Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Quinn Bolton – Needham & Company.
Quinn Bolton – Needham & Company
Congratulations on the very strong October guidance. I wanted to clarify, Anson you talked about seeing a return to more seasonality in the second half of the fiscal year. Historically you've seen a better January than October. Are we to infer from your comments that you do think January will show seasonal strength relative to the October guidance that you just gave?
Anson Chan
Our historical seasonal range if you recall is a lower Q1 and Q4 and a stronger Q2 and Q3. With what just happened in Q1 and with our guidance in Q2, it's certainly looking like we're getting back to that kind of pattern. But I would say that visibility is still limited to this calendar year.
Right now we're probably looking at a reasonable Christmas season and Q2 is looking very strong and it's highly possible that Q3 may remain this way.
Quinn Bolton – Needham & Company
A second question on the gross margin, you mentioned that the gross margin would be up slightly in the October quarter. With the significant increase in revenues especially with the mix to higher resolution and fresh inventory, I would have thought that you might have seen a bigger jump in the gross margin in October. Can you talk about some of the things which may be limiting gross margin? Is there pricing pressure or are there other issues at hand that may be holding back gross margin expansion?
Anson Chan
We need to put everything back into perspective. When we have a strong guidance, it's not just a particular resolution that's growing. The rest of the market is also recovering.
Another thing to think about also is we're just coming out of a very slow period and this is a transitional period for us in terms of customers moving into our new generation products. So there will be a period of time where we have to ramp up the yield as we produce more and more of the new generation products. These are the limiting factors to a sudden recovery in gross margin I would say.
Quinn Bolton – Needham & Company
Can you talk about the anticipated mix of products in the third quarter? Is VGA expected to stay at roughly 65% of units in the quarter?
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