Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from Romit Shah of Lehmon Brothers. Your question please.
Romit Shah - Lehmon Brothers
Yeah, thanks for taking my question. Just on the product mix, what surprised you last quarter and how does the mix impact gross margins in Q1?
Keith Jackson
So in Q4 we saw sequentially weaker sales in the tester market, which impacts us specifically in our high frequency business, which has the company's highest margins. So we definitely saw a bit softening in that area. But frankly from a mix perspective that was probably the most significant impact. Gross margins overall were definitely impacted significantly by currency moves, where our manufacturing base is large and our sales in the same currencies are not as large. We saw some very dramatic devaluation of the dollar in those countries and it had a bigger impact than mix.
Romit Shah - Lehmon Brothers
Okay, and then just on the manufacturing costs, they were little higher than you thought in Q4. Are they are up again in Q1 as well?
Keith Jackson
The exchange rates will continue to work against us in Q1 we do have some pretty aggressive programs for cost reductions received, we can offset that. But certainly the combination of the exchange rates and some slightly lower volumes led to our guidance on gross margin in Q1.
Operator
Our next question is from Craig Ellis of Citigroup. Your question please
Craig Ellis - Citigroup
Thanks Don, to start off with, you mentioned $40 million of annual manufacturing cost savings. When would you expect to start to get the benefit of that and when will you be at full $10 million a quarter run rate.
Donald Colvin
Yes, I think we said 12 to 18 months. So, I think we start to get a benefit at the end of this year and get a full benefit by the second half of next year. That was the best estimation.
Craig Ellis - Citigroup
Okay and then you mentioned how pricing was looking versus going into the first quarter of '07. As you look at the backlog, are you seeing that same 1% quarter-on-quarter price decline is holding up or are you starting to see greater pricing aggressiveness forming in the backlog.
Donald Colvin
As of today when we made the call we see the pricing guidance holding up. We don't see any negative trend there.
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