End-of-period backlog is one indicator of future revenues. We include in our
backlog only open orders that we expect to ship in the next twelve months. If
demand falls below customers' forecasts, or if customers do not control their
inventory effectively, they may cancel or reschedule the shipments that are
included in our backlog, in many instances without the payment of any penalty.
Therefore, the backlog is not necessarily indicative of the results to be expected for future periods.
An important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues. We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each fiscal quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital. Pricing in our industry can be volatile. We analyze trends and changes in average selling prices to evaluate likely future pricing. The erosion of average selling prices of established products is typical for semiconductor products. We attempt to offset this deterioration with ongoing cost reduction activities and new product introductions. Our specialty passive components are more resistant to average selling price erosion. 34 -------------------------------------------------------------------------------- The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the second fiscal quarter of 2012 through the second fiscal quarter of 2013 (dollars in thousands): 2nd 3rd 4th 1st 2nd Quarter Quarter Quarter Quarter Quarter 2012 2012 2012 2013 2013 Net revenues
$ 588,199 $ 572,781 $ 530,570 $ 554,254 $ 597,665Gross profit margin 25.1 % 23.3 % 20.5 % 24.7 % 23.9 % Operating margin (1) 12.4 % 7.8 % 4.1 % 8.2 % 8.7 %
End-of-period backlog (2)
$ 578,100 $ 646,700Book-to-bill ratio 1.01 0.87 0.95 1.14 1.08 Inventory turnover 4.01 4.00 3.99 4.04 4.21