.1 million, we had intended to build inventory as we were anticipating a seasonally strong second half to the year, but with the shortfall in revenues versus our plans inventory is now above our desired level and turns are just 4.3.
We will endeavor to reduce inventories to some degree before year end and return to our target of 5.5 turns in the first half of next year. Channel inventory ended at 50 days, up slightly from the second quarter.
We ended the quarter with $365 million in cash, a decrease of 15 million. Cash flow from operations continue to be strong.
Share repurchase activity remained high, totaling 40 million in Q3. Year-to-date we have invested 140 million in repurchasing shares and we have 110 million remaining in our current authorization.
Our program has now cumulatively reduced our share count by over 30% to a level below that at which we went public over 10 years ago. I'll now turn the call over to Necip.
Necip Sayiner
Good morning. Let me start with a brief review of the quarterly results for our three businesses and then I'll talk about the current environment and the company's longer term prospect.
First, the broad based business was up to 34% year-over-year, but uncharacteristically down sequentially about 9%. Timing products had a record quarter benefiting from continuous strength in networking infrastructure while, embedded mixed-signal products were down sequentially.
About half of the embedded mixed-signal decline came from two large wireless and medical imaging customers that decided to adjust their inventories during the quarter. The other half came from consumer-oriented MCUs particularly in USB products after a very strong quarter.
The Access business was down about 16% sequentially, as anticipated the business slowed down in response to inventory builds and weaker economic conditions primarily in Europe. Modems declined at a faster rate as ASP declines compounded slowing consumer demand.
The broadcast business was down about 7% sequentially, the near-term weakness in consumer audio, prevented us from offsetting handset declines as it did in the first half of the year. We ended the quarter with handsets at about 35% of audio revenue and at about 10% of company revenue.
I would like to stop here and talk through the factors impacting the business overall. At a high level, we can break the weakness we were seeing in the second half about equally into two categories, the broader macro and inventory misalignment issues and a couple of known adverse dynamics specific to our business.
From a macro perspective, there is an undeniable readjustment of inventories going on at OEMs and their contract manufacturers in reaction to softer than expected end user demand particularly in consumer applications. We see this most notably in our consumer audio product line, customer premises equipment business and microcontrollers.
For example our consumer audio revenue stayed flat sequentially in what we would generally expect to be a strong seasonal growth quarter. And this is not an issue of market share loss, to the contrary the slowdown in Q3, comes on the heels of two consecutive record quarters of design win.
So, we know the customer demand will be back as soon as the inventory adjustment stage is complete. We will not see the revenue come back however in the case of handsets and modems.
To quantify the handset impact, I can tell you that throughout the second half of this year we are down about $7 million in quarter revenue compared to our first half runrate. We anticipated this decline, however we did not forecast that consumer audio will fail to compensate for that decline in the second half.
With modems, we have done a similar amount in the second half compared to the first half runrate. The secular decline in revenue is due to some de-bundling and a transition to lower speed, lower ASP modems in applications like set top boxes.
But the inventory replenishment that drove shipments to well above the trendline in the first half of the year has made the impact of end user demand weakness even more pronounced. The new term headwind created by these adverse dynamics in FM Tuners for handsets and modems for customer premise equipment is a frustrating, but essential part of the ongoing improvement in the complexion of our own business.
So the bad news is that our results will not fully reflect the recovery of our industry this year. The good news is that these areas combined now represent only 20% of our overall revenue.
And we've gone through the transition while maintaining our profitability putting us in an excellent position operationally for the next phase of our growth story. Macro conditions notwithstanding, we are looking at a better year in 2011.
This year most of our revenue growth is coming from the broad based business and we project that business will continue its solid growth next year as well. Of the two vertical businesses, while Access will remain challenged, broadcast is poised to return to strong growth next year with the imminent brand of our Silicon TV tuner product.
For video, Q3 was a critical quarter in terms of securing design winds for 2011 models. As you know we have been working closely with five of the top six TV brands for sometime.
