Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from Horng Han Low with Citigroup.
Horng Han Low - Citigroup
Okay, hi. Good morning everyone. I would just like to understand in regards to the CUBIC manufacturing operations in Malaysia. Can you just let us know, how much that the operation account for your total production?
Craig McHugh
We haven’t broken out the specific percentages by our factories. We have two primary facilities, one in Malaysia and our facility in China. And we had the first production of our speakers and our web cameras as we shared historically. Going forward, we continue to evaluate strategic alternatives for each of our manufacturing facilities. In long-term, we would like to move to a complete outsourced model, and we believe we can gain the further benefits I already discussed today including reducing our working capital requirements, reducing our inventory, of key importance reducing our product costs, and allowing our teams to focus on the core areas of research, development, product development, sales and marketing. So, longer term you will see us move to an outsourced model.
Horng Han Low - Citigroup
Okay. So, I can probably as steady assume CUBIC would be -- then would account for majority of production in Malaysia itself. Will that be a right to think on this line?
Craig McHugh
We have -- CUBIC is our one facility that we do have in Malaysia, and they do a significant portion of our current manufacturing that we do in-house.
Horng Han Low - Citigroup
Okay. And my second question is, I would like to -- with regards your gross margin guidance of 20% in the next quarter itself; can you help us get an insight with regards to how much of the increase is due to your decision to outsource or could it be because of your shift in product mix going to the next quarter?
Craig McHugh
As I said today, we expect several months of transitioning. We won't complete the transaction for, we said, for approximately three months. So, the current quarter we won't be able to realize the reductions and product costs and inventories, that’s longer term. So, when we look at the margin, as I highlighted today, we are beginning to see improved gross margins in our Flash-based MP3 business. We expect to see that continue through the quarter, particularly in our newest product lines, in ZEN V and the ZEN V Plus, which were doing very well worldwide. We’re pleased with the margins there. So, the primary factor in increase of margins moving from 15% to a target of 20% or above is primarily result of improved margins in that Flash-based MP3 business.
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