Question-and-Answer Session
Operator
We will now begin our question and answer session. (Operator Instructions) One moment please for our first question. Our first question comes from [Sanjay Debcon] from Morgan Stanley. Please go ahead.
[Sanjay Debcon] – Morgan Stanley
Just a couple of quick questions; if I remember correct during this summer a couple of quarters ago you guys signed a distribution deal with Avent. They were your new distributors and I was just wondering if you could kind of comment on the inventories in the channel? And, as a percentage of revenue if you could just remind us what the [dist] makes up?
Arthur D. Chadwick
As you mentioned Sanjay we signed that deal and had our first revenue in the third quarter. It was about 1% of our revenue in the third quarter. It increased in Q2 as about 2% of our revenue give or take in Q2. If you look at our deferred revenue line there’s actually two components in it: one is software and services where generally our customer book their software and services for the year and as we earn it we recognize that through the year but, the second component is sales to distributors on which we recognize revenue on sell out where it has not yet sold out. On this case, if our deferred revenue for that component goes down it means they have less inventory at the distributor. If that goes up, then they have more inventory at the distributor. Our inventory has been very lean at Avnet.
[Sanjay Debcon] – Morgan Stanley
Just a quick follow up if I may. You guys have had tremendous growth and like you pointed out your revenues last year grew in the 50% range or almost 60% range where your non-GAAP op ex grew modestly in the 15% range. I was just kind of wondering how should we think about – or how comfortable are you with your investment levels in the business now? Or, do you think given the increased design win transaction that might have to change kind of going forward, your level of investment in the business?
Arthur D. Chadwick
That’s an excellent question. Obviously, we have a leverage business model and going forward we plan to manage our increase in operating expenses to increase at approximately give or take half the rate that we expect our sales to increase and that should allow us to expand our operating margins throughout 2008 as we get closer to our longer term model. That’s the plan.
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