I am happy to report that our Silicon tuner won designs at all five OEMs for next year. We expect this ramp to begin in the first quarter and we will provide you with our projected share and revenue expectations in January.
We continued to dedicate considerable R&D to broadcast and believe there are a number of opportunities to apply our mixing of capabilities for both audio and video. We announced in Q3 a Class D amplifier that is very complementary to our AM/FM radio product.
There is typically an amplifier in applications like docking stations and portable radios, both key markets for AM/FM products. In spite of the atypical second half we are experiencing, our AM/FM business is expected to more then double in 2010 over 2009 and we fully expect growth to continue in 2011 as our strong backlog of design wins translating to the market share gains we are forecasting.
Design win activity for our emerging product lines remained strong, including our wireless receivers and transmitters and isolation products. Our growing portfolio and growing sales channel are resulting in record design wins and increased customer engagements particularly in markets like remote keyless entry, industrial control and green energy applications.
A lot of this MCU has been an instant hit with customers and the 5 kilowatt isolators are generating a record level of activity in the channels. We have been in the market about a year now with our Human Interface products and recently introduced our latest device, a USB touchscreen bridge.
While many of our early design wins are beginning to ramp, it will be our next generation products that will have the differentiation required to win at the margins (inaudible) in high volume consumer applications. We are sampling these products to offer customers today and believe they will be catalysts for meaningful revenue late in 2011 and into 2012.
The strategic acquisition we announced this month of Chipsensors add another leg to our growing sensor technology portfolio. This temperature and humidity sense to knowhow we have acquired, we will contribute our ability to build a long-term growth story in the sensor market.
And last, but not least we continue to feel very confident about the prospects for our timing products which represented a third of the broad based business in Q3 and had another record quarter. The assignments year-to-date of nearly 1000 give us visibility into continues growth.
We are working on a number of key developments in this category that will further expand our footprint in high volume application while maintaining the attractive gross margin profile that characterizes this business. Despite the good long-term indicators, near term we are anticipating that the Access and Broadcast businesses will be down in Q4 and we expect broad based to be flat to down.
We therefore expect revenue to be 105 million to $111 million. Based on the anticipated ramp in TV tuners and the recent positive trends in bookings, we predict Q4 will represent a drop in revenue.
We expect gross margin to be at the high end of our target range at above 65%. We anticipate R&D investment will be up by $1.5 million sequentially and SG&A will flat to down slightly.
On a GAAP basis, we're projecting $0.15 to $0.21 and on a non-GAAP basis, excluding stock compensation expense, we expect earnings of $0.33 to $0.39. We'd now like to take your questions.
Shannon?
Shannon Pleasant
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.
Operator
(Operator Instructions). The first question will come from Anil Doradla of William Blair.
Anil Doradla - William Blair
I think, Necip when I sit back and look at the big picture you talked about the fourth quarter being the trough, what gives you confidence? Why doesn't this extent into the first or second quarter?
Can you share with us as to why you believe the business will bottom in the fourth quarter?
Necip Sayiner
There are basic three items we are basing this projection on. The first is the fact that we've been having conversations with our customers as well as our channel partners who are most effected by the downturn we see in the Access and Consumer Audio business.
And they relates to us that at the moment, they are buying product from us at a lower rate and end user demand and we expect and they expect the inventory for these two product areas that to clear by the end of the year. The second reason for our confidence is the reversal in bookings that we have seen so far in the month of October.
When we revised our guidance back in the September I reported that our bookings has declined in the month of August and September was worse in that regard. Our book-to-bill ratio dipped below one by the end of August and that was throughout the month of September and we have also started seeing some softness in areas like industrial toward the end of the quarter.
That trend has revered substantially in the month of October, the three weeks to the month to date. Our bookings rate now is back to levels that we have seen back in June, July timeframe and the third item that gives us confidence is that the ramp of the TV Tuner.
