PSEM

Pericom Semiconductor Corporation (PSEM)

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Pericom Semiconductor Corporation (PSEM)

F4Q10 (07/03/10) Earnings Call Transcript

August 9, 2010 4:30 pm ET

Executives

Bob Strickland – Director, IR

Aaron Tachibana – SVP of Finance and CFO

Alex Hui – President and CEO

Analysts

Suji De Silva – Noble Financial

Christopher Longiaru – Sidoti & Company

Hans Mosesmann – Raymond James

Presentation

Bob Strickland

Thank you and good afternoon. And welcome to Pericom's Fourth Quarter Fiscal 2010 Conference Call. Our speakers today are Alex Hui, President and CEO, and Aaron Tachibana, the CFO.

Before we get started, please be aware that we will be presenting several visual slides during management's discussion of the business. To view these slides, please go to www.pericom.com and click on the Investors link.

Today the company will discuss its financial results, comment on the industry and on Pericom's business, and provide guidance for the first quarter of fiscal 2011. Certain matters discussed in the press release and on this conference call may contain forward-looking statements that involve risk and uncertainty. Therefore, we encourage you to review all filings made by the company with the Securities and Exchange Commission, particularly the Risk Factors sections of such filings.

In accordance with regulation of fair disclosure, Pericom will continue to only provide guidance via its earnings release and conference calls. The company will not provide further guidance or updates during the quarter unless it does so via a press release. Aaron will discuss the financial performance for the quarter and Alex will give his comments on the industry and on Pericom's business. Then he will provide guidance for the first quarter of fiscal 2011. Aaron?

Aaron Tachibana

Thank you, Bob, and good afternoon, everyone. We have just concluded our fiscal year 2010 in a positive light. Just over a year ago, we and many other industry participants were wondering if and when the bottom of the cycle would be reached. At this time, we are pleased to report that Pericom has just achieved its fifth consecutive quarter of revenue growth since the global recession began late in 2008.

In addition to our outstanding financial results, today we announced entering into an agreement to acquire the remaining shares of PTI, a fabless IC company that we previously held a 40.6% ownership stake within. The transaction is expected to close late in Q1 and we expect the PTI results to be accretive immediately. We will explain more about the PTI business later on this call.

Our fiscal year 2010 fourth quarter results were better than expected with net revenues growing by 13% sequentially and 40% year-over-year. This was a 14-week quarter and when normalizing for the extra week, revenue grew – revenue growth was 5% sequentially and 30% year-over-year.

We expanded gross margin sequentially for the fourth consecutive quarter and it was up 146 basis points over last quarter. GAAP net income exceeded last quarter by 28% and was nearly 277% higher year-over-year.

Now, let's review some of the detail. Our consolidated net revenues for the fourth quarter were $41.5 million and represented a 13% increase from the $36.7 million reported last quarter and a 40% increase over the $29.7 million for the same period last year.

After normalizing for the extra week, quarter-to-quarter increase was 5% and the year-over-year increase was 30%. The full fiscal year 2010 net revenues were $146.9 million and represented a 14% increase year-over-year and was 12% higher, when normalizing for the extra week.

End market shipments for the fourth quarter were as follows, computer 45%, communication 35%, consumer 11% and 9% from all other. Geographic distribution was as follows, U.S. 10%, Asia 85%, and Europe was 5%. Channel sales mix was as follows, domestic distribution 6%, international distribution 57%, contract manufacturers 24% and OEMs were 13%.

Consolidated gross margin for the fourth quarter was 36.7% and was 146 basis points higher than last quarter's 35.3% and 806 basis points higher than the 28.7% for the same period last year. Q4's gross margin of 36.7% was a two-year high for Pericom as we had improvements from mix and favorable absorption from increased volume.

Gross profit was $15.2 million for the fourth quarter, compared with $12 million reported last quarter and $8.5 million for the same period last year. For the full fiscal year, our consolidated gross margin was 34.6%, compared with 33.5% last year and gross profit was $50.8 million, compared with $43.1 million last year.

Operating expenses were $12 million for the fourth quarter, compared with $10.5 million last quarter. Share-based compensation expense for the fourth quarter was approximately $1.2 million. The additional week accounted for approximately $0.5 million of the expense increase over last quarter.

Also, we reinstated salary increases that were absent for over a year and removed the mandatory time-off program, which was in place through early last quarter and both combined were $0.4 million of the increase.

Audit-related expenses were $0.3 million higher than last quarter, primarily due to the year-end work that began this quarter. We are estimating that approximately $0.7 million of the Q4 OpEx increase will not repeat going forward.

Operating income for the fourth quarter was $3.3 million or 8% of revenue, compared with $2.5 million or 7% of revenue last quarter and an operating loss of $1 million for the same period last year. We were extremely pleased with the 31% sequential increase in our operating income for the quarter concluded. Our total fiscal year 2010 operating income was $7.1 million and was 135% higher than the $3 million last year.

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