AMCC

Applied Micro Circuits Corporation (AMCC)

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Applied Micro Circuits Corporation (AMCC)

F3Q09 (Qtr End 12/31/08) Earnings Call Transcript

January 29, 2009 5:00 pm ET

Executives

Bob Gargus – SVP & CFO

Kambiz Hooshmand – President & CEO

Paramesh Gopi – SVP & COO

Analysts

Sandy Harrison – Signal Hill Research

Christian Schwab – Craig-Hallum Capital

Mark Delaney – Goldman Sachs

Sanjay Devgan – Morgan Stanley

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Applied Micro Circuits Q3 2009 Earnings Call. As a reminder, today’s call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Bob Gargus, Chief Financial Officer. Please go ahead, sir.

Bob Gargus

Good afternoon, everyone, and thank you for joining today’s conference call. On the call today with me is Kambiz Hooshmand, our President and CEO, and Paramesh Gopi, our Chief Operating Officer.

Before turning the call over to Kambiz, I want to remind you that the forward-looking statements discussed in this call, including guidance that we will provide on revenue, non-GAAP gross margin, non-GAAP operating expenses and certain other financial targets are based on the limited information available to us today.

That information is likely to change. There are numerous risks and uncertainties that affect our business and may affect these forward-looking statement including product demand and mix, product development and introductions, design wins, manufacturing, the impact of workforce reductions, and the integration of new or moved operations, risk relating to macroeconomic conditions and markets and other risks as set forth in our SEC filings, including our Form 10-K for the year ended March 31, 2008.

Our actual results may differ materially from these forward-looking statements and AMCC assumes no obligation to update forward-looking statements made on this call. I also want to point out that AMCC has several analysts to cover the stock and this creates a range of variability relative to the Street financial model. When we say Street estimates, we mean the consensus of the major analyst models and not necessarily the guidance that was given by the company.

With that I’m going to turn the call over to Kambiz. Kambiz?

Kambiz Hooshmand

Thanks, Bob, and good afternoon, everyone. Before I start, I will let you know that I do have a cold, so if I cough or sniffle during the call, please forgive me. This was a very tough quarter for AMCC and the entire industry. The global economic crisis that began with the credit crunch and the financial institutions has now fully gripped our industry. While order patterns in October remained somewhat normal, November saw an almost complete freeze across the board. Order patterns picked up again towards the end of December, especially in our storage product line.

The visibility remains extremely poor. In January, we have seen some rush orders and order pushouts often in the same week and even from the same customer. In this uncertain environment, we remain committed to first managing our expenses prudently. In the December quarter, we did an outstanding job of managing our bottom line and I want to thank the entire team for a job well done. We put the brakes on expenses early and this demonstrates our ability to be proactive.

Second, we will continue to execute on our vision to provide energy efficient solutions to process, transport and store information for the next generation Internet data center and carrier central office. We have excellent product cycles. We are embedded in many tier 1 platforms that will be the foundation for Ethernet based transport, Ethernet switching and control plane processing. We believe that these platforms will prosper once the economic conditions improve.

It is encouraging that sell through activity for the December quarter remains stronger on a relative basis. Therefore, our non-storage distribution channel inventories are at their lowest level in over a year, down almost two weeks from the September quarter. We will continue to monitor sell through carefully as we try to gather comprehensive data on end customer demand during this challenging period. Geographically, we are continuing to experience quite a bit of softness in North America. Asia is holding up better compared to other areas globally.

Now, let’s look at what is under our control and review the progress we made during this past quarter. Our 405 and 460 processors are under consideration at a number of storage-related opportunities. PowerPC is a superior architecture that enables much faster read by performance versus MIPS and ARM. Additionally, utilizing our field-proven knowledge of storage applications, we have built in important RAID and storage acceleration hardware into both the 405 family and the 460 family. As a result, we have a performance advantage of some 50% versus our nearest competitor. Our tier 1 customer has already begun schematic design using our 460EX. Another tier 1 is in the midst of detailed testing.

As these storage appliances fit into the edge of the network, their volumes are much larger than any previous design win we have had so far. This is a brand new category for us representing significant new growth in 2010 and beyond. During the quarter, we also focused on enterprise class training opportunities and closed a key design win at a tier 1 manufacturer using 460EX. We expect this design to begin ramping in the latter part of 2009.

Today, this is a multi-million dollar per year account for our much larger competitor. This first design opens the door to many new opportunities where we will unseat this competitor. We are working with this class of customers to embed function specific IT and hardware accelerators. This will enable us to build a long relationship based on system level IT integration, and system level cost reduction.

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