PSEM

Pericom Semiconductor Corporation (PSEM)

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Pericom Semiconductor Corporation (PSEM)

F2Q2013 Earnings Call

January 29, 2013 04:30 pm ET

Executives

Bob Strickland – Investor Relations

Alex Hui – President, CEO

Aaron Tachibana – Chief Financial Officer

Analysts

Hans Mosesmann – Raymond James

Christopher Longiaru – Sidoti

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Pericom Semiconductor Corporation Second Quarter 2013 Earnings Conference Call. 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. (Operator Instructions). And as a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Bob Strickland. Sir, you may begin.

Bob Strickland

Thank you. Good afternoon, and welcome to Pericom’s second 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 third 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. 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 third 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 revenue were $30.4 million for Q2 compared with $36.7 million last quarter and $30.5 million last year. The 17% sequential decline was a result of weakness within all end market segments. The enterprise segments for PC, notebook and networking were especially weak as IT spending curtailed during the quarter which was consistent with the trends and corporate earnings. Also we believe the supply chain has continued to work down Windows 7 related PC and notebook inventory as new hardware platforms with Windows 8 continues to ramp.

Alex will comment further on the end markets a bit later. Sales by channel for Q2 were international distribution 62%, contract manufacturers 27%, OEM 8% and U.S. distribution was 3%. Our book-to-bill was 1.0 for Q2 throughout the quarter the demand environment and customer order patterns were pretty consistent and we did not see any particular signs of improvement. As of the first few weeks of January new orders have picked up a bit but we will have to see if it continues after the Chinese New Year holidays.

Consolidated non-GAAP gross profit was $11.7 million for Q2 compared with $14.5 million last quarter and $11.4 million last year. The non-GAAP gross margin for the second quarter was 38.5% and was down approximately 80 basis points from 39.3% last quarter and up 120 basis points from last year’s 37.3%. The sequential quarter declining gross margin was primarily due to under- absorption costs associated with lower FCP volume. For Q2 the FCP factories operated slightly below 70% utilization compared with mid 80s last quarter, our IC gross margin that includes PTI with 51% for Q2.

In the near term our gross margin should remain within the 37% to 39% although we may see some periodic volatility due to how susceptible the margins are to the changes in mix and also the absorption impact related to changes in FCP volume. For Q3 our estimates have lower range in Q2 because of FCP under-utilization cost that will have a negative impact of 200 basis points. As we look forward six to eight quarters we remain confident that our strategic direction will help us achieve growth margins in the low 40% range. Non-GAAP operating expenses were $11.5 million for Q2 and we’re down 0.4 million sequentially due to the one week of shutdown during the December holidays and also from lower payroll taxes that are typical at calendar year end.

Our operating expenses should remain flat for the next couple of quarters but could vary plus or minus a few percentage points.

The non-GAAP effective tax rate was 70% for Q2 compared with 28% last quarter. The rate of decline was primarily due to the mixture of our foreign versus domestic income. In Q2, we incurred a GAAP tax expense of $5 million related to the implementation of some legal entity and business process enhancement that we mentioned during our last conference call in October.

These changes were intended to better align our income recognition by jurisdiction along with our global operational footprint. Longer term, we expect our non GAAP tax rate to be in the range of 20% to 23% compared with our historical range of 27% to 32% and we should begin to see this new level in fiscal year 2014. Non-GAAP net income was $0.9 million or $0.04 per diluted share per Q2 which was down from $0.10 last quarter and was flat with the same period last year.

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