Question-and-Answer Session
Operator
Thank you. (Operator Instructions). And, we will take our first question from Antonio Antezano of Bear Stearns.
Antonio Antezano - Bear Stearns
Good morning.
Tim Mammen
Hi Antonio.
Antonio Antezano - Bear Stearns
Hi. A follow-up on the gross margin, I don’t know if you said this; but in your guidance, what is the assumption for gross margin?
Tim Mammen
In Q1, we have not given a specific guidance rate. I think that we could be around -- we hope to be a little bit up on Q4, but we could be flat until we resolve the key issues. We were pretty close I think to deal with some of these yield issues internally. So, we do thing that we are going to have some potential impact on gross margin in Q1 and then we would hope to see things improve through the rest of the year.
Antonio Antezano - Bear Stearns
Right, now looking at the gross margin, you mentioned four factors, but primarily you said it was expansion of capacity. Have you been able to kind of quantify each of these four factor, what has been the impact of gross margin?
Tim Mammen
To a degree, yes; I mean on the capacity expansion, the absorption of fixed cost was basically flat to down by maybe 1% on a year ago even though sales were very substantially up. I think the yield inefficiencies have impacted gross margin by between 1.5% to 2%. And then our inventory reserves -- we forecast was slightly lower when we are looking at gross margin guidance than the ones we reported at 900,000. So, they may have had another impact of about 0.5%.
Antonio Antezano - Bear Stearns
Right. Just one final question before I go back to the queue, is that when you provide a guidance for the quarter was between 45 and 49%, and what is the, let’s say, the element of surprise or what is not under your control that would impact the gross margins and because it came below your guidance, so there must be some parameter maybe is not under your control. So, what would be these surprise factors for you?
Tim Mammen
Definitely, the yield inefficiencies around chip qualification. And also one of the things on the production side on the packages was slowing down production of the lower power diodes and transferring production to high-power diodes. And we decided, I think, to accelerate that during the quarter towards the end of the quarter. So that was kind of an impact that we hadn’t really foresaw and right -- foreseen right at the beginning of the quarter.
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