PSEM

Pericom Semiconductor Corporation (PSEM)

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Pericom Semiconductor Corporation (PSEM)

F1Q2013 Earnings Conference Call

October 30, 2012 04:30 p.m. ET

Executives

Robert Strickland – Corporate Treasurer and IR

Alex Hui – President & CEO

Aaron Tachibana – SVP & CFO

Analysts

Krishna Shankar – ROTH Capital

Hans Mosesmann – Raymond James

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Pericom Semiconductor Corporation First Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded.

I would now like to introduce your host for today’s conference, Mr. Bob Strickland. You may begin, sir.

Bob Strickland

Thank you. Good afternoon, and welcome to Pericom’s first quarter fiscal year 2013 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 second quarter of fiscal 2013.

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.

Please note that we are reporting non-GAAP financial measures for net income, gross profit, operating expenses and income tax in addition to our GAAP financial results. Due to the PTI acquisition and also non-recurring items, we have a significant amount of non-cash and non-operating expense included in the income statement, which are not reflective of the performance for our normal business operations.

Aaron will discuss the financial performance for the quarter and guidance for the second quarter of fiscal 2013. And Alex will give his comments on the industry and on Pericom’s business. Aaron?

Aaron Tachibana

Thank you, Bob, and good afternoon, everyone. Our consolidated net revenues for the first quarter were $36.7 million and decreased 3% sequentially from the $37.9 million last quarter and increased 4% from the $35.3 million for the same period last year.

Revenues declined for all end market segments with the exception of the computing sector, which was up about 2% sequentially and accounted for 30% of our total shipment mix. Alex will be commenting more about the end markets a bit later.

For Q1 sales by channel were international distribution 63%, contract manufacturers 25%, OEM 9%, and U.S. distribution was 3%. Since the Q1 book-to-bill was significantly less than one and the booking rate for the month of October was pretty slow as well. Our Q2 revenue estimate is roughly 11.5% down sequentially. We did not see any drastic changes in our sales out from distribution during Q1. So we think our channel partners are just being conservative, given the lack of visibility. If their order patterns do not increase, then we could see a significant reduction in channel inventory in the December quarter.

Consolidated non-GAAP gross profit was $14.5 million for Q1 compared with $14.1 million last quarter and $13.1 million last year. The non-GAAP gross margin for the first quarter was 39.3% and was up approximately 220 basis points from last quarter’s 37.1% and up 240 basis points from last year’s 36.9%. The sequential quarter improvement was primarily due to the favorable mix. In addition, our FCP factories continue to operate at better than 80% utilization, so there were no negative absorption issues during Q1. We were extremely pleased that our gross margins exceeded the 38% threshold, which was our target several quarters ago.

Near-term, our margin should remain within this range as we continue to enhance the overall end market mixture of our revenue. We may see some periodic variability in our gross margins due to how susceptible they are to the changes in mix and to the change and to the absorption impact related to the changes in FCP volume, which is the primary reason why our Q2 estimates are in the range of 36.5% to 38.5%. Longer-term, we expect gross margins decline into the low 40% range from our continued mix transformation. Non-GAAP operating expenses were at $11.8 million for Q1 and were flat sequentially.

Our operating expenses should remain in this range, plus or minus a few percentage points near-term. The non-GAAP effective tax rate was 28% for Q1, compared with 26% last quarter. The slight rate increase was primarily due to the mixture of our foreign versus domestic income.

For the current quarter we’re in now, we will incur a one-time GAAP tax expense of approximately $4.5 million to $5 million related to the implementation of some legal entity and business process enhancements. These changes will better align our income recognition by jurisdiction along with our global operational footprint. We expect our Q2 and near-term non-GAAP tax rate to be in the range of 26% to 30% and expect the longer-term rate to be in the range of 20% to 23%.

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