As I mentioned we have won designs with all five top customers we have been targeting and we know the programs that we run and we started receiving orders for shipments in the first quarter. So all those three items combined, it gives us the confidence that Q4 will indeed be a trough.
Anil Doradla - William Blair
On the Access side of the business, do you think 2011 will be a single digit growth year-over-year or do you think that would be a down year for the Access business?
Necip Sayiner
I think given, what we have seen over the last 12 months, we are going to need to revaluate the growth prospects for the Access business going forward. I think conservatively looking at the Access business for the next year.
If you were to assume that the business will maintain the exit rate of 4Q, that will be a measurable decline year-on-year. And I think that would really represent based on the trends that we see in the business and the fact that we are undershipping to demand right now, would be a conservative bet.
Operator
The next question comes from the line of Craig Ellis of Caris & Company
Craig Ellis - Caris & Company
Necip can you just talk about some of the puts and takes in the broadcast business as you look at the fourth quarter trends?
Necip Sayiner
Sure, going into fourth quarter, we see consumer audio down seasonally. This is primarily driven by lower shipments to our PND customer.
We had seen similar trends in prior years. I have to note however the sequential decline to 4Q speaking to a little bit more pronounced this year than we seen prior years and the handsets are down a little bit further than 3Q level.
So AM/FM I think will remain steady, the customers are telling us that the current level of demand for our products will remain relatively constant this quarter until they start building for Chinese new year in the first quarter of next year.
Craig Ellis - Caris & Company
And then when you referred to the fourth quarter being the trough, do you mean that the fourth quarter will be the last quarter for which revenue trends would be below seasonal or do you mean the absolute troughs, so that I should look out to the first quarter, you think first quarter revenues would actually be up Q-on-Q?
Necip Sayiner
The latter, I mean for the 4Q revenues to be an absolute trough, I think the growth in the business in video and broad-based will more then make up for the usual seasonal declines in the 1Q. So I am basically suggesting 1Q revenues to be up.
Craig Ellis - Caris & Company
And then lastly, on the TV tuner adoption, what rate of that adoption or rate of penetration are you seeing? Is it in the 30 to 40% range or do you think your TV customers were actually moving to a higher rate of adoption than that next year?
Necip Sayiner
I can remain that with those customers we mentioned which are leaders in their industry, the adoption of our solution ranges anywhere from 10% at the lower end to 20, 30 and sometimes even higher percentage of their volume, and based on that trend the projection I had shared with you in prior calls, Silicon tuners representing 50% of tuners worldwide for 2012, I think has moved from being possible to likely based on the adoption rate that we are seeing with our customers.
Operator
The next question will come from the line of Adam Benjamin of Jefferies.
Adam Benjamin - Jefferies
Just a follow-up, Necip, on the Access commentary you gave. You seem to indicate you think there's some structural changes there although you think that you can also continue to stay at the level you are talking about for Q4 on an annualized basis I am just curious if why that's the case, and then as you factor that business in, which has been sort of a nice profitable business for you on a gross margin basis, how should we be thinking about that coming down and affecting your longer term gross margin guidance, given the fact that some of the newer products would carry lower gross margins in Access.
Necip Sayiner
Let me take the first part of the question first regarding the secular dynamics. I am not suggesting a change in those dynamics overtime.
We have been managing the Access business with these dynamics for some time, particularly the modems for the customer premise equipment has been on a secular decline inside the Access business, while to date we have been able to almost make up for that by the growth in core slicks, in POE and other industrial modems so to speak. I think what makes this drop in Access in the second half more pronounced also relates to us having shift above that trend line if you will in the first half, and some image we build up possibly due to broadcasting inside, but nonetheless we are seeing a larger sequential decline into the 3Q and 4Q as a result of that.
That doesn't change the overall dynamics. I think that business will continue to decline.
