Question-and-Answer Session
Operator
Your first question comes from Paul Coster - JP Morgan.
Paul Coster - JP Morgan
Thanks and good afternoon, Peter and Shaw. Peter, good to see the gross margins recovering, but they're still way short of where they were this time last year when we were in the mid-30s. Can you give us some sense of where you think this trajectory will take you now? I think it's something to do with the FIFO recognition of inventory costs, but why the margins didn't respond a little bit faster, given the ASP numbers and the product shift mix and the volumes involved.
Peter Leigh
Let me try and answer your first question first. On the question of where do margins go, the difficulty, as you know, Paul, with that question is that it will depend crucially on where prices go, and that is something over which we have very little control. I think the important point for me is that at the low end of the guidance range we have now given, $210 million, you've got to reckon that $700,000 of pretax income now is about $0.01 a share. So 1% on that low-end guidance range is worth $0.03 a share. I think that what our task here is is to continue to increase margins steadily quarter by quarter.
The question of whether or not you could really get margins back to the mid-30s I think is much more complicated. My short answer is that you really are going to have to develop some truly innovative products that provide you with a significant advantage over the competition. We do a lot of work in R&D, but as you know, our policy is not to talk about that in advance of having products. So I think I am just going to have to leave it at that.
On the question you raised about why didn't it happen sooner, I think you've really got the answer right, and that is that we do account for inventory on a FIFO basis, and so any reduction in costs that come today do take a while to work through the inventory and into the P&L.
Paul Coster - JP Morgan
But just taking the guidance that you've issued, assuming that your operating expenses remain more or less constant as a percentage of overall revenues, then we should see a fairly significant improvement in gross margins in the next quarter, maybe 300 or 400 basis points. Is that a fair assessment?
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