Question-and-Answer Session
Operator
Thank you ladies and gentleman. (Operator instructions). We will go first to Ross Seymore of Deutsche Bank
Ross Seymore – Deutsche Bank
Thank you, on the inventory front I was a little surprised that the channel inventory did not come down, or yours did not come down given how you said that the channel wanted to bring inventory down, first question is how much do you think the channel of inventory can come down in the first quarter, and what do you expect your own inventory to do in the first quarter?
Mark Thompson
Ross, a couple of things, if you look at the fourth quarter, it was a bit of a guessing game that we had to engage in because the forecasts were weakly reduced by our channel partners and it was trying to hit a bit of a moving target.
Clearly we would have preferred to reduce them, but we were actually aiming for a reduction in but the end re-sales came in below the original forecasts, so that was the reason for that small $2 million increase there, which was roughly offset by a $2 million decrease internally.
Our goal is to reduce channel, based on current forecasts by some multiples of $10 million, again it is a pretty broad range, it is a hard to take forecast at face value, but I will be multiples of $10 million based on the current bill plan and resale estimates. With that, we would also anticipate a small internal inventory reduction, but not of the same order of magnitude as the channel reduction.
Ross Seymore – Deutsche Bank
You have given it more in the channel on a weeks bases, I think it went from 11 weeks to 15 weeks, from the third to the fourth quarter. What does that multiples of 10 million mean on a weeks basis?
Mark Thompson
I have not done that calculation. The weeks basis is obviously a denominator effect.
Ross Seymore – Deutsche Bank
What if the absolute dollars go down by that math, because we do not know the total amount on dollars?
Mark Frey
It would still get us to around 12-ish, because you still have a denominator effect in Q1, as we think our distributors’ customers are still reducing some level of inventory.
Ross Seymore – Deutsche Bank
In the gross margin dropping by about 10 points, how do we think about what is included in that drop, under utilization charges, inventory write-offs, etcetera?
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