What I am suggesting is that, with many portions of the Access business, slicks included, right now we are shifting below end user demand and therefore taking the very low exit rate from 4Q. For Access business it is probably a reasonable way to think about it for 2011.
With respect to the gross margin impact, you are right. Access has been running about corporate average gross margin.
We have new products coming in next year like video that will carry a gross margin that is below corporate. What will compensate for some of this is the growth in our broad-based business that carries at our higher corporate average.
So, we'll give you a better sense of that mix dynamics when we talk about 2010 in detail in January. But we have essentially captured the footprint takes in margin here.
Adam Benjamin - Jefferies
And then just as a follow-up, I know it's still a little early for the Silicon tuner part as it relates to the wins you have there, but based on what you see right now for next year on those wins, do you expect that business to be bigger than the timing business or timing is still to be bigger next year?
Necip Sayiner
I think that's a bet that you and I will have to keep on the rep for a little while longer, but both businesses I think have very strong growth dynamics into 2011. Obviously, we feel very good about what we've done for video, but also there is a very strong backlog of design wins in our timing business that gives us confidence.
So, it will as I mentioned before, it will be a very close rate.
Operator
The next question will come from the line of Craig Berger of FBR Capital.
Craig Berger - FBR Capital
Can you help us understand what the design win pipeline is looking like for some of your growing businesses, for example capacitive touch, I mean how much can that contribute next year? And I just asked because you guys are at [growthy] firm, but you are shrinking faster than anyone right now.
So, help us understand why we still consider you to be [growthy].
Necip Sayiner
I think if you look at next year at the high level, as I mentioned, Access on a year-on-year basis will remain challenged, will show a decline. I expect the broad-based business to continue its growth pattern, but it's been able to grow that business close to 50% this year and we see a very significant growth in that business also next year, and what gives us confidence in making that statement is also the ongoing strength in the design wins we see.
We've seen over 500 design wins in market controllers in 3Q which is a record number. We have seen roughly 400 design wins in timing, which is a record quarter and brings the number of designs wins to nearly 1,000 for the year, which already is a higher number than what we have done all the year, last year.
We are seeing a record number of design wins in short range wireless and isolations, and this fact I think is a combination of both having introduced new products in those areas over the last nine months, but also very focused marketing campaigns and launch activities that we have undertaken as well as the expansion in the sales channel that we've enabled earlier this year. So I think all of these factors combined give us a lot of momentum on the design win front.
So, we feel good about the broad-based business growing. Similarly, we have high confidence that broadcasts will return to strong growth next year.
I alluded to the design wins that we have yet given an estimate on the magnitude of that revenue but I can tell you that broadcast over all will show significant growth.
Craig Berger - FBR Capital
So on FM tuners going into handsets, you said it's down to 10% of company revenues which by my estimate is down by more than half year-over-year. What does that business look like a year from now?
Necip Sayiner
So, handsets I think when all said and done, we will have gone down by about 30% year-on-year. Now as you measured, from the peak quarter that we had your estimate is right, but on an annual basis it is not about 30%.
I think what I see in that revenue base is for with the continued decline possibly at the rate that we've endued this year. We feel good about our interaction with Samsung who continuous to grant us designs so that our market share with them is still north of 50%.
And to the extent the design wins are decided for 2011 first half, that trend continued. But we are not arguing that both the handset business which is at 10% now and the modems for (inaudible) which is just under 10% will continue to decline.
The other 80% I think that we expect to grow at 25% or higher that will keep up growth in [that].
Craig Berger - FBR Capital
Last question on consumer, FM Tuner, is that the same dynamics that's hit handset, hit consumer and when does that decline began to set in?
Necip Sayiner
I think with the consumer audio, we don't see any dynamics similar to the handset. You do not have in your portable radios or docking stations or PNDs the same dynamics that you see in the handsets.
And we're still continuing to grab more market share there. The current policy in the revenue growth there is not related to any market dynamics, but really an inventory demand imbalance that ought to work itself out in the next quarter or so.
