PMC - Sierra, Inc. (PMCS)

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PMC-Sierra (PMCS)

Q4 2012 Earnings Call

January 31, 2013 4:30 pm ET


Jennifer Gianola

Gregory S. Lang - Chief Executive Officer, President and Director

Steve Geiser - Chief Financial Officer and Vice President


James Schneider - Goldman Sachs Group Inc., Research Division

William Harrison - Wunderlich Securities Inc., Research Division

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division



Welcome to the PMC Fourth Quarter 2012 Earnings Conference Call. My name is Tricia, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I would now turn the call over to Jennifer Gianola. Please go ahead.

Jennifer Gianola

Thank you, Tricia. Good afternoon, everyone, and thank you for joining the call. With me today are Greg Lang, President and CEO; and Steve Geiser, Vice-President and CFO. Greg will begin the call with a discussion of the business and key highlights from the fourth quarter 2012 and Steve will then discuss the financial results for the fourth quarter of 2012 and the business outlook for the first quarter of 2013.

Please note that our fourth quarter and full year 2012 earnings press release was disseminated today via BusinessWire after market closed, and a copy of the release can be downloaded from our website. Before we begin, I would like to point out that during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, PMC's limited revenue visibility due to variable customer demands, market segment growth or decline, customer concentration, bookings rate, changes in inventory, supply constraints, foreign exchange rates, volatility in global financial markets and other risk factors that are detailed on the company's SEC filings. Actual results may differ materially from the company's projections. For further information about these risks and uncertainties, please read the company's SEC filings, including our Form 10-K and 10-Q.

Note that PMC undertakes no obligation to update any forward-looking statements. Please note that for each of the historical non-GAAP financial measures mentioned on this call, a full reconciliation to the most comparable GAAP financial measures is included in our press release issued today. In addition, a GAAP to non-GAAP reconciliation of financial measures noted in our outlook will be posted to our website under the Financial Reports section of the Investor Relations tab. [Operator Instructions]

Thank you, and I will now turn the call over to Greg.

Gregory S. Lang

Thank you for joining us today, and welcome to our fourth quarter and full year earnings call. With me today is Steve Geiser, our new CFO, who joined us a couple of months ago. We're excited to have Steve on the team. He's a seasoned veteran of the semiconductor industry and has broad experience in start-up organizations as well as large complex environments, which allows him to bring a new perspective to PMC. Steve has extensive financial experience in technology and will be immediately additive to our management team.

And with that, I'll move on to our results. We're pleased to report that our fourth quarter revenues were $129.4 million, at the high-end of our outlook for the quarter. Our non-GAAP EPS was $0.12 above the outlook of $0.10. Non-GAAP net income was $25.1 million, up 18% sequentially from the third quarter. This improvement was due to improved gross margin and over $3 million in reduced operating expenses. Q4 was a low point for tape outs and employee compensation, and Steve will cover this a bit more later.

Now I'll give you a brief review of 2012 and our strategic priorities for 2013. 2012 was a challenging year due to macro headwinds, weak carrier spending the and slow ramp of OTN in Metro Networks. But we executed well operationally and continued to deliver best-in-class products and focused on shoring up next-generation design wins with our key customers, which will provide excellent leverage when the recovery takes place. Considering the design wins underway at our customers, we believe we're positioned to gain share in all of our core investment areas: storage, OTN, wireless backhaul, and radio heads.

Today, com infrastructure remain sluggish but encouraging signs are emerging. The LTE CapEx investment cycle is expected to drive com infrastructure over the next few years. As covered in numerous press announcements, several large carriers are on track to increase their spending in 2013 and beyond, including AT&T, China Mobile and most recently, Deutsche Telekom. Deutsche Telekom plans to invest almost $5 billion in T-Mobile's USA 4G LTE network rollout starting in 2013. In this environment, we'll continue to focus on the items in our control while we wait for the end markets to recover. We'll tightly manage our expenses without major compromise to long-term growth, ensure our resources are invested in the areas that will enable us to grow and winning the sockets that count.

Now with that backdrop, I'll move on to give you an overview of the results for Q4. Our fourth quarter revenue was down 2% sequentially. Storage revenues grew a bit over 1% as expected and optical was down 28% due to continued SONET weakness, while the Mobile segment was up 24% as backhaul bounced back to more reasonable levels. At the top level, the storage segment was 70% of our total revenue, up from 68% in Q3, optical revenue came in at 14% of the total, down from 20% last quarter and mobile revenues came in at 16% of the total, up from 12% last quarter. And for those of you tracking our legacy percentage of our business, it was 7% of total revenue in Q4.

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