PSEM

Pericom Semiconductor Corporation (PSEM)

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Pericom Semiconductor (PSEM)

F3Q 2011 Earnings Call

May 4, 2011 04:30 PM ET

Executives

Robert Strickland – Treasurer

Aaron Tachibana – CFO and SVP - Finance

Alex Hui – President and CEO

Analysts

Krishna Shankar – Thinkequity

Hans Mosesmann – Raymond James

Christopher Longiaru – Sidoti

Presentation

Operator

Good day ladies and gentlemen and welcome to the Pericom Semiconductor Corp third quarter 2011 earnings conference. At this time, all participants are in a listen-only mode. Later we will have a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch tone telephone. As a reminder, today’s conference is being recorded. I would now like to turn the conference over to your host for today, Mr. Robert Strickland, Treasurer. Sir, you may begin.

Robert Strickland

Thank you. Good afternoon and welcome to Pericom’s third quarter fiscal year 2011 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.pericon.com and click on the investor’s link.

Today, the company will discuss its financial results, comment on the industry and on Pericom’s business and provide guidance for the fourth 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 factor sections of such filings.

In accordance with regulations of fair disclosure, Pericom will continue to only provide guidance via its earnings release and its 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 Aaron will provide guidance for the fourth quarter of fiscal 2011. Aaron.

Aaron Tachibana

Thank you Bob and good afternoon everyone. Although our Q3 net earnings were not at the same level as the previous five quarters, we remain profitable and generated positive cash flow from operations.

We continued to focus on asset utilization and maintaining a strong balance sheet. During the quarter, we reduced in-house inventory by $3 million or 11% sequentially and also reduced channel inventory from eight down to seven weeks.

Cash and marketable securities were $121 million at the end of Q3 and were flat from last quarter. Consistent with the last two quarters, please note that we are reporting non-GAAP financial measures for net income, gross profit and operating expenses in addition to our GAAP financial result. Due to the PTI acquisition, we had a significant amount of non-cash and non-operating expense items included in the income statement which were not reflective of performance for our normal business operation.

Now let’s review some of the detail. Our consolidated net revenues for the third quarter were $39.6 million and represented a 3% decrease from the $40.7 million reported last quarter and an 8% increase over the $36.7 million for the same period last year.

The Q3 sequential decrease of 3% was mostly due to the inventory reduction efforts by our distributors and customers. As mentioned earlier, the channel inventory decreased from eight down to seven weeks during the quarter.

The Q3 geographic distribution was as follows: Asia, 89%, US 7% and Europe was 4%. Our channel sales mix was international distribution 59%, contract manufacturers 25%, OEM’s 12% and US distribution was 4%.

Consolidated non-GAAP gross profit was $12.9 million for Q3 compared with $14.8 million last quarter and $13 million last year. Non-GAAP gross margin for the third quarter was $32.6% and was 3.7% lower than last quarter’s $36.3% and 3% lower than year’s 35.6%. The sequential gross margin decrease was primarily due to higher absorption charges that results from lower production volume.

Non-GAAP operating expenses were $10.6 million for Q3 compared with $10.5 million last quarter and $9.5 million last year. The Q3 operating income on a non-GAAP basis was $2.2 million or 6% of revenue compared with $4.2 million or 10% of revenue last quarter and $3.6 million or 10% of revenue for the same period last year. The sequential decrease was primarily due to the 3.7% decline in gross margin.

Interest and other income was $1.3 million for Q3 compared with $.8 million last quarter and $1.2 million last year. The sequential increase of $.5 million was mostly due to a $.3 million of currency exchange gain in Q3 compared with a $.1 million exchange loss last quarter.

Income before tax was $3.6 million on a non-GAAP basis for Q3 compared with $5.1 million last quarter and $4.8 million last year. On a non-GAAP basis, the effective tax rate was 31% for Q3 compared with 21% last quarter and 33% for the same period last year. The Q3 sequential tax rate increase was primarily due to the mixture of domestic versus foreign income and year to date true ups.

Non-GAAP net income was $2.5 million or $0.10 per share for Q3 compared with $4.1 million or $0.16 per share last quarter and $3.8 million or $0.15 per share for the same period last year.

Read the rest of this transcript for free on seekingalpha.com