Operator
The next question will come from the line of Terence Whalen from Citi.
Terence Whalen - Citi
Hi, thanks for taking my question. This one relates to an earlier comment Necip that you had made about, in general the industrial markets and the industrial activity that you have seen through the quarter, I think you had said that it decelerated late in the quarter.
Why don't you just get an update on where order rates for industrial markets are now into the third or fourth week of October?
Necip Sayiner
Well I am not able to give you a quantitative response in terms of bookings in the industrial segment, but we did note that in our embedded mixed signal business which is the lot of products going into industrial applications, the level of bookings has slowed down in the second half of the quarter as supposed to first and that has continued into the fourth quarter or the fourth quarter. So overall net bookings have shown a reversal, but on the industrial -- from the industrial segment what I see is a slowing of demand for our products and I should also note that when we make a projection in terms of 4Q being a trough in revenues and 1Q revenues being up, we are making some allowance for this industrywide slowing to spread into industry as well.
Terence Whalen - Citi
The follow up question would be something that's more of a broad based question; obviously the constitution of the business is changing fairly significantly heading into 201. For example in broadcast, for line one consumer audio versus handset, that also having the ramps in video tuner and timing and micro controllers.
Overall as you look at the business, is Silicon going forward going to be a little bit more susceptible to quarter-over-quarter inventory corrections. Is the revenue inherently going to be a little bit more volatile because of the similar markets that they you are playing in and as a manager how do you deal with that as you manage the business?
Necip Sayiner
I think the way we are spreading our investments across the portfolio is consistent with the mix that we want to achieve in the business between verticals and horizontals. I think it is safe to assume that the broad based business will continue to represent a growing portion of our revenues.
We are going to benefit from a strong ramp in video in 2011, but that does not really alter the trajectory we are on in terms of building the broad-based business. So we might see some seasonal patterns more pronounced over the next 12 to 24 months as we ran some of these new vertical products, but in general I don't see the business being more susceptible to quarterly changes as we move forward.
I should probably also make a quick statement here in terms of the seasonality that we will likely impose on the business as part of the video ramp in 2011. That incremental revenue will come with the profile of a ramp in the first quarter.
Second quarter, it would have been fully ramped to the peak levels if you will for those model and then third quarter moderates from this and the fourth quarter would be down. That's the profile of the video revenue that we are going to be overlaying on the business in 2011.
Operator
The next question will come from the line of Arnab Chanda from Roth.
Arnab Chanda - Roth
A couple of questions, first of all Necip if you can talk a little bit about the FM in the handset business, is that something that we will now expect to basically disappear overtime? And then another question on broadcast, is the qualitative trajectory of this business, the video business can be similar to when you actually start to see the audio ramp in the handset or is it going to be a little more moderated?
Thank you.
Necip Sayiner
The handset revenues will certainly decline overtime. So there is no change in that outlook.
We are at now 10% of our revenues and every year you can expect this to be at the lower percentage. How long that will take to get down to zero is anyone's guess, but assuming at the moment that there will be the minimum of six to eight quarters for us to get from where we are to a minimum level.
In terms of the ramp in video compared to handsets, they do have similar product cycles, although they do work on annual model cycles. So, unlike the handsets you don't see new models coming online every month.
So we will pretty much follow a calendar year model profile as I alluded to. Every now and then there is a refresh in the fall that some OEMs bring on, but that's a smaller volume and less of an impact to the profile I mentioned earlier.
Operator
The next question will come from the line of Tore Svanberg of Stifel Nicolaus.
Unidentified Analyst
Just want to follow up, you talked about Q1 being possibly an up quarter. Can you just remind us what seasonality or what the seasonality is overall for your business for Q1 and through the year?
Bill Bock
So, Eric, typically we would guide a first quarter to a seasonal decline and over the past several years we have suggested on the order of 7%. It is a little unusual for us to provide insight a quarter out, but we felt to help you with modeling.
