Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of Steve Eliscu with UBS.
Steve Eliscu - UBS
On the gross margin, trying to understand where that’s going to go. I mean if we look at the first three quarters of the year COGs has increased pretty much in line with revenues which runs counter to the potential for some leverage in your model. Help us understand as your utilization goes up, sort of the reverse of these effects, and kind of how we should of the gross margin beyond Q4?
Stephen Cumming
For gross margin, what we saw in Q3, we would likely be impacted negatively by the high cost inventory that we built in the first half of 2009 when the overall factory utilizations were down. Also in Q3, there was additional manufacturing period expense that was incurred in the quarter as we operated our Rousset fab at lower utilization levels than we planned in our original guidance.
We burned a lot of that inventory off. As you saw, we drained inventory by $27 million, and we are starting to continue to increase our overall production levels, certainly at our Colorado fab. So, that’s going to be an improvement to our gross margins as we go into Q4, hence the guidance of up to sort of 33% to 35% gross margins.
Looking further than that, I wouldn’t want to give too much guidance, but we do expect production continuing to improve as we go out into subsequent quarters.
Steve Laub
Let me add to that a couple of things. I think first of all, one thing that was mentioned here is that we are currently experiencing a temporary reduction in output at our wafer fabrication facility in Rousset, France. We anticipate it will continue to operate at this reduced output level until there is greater clarity regarding a potential transaction there. So that did impact our gross margin last quarter and it will impact our gross margin in this quarter. That is in the guidance number.
Once that situation there is resolved which we expect it will be, get clarity on transaction there, we expect it will have a positive impact on gross margin. I think we’ve also mentioned to the Street previously that we felt we got back to a revenue level of think; it was around 340 to 350?
Stephen Cumming
It was at 350. Yes.
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