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PLX Technology, Inc. (PLXT)

Q4 2008 Earnings Call

January 26, 2009 5:00 pm ET

Executives

Arthur O. Whipple – Chief Financial Officer, Vice President Finance & Secretary

Ralph H. Schmitt – President, Chief Executive Officer & Director

Analysts

Christian Schwab – Craig-Hallum Capital

Sandy Harrison – Signal Hill Group, LLC

Richard Shannon – Northland Sec

Michael Wasserman – Moors & Cabot

Presentation

Operator

Welcome to the PLX Technology Inc. fourth quarter 2008 earnings result conference call. Today’s call is being recorded. We’ll open the conference up to questions and answers after the presentation. At this time I’d like to turn the call over to Art Whipple, CFO of PLX Technology.

Arthur O. Whipple

I will start the session with a review of our fourth quarter and 2008 financial performance and Ralph Schmitt, our CEO will provide more information on our business. I will then provide first quarter 2009 financial estimates. There will be an opportunity for your question after our prepared remarks.

As we begin I’d like to point out that certain statements made in the course of this conference call regarding our expectations and our associated projections will be forward-looking statements. These statements will include comments related to the introduction and adoption of new products, the projection of financial results, the integration of our Oxford acquisition, the development of next generation technologies and other areas and will be made both in our prepared remarks and in the subsequent Q&A session.

Our forward-looking statements deal with future events and are subject to risks and uncertainties and our actual results could differ materially from our current expectations. Some of the factors that could cause such differences are described in our press release dated January 26, 2009 and in our SEC filings including our reports on Form 10Q for the first three quarters of 2008 and on Form 10K for the year ended December 31, 2007.

Now, let’s take a look at this quarter’s and this year’s financial results. Net revenue for the year ended December 31, 2008 were $81.1 million compared to $81.7 million in 2007. PCI Express revenues expanded from 35% of revenues in 2007 to 47% of revenues in 2008. Net revenues for the fourth quarter were $14.2 million. Revenues were down 36% from $22.1 million for the same quarter a year ago and down 32% from $20.8 million last quarter. These numbers reflect the recent and broad based decline in demand.

PCI Express revenues represented 45% of total revenues for the current quarter, up from 44% last quarter and up from 42% in the same quarter a year ago. Gross margin for 2008 was 59.6% compared to 60.6% for 2007. Although our margin on PCI Express products continues to improve, overall gross margin decreased slightly due to the increased mix of PCI Express products. In the fourth quarter, gross margin was 59.4% up from 58.5% in the prior quarter and down from 60.6% in the same quarter a year ago.

Operating expenses in the fourth quarter included several unusual items. We test our goodwill and intangible assets for impairment each year in the fourth quarter. The significant decline in our share price the latter part of 2008 had us trading below net assets then below net tangible assets and at least for a few days at the end of the year below cash. As a result, we have fully impaired the goodwill that we record for the Sebring, [Inaudible] and NetChip acquisitions. We have also fully impaired the remaining intangible assets associated with those acquisitions. These non-cash charges amount to $35.5 million in the fourth quarter.

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During our review of the goodwill and intangible asset impairment we also evaluated other long lived assets. We purchased our headquarters building in Sunnydale in 2000. The building is ideal for our operations and we have no plans to relocate or sell the building however, the flood of commercial property in silicon valley has significantly reduced selling prices and our building has now been appraised for $18.7 million less than our carrying value and we have taken a non-cash impairment charge in that amount.

None of these impairment charges are tax deductible. They will result in lower depreciation, about $550,000 per year and lower intangible amortizations about $742,000 last year, in the future. We also had operating expenses associated with our acquisition of Oxford Semiconductor. The acquisition closed in January, 2009 and we are subject to the new purchase accounting rules spelled out in FAS 141R that became effective on January 1, 2009.

Under the old rules certain deal costs including attorney and bankers’ fees were capitalized and ended up in goodwill. Under the new rules these costs are expensed as incurred. The fourth quarter included $756,000 of such costs. Operating expenses for 2008 included R&D costs of $27.1 million, up by 11% or $2.7 million from last year and SG&A costs of $15.3 million, down 3% from last year. Roughly equal increases in EDA tools costs and outside product development costs generated the increase in R&D expense.

Operating expenses for the fourth quarter excluding impairment charges and deal costs were $12.4 million, a sequential increase of $781,000 or 7% from $11.6 million in the prior quarter. As expected, R&D costs rose by $797,000 primarily due to higher external product development NREs and related charges. SG&A spending was flat. Interest income expense and other net for the fourth quarter was $344,000, up slightly from $335,000 in the previous quarter.

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