It was important for us to suggest that Q1 would not exhibit that pattern in the current year. And in fact we felt comfortable to Q1 which show growth, though it is to help everyone get a decent starting point on 2011 and begin next year with an up quarter.
I think generally speaking, the seasonality pattern for the business is going to continue to show consumer seasonality in Q1, growth in Q2 and Q3 and then a slowdown in Q4. But this really relates to what we would expect normality will be once we get out into 2012 and 2013, not exactly the pattern that you will see next year coming of this second half slowdown that we are currently experiencing.
Unidentified Analyst
That's helpful, so I guess assuming that video really starts to accelerate, that could change some of the dynamics in your business once you talk about seasonality.
Bill Bock
It certainly can and will be more pronounced in 2011 as that is really the first year of substantive volume from that product line.
Unidentified Analyst
And in terms of gross margin, you are still operating towards the high end of your target. When do you expect that to kind of normalize back to will say the lower end of that, or when the gross margins you believe start to settle into as some of these other businesses particularly video and consumer starts to ramp.
Bill Bock
So as Necip commented earlier, we have some interesting dynamics going on in product mix. Video which will show a strong ramp next year will have a below corporate average gross margin, but I want to point out that we expect to have very strong growth again in 2011 from the broad-based businesses that include MCU and timing of both that have above corporate gross margin averages.
So, we are going to experience a product mix affecting our margins as we go through next year. I am pleased to suggest that for fourth quarter we still see margins in the 65% range.
We will give you some more insides into gross margin dynamics in January for the full year, but I think at this junction the fact that we have been relying on our target margin range and continuing to suggest that we can perform in that range is appropriate.
Necip Sayiner
I want to also add to that, we have been managing the business at the strategic level for investments and at a tactical level for pricing policy such that we maintain a healthy gross margin profile without impeding the growth in the business, and we being that healthy gross margin range to be 62 to 65 while growing the businesses at say 15% or higher. So, admittedly we've involved that target range this year with the combination of multiple factors that is not likely to repeat in future periods.
So, for all practical purposes I would suggest that you look at us as a company that will maintain their target margin range overtime without artificially impeding our growth rate
Operator
And our next question will come from the line of Sandy Harrison of Signal Hill
Sandy Harrison - Signal Hill
As you guys look at some of the businesses that maybe facing a little bit of a secular headwind and that you have looked at investing and sort of it's a cash [cows], I thought internally of maybe carving some of these out in favor of maybe flopping that out for some talking on your strategic plan?
Necip Sayiner
No, there isn't. I mean the Access business or the modems in particular that we are talking about here has been generating profits for us for the last 5-10 years that really funded our investments that grew to broad based business to where it is today.
Similarly, the success that we have had in the handset business helped generate a profit that funded investments in consumer audio and really video that will try paying dividends next year. So I think those businesses play an integral roll inside the portfolio, we are looking at on an ongoing basis at small tuck-in acquisitions to augment organic growth in future years.
We have done a couple of small deals as you know, this is more of a technology acquisition, but we are continuing to look for businesses that might fit with our portfolio and margin profile to augment the growth. But there is nothing I mean that we can comment on right now.
Sandy Harrison - Signal Hill
And while nothing in it, anything that's eminent, what are your thoughts or what areas sort of interest you as you've entered some of these new markets both looking at video that's going to ramp and then the TV market. From a tuner perspective next year, have you guys unearthed any areas that you think you are interesting or that are sort of emerged in your work here that seem interesting or attractive to you?
Necip Sayiner
The cycle businesses that are attractive to us from an acquisition point of view largely falls in the category of what we report today as broad-based business. We do find businesses that can help us to complement our portfolio in any of those businesses we'd be interested in pursuing.
Operator
And the next question will come from the line of Sanjay Devgan of Morgan Stanley.
