Doug Freedman (American Technology Research): Where do you stand and how do you feel about your internal controller efforts and are your SSDs going to be built with an internal technology or a technology that you are going to incorporate from external sources?

Eli Harari: We have good internal controller technology. We are at this stage 100% internal controller for just about everything we make, and that has been a 20-year tradition in here and we have a huge number of engineers that understand the Flash issues. That said, we are now behind because we did not fully understand the limitations in the Vista environment. When we acquired M-System, M-System had good industrial grade solid state disk and this is our first generation products. Unfortunately, their performance in the Vista environment falls short of what the market needs and that is why we need to develop the next generation, which we will start sampling end of this year, early next year.

Doug Freedman (American Technology Research): Do you believe the products that will be sampling, those will be the ones that will drive adoption?

Eli Harari: It will start driving adoption but this is like everything that we have done, every generation gets better. You learn from the previous generation, you learn from customers and this is going to be an ongoing thing. It is similar to our Ultra Extreme, where in the early years of imaging our cards were not the fastest in the market and we undertook a major effort and through two or three generations of controllers, we developed the industry’s fastest and have stayed ahead. These things do not happen overnight. You need to be patient. You need to invest and we are up to the task.

Doug Freedman (American Technology Research): What are you seeing in the mobile market for the Micro SD as far as density and what attach rates are you presently seeing?

Sanjay Mehrotra: We have said that attach rates on the retail side of the business are in the high 20s and at this point, those attach rates are about the same. With respect to the trends in the mobile business, we are seeing more and more interest in higher average capacities, whether it is on the OEM side or on the retail side. The iPhone 3G, the 8-gigabyte and 16-gigabyte is only pushing the rest of the MNOs and the handset manufacturers in terms of offering higher capacity solutions, and that is being done – it is being looked at. For the OEM side in terms of bundling, we expect increasing higher capacity bundling in the future. From the mobile network operators, there is increasing utilization of their network related to content and that again bodes well for higher capacity usage for our cards. In that regard, we recently introduced Ultra line of mobile cards, high-speed line of mobile cards which will help speed up the download of the content. On the retail side, we continued to see increases in average capacity and the iPhone 3G effect is also encouraging the OEMs to look at higher capacity bundling, such as in fact even 8-gigabyte bundling, and we expect that trend to increase over time.

Kate Padlarski (Goldman Sachs): Has there been any progress there over the royalty agreement with your primary licensee in the last couple of months?

Eli Harari: It is a status quo.

Kate Padlarski (Goldman Sachs): At the analyst meeting, you laid out some longer term targets out to 2010. Does the push-out of Fab-4 and Fab-5 impact those?

Judy Bruner: The P&L financial model that I shared at analyst day, which was an operating margin of 13% to 16%, is dependent on the product gross margin and achieving that type of operating margin is dependent on getting our product gross margin back to a more normal level, back to a more acceptable level, which I suggest at analyst day was a 24% to 28% product gross margin. A number of things need to happen to get us back there but getting the industry and ourselves in a better supply/demand balance and therefore reducing the rate of price decline is one of the key factors, and so yes, in that regard, slowing down or pausing for the moment on the rate of growth of capacity expansion should help us move back toward that model. At the moment, that model is not there in the foreseeable future and is dependent on getting our product gross margins back in place.