Sanjay Devgan - Morgan Stanley
Necip, I just had a quick question regarding your broadcast video business. You've done a great job winning winds with the numerous tier 1 TV OEMs that you have.
My question kind of concerns how quickly can we see, what are your thoughts in terms of leveraging your tuner expertise beyond TVs into other applicable markets, say set-top boxes or any other type consumer devices that can leverage your tuner expertise?
Necip Sayiner
That's a good question and that's certain within our sight. I think in the near term as I answered the similar questions in the past, I suggested that our focus in the near term remains very much on digital TVs, hybrid TVs because we want to make us the default name for Silicon Tuners for that particular application and that's where we had the most significant differentiation in terms of price performance.
But we do want to take that technology into the adjacent markets that you mentioned. We will require developing or modifying the product that we have to go after those segments more meaningfully and in a more competitive manner but that additional market opportunity is certainly within our sight.
Sanjay Devgan - Morgan Stanley
And then just one follow-up. You know that the timing products enjoyed another record quarter this quarter.
I was wondering if you could just give us some qualitative input into some of the drivers end markets or any kind of qualitative color on that as to what kind of drove that upsight?
Necip Sayiner
We are continuing to see strengths in overall demand from our networking customer. We have seen this in the quarter both from our North American customers as well as large customers in China.
I think we are benefiting from the continued growth in infrastructure, particularly wireless structure to which we participate in that all networks throughout the timing devices. We also continue to turn the design wins that we have had long time ago into revenue.
As you may know this has a decision period of 12 to 18 months from design wins to revenue. So, similarly design wins that we have had back in early 2009 are only now turning into revenue.
So with all of that, with those share gains and continue to strength in networking we continue to enjoy a strong business in timing.
Operator
And the next question comes from the line of Srini Pajjuri of CLSA.
Srini Pajjuri - CLSA
Apologies, I missed most of the call due to a technical difficulty. So if these questions have been asked, I apologize in advance, but Necip, given your comments about Q4 being tough.
As you look out to Q1, do you anticipate growth across the board or do you see some markets kind of outgoing others in Q1?
Necip Sayiner
When I look at Q1 we do see growth in our broad based business. I have alluded to some inventory adjustments in the second half by some large customers that effect will be removed from the first half of next year.
We continue to see this steady improvement in revenues in our wireless business, in our timing business, and I think most importantly in 1Q searching in strong ramp with our video product. So I think at a high level, these are what will drive the business forward in the first half of next year.
Srini Pajjuri - CLSA
And on the TV tuner business, you said Q2 might be the peak quarter for ramp. Given that you have design wins pretty much at all the top tier vendors.
I would have expected the ramp to last a little longer than one quarter. Just curious as to why is it only ramping for one quarter and then flattening up.
Necip Sayiner
I mean this a profile of their business. They ramp their models into first quarter, they get to peak levels in the second quarter and then the third quarter moderates.
It just follows their demand pattern exactly, there are no design win to add in the middle of the year that we can report today. So, we are talking about all these programs that I mentioned as design wins starting to ramp simultaneously in the first half of the year.
Srini Pajjuri - CLSA
Okay, got it. And then Bill maybe one for you, on the inventory on the balance sheet you said it will take a couple of quarters for you to work it down.
Just curious what's the target range for you in terms of turns and also why would it take longer then one quarter to work it down.
Bill Bock
The target for us is a turns ration on the order of 5.5, we have enjoyed that inventory turns performance during the first half of the year. We built more inventories and we intended given the revenue shortfall and we will make progress in reducing inventories during the fourth quarter.
But as we have alluded to we have also got a product ramp in video coming in the first half of the year which we have to obtain inventory to support. So it will take us into 2011 to get back to our model turn statistic.
Operator
And the next question will come from the line of Brendan Furlong of Miller Tabak.
Brendan Furlong - Miller Tabak
Good morning, thank you very much guys. You alluded to earlier on, on the timing business that you would penetrate some more higher volume, markets rather than the high end cum equipment stuff.
If you could just flush that out and what would be impact on that maybe in later 2011.
Necip Sayiner
We have a number of products that are targeting this in midrange of markets if you will with respect to level of performance required. We will be introducing these products to our customers in the coming months and I think 2011 will basically be a year where we accumulate design wins in the channels with those products.
So in terms what will drive the timing revenue in 2011, we are not really looking to those new products as the driver, but more of the backlog of design wins that had for the last 12-18 months with existing products that will turn into revenue.
Brendan Furlong - Miller Tabak
Understood and then on the industrial side which you are saying is starting to rollover a touch here into the end of the year, normal seasonality in Q1 and industrial is up, do you expect that to not be the case given that's it's lagging the rollover of the consumer in PC space.
Bill Bock
Well, I agree this is the typical seasonality you see, but in the last 12-18 months we haven't seen anything that has typical seasonal, so remains to be seen what the inventory situation is and what the overall demand picture looks like to be able to answer that question more precisely, but as I alluded to earlier, we have made some allowance for that weakness to continue into 1Q and giving directional guidance into 1Q for us.
Brendan Furlong - Miller Tabak
Last question, you said the bookings rebounded to roughly back to the June, July levels can you remind us of what that was approximately?
Necip Sayiner
No, we don't generally talk about our booking levels, I just felt compelled to give you that data points to tell you that it feels from a demand point of view that we have gone through the worse of it.
Operator
And our last question will come from the line of Ian Ing of Gleacher & Company
Ian Ing - Gleacher & Company
Could you talk a little bit about your de-bundling of the modems, could you remind us what you're bundling with the modems in the settop box, are you confident that other contract is intact? And do you expect some de-bundling trends in the other applications like printers and Point-of-Sale Terminals?
Thanks.
Necip Sayiner
Okay. So when we look at the Access business, which is just over 25% of our revenues today, if I were to split them into two pieces, one is modems for customer premise equipments like settop box, PVR, voice [DAs] or gateways and so on.
And the other consisting of slicks for Voice-over-IP application, PoE modems for point-of-sale and so on. That split of that 25% slice of the pie is about 10 and 15, 10% is in the CPE and 15% elsewhere.
So that 10% is really what we have always considered most vulnerable and the piece of the modem pie that has been securely declining and I don't see really any change in that dynamic. Maybe we have seen a near-term acceleration and some of that on bundling or move to lower speed modems.
But in terms of the dynamics, I'm not yet seeing any major change, I think we're continuing to grow the business in that 15% to try to make up for the adverse dynamics in the CPE line.
Ian Ing - Gleacher & Company
Great. And could you size the human interface opportunities you are going after, I mean some competitors are going after handsets exclusively, but maybe you could talk about the biggest opportunities you are serving and whether you are doing it with direct sales or at their distribution?
Thanks.
Necip Sayiner
So, we are competing in that area with both touch controllers, as well as proximity sensing products. Particularly, the proximity sensing products have a broader set of applications that we are targeting and that is coming primarily through the channel.
So some of the winds that we have that are starting to generate revenue and are in the current period have all come from, primarily come from the channel. There have also been some applications in consumer audio where those proximity sensing devices have found use.
And finally we had some tight sensing winds in some consumer applications, but we don't have today a large design win if you will in the sense of tens of millions of units that would come from handsets. And as I alluded to in my prepared remarks, we had intended to come out with a next generation product to really draw out in a differentiated manner and now we have this product out sampling to customers.
I'll continue to report on the feedback that we get from our customers, but collectively to answer your primary question we will be going out to both handheld opportunities across the board as well as the industrial applications.
Operator
At this time there are no further questions. Miss Pleasant, at this time do you have any closing remarks?
Shannon Pleasant
Thank you. I appreciate you joining us.
This now concludes today's call.
Operator
This concludes today's conference call. You may now disconnect.