PMCS

PMC - Sierra, Inc. (PMCS)

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PMC-Sierra (PMCS)

Q2 2013 Earnings Call

July 29, 2013 4:30 pm ET

Executives

Jennifer Gianola

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

Steven J. Geiser - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

Analysts

James Schneider - Goldman Sachs Group Inc., Research Division

Ruben Roy - Mizuho Securities USA Inc., Research Division

Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Srini Pajjuri - CLSA Limited, Research Division

Sundeep Bajikar - Jefferies LLC, Research Division

Presentation

Operator

Hello, and welcome to the PMC Second Quarter 2013 Earnings Conference Call. My name is Meisha, and I will be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the call over to Jennifer Gianola, Director of Investor Relations. Jennifer Gianola, you may begin.

Jennifer Gianola

Thank you, operator. 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 second quarter 2013, and Steve will then discuss the financial results for the second quarter of 2013 and the business outlook for the third quarter of 2013.

Please note that our second quarter 2013 earnings press release was disseminated today via BusinessWire after the 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, foreign exchange rates and other risk factors that are detailed in 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 Forms 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 on our outlook will be posted on 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 Lang.

Gregory S. Lang

Thank you for joining us today, and welcome to our second quarter earnings call. We reported that our second quarter revenues were up 2% quarter-on-quarter at $128 million, within the expected revenue outlook. Second quarter is also the first up quarter we've had in the past 4 quarters. On a non-GAAP net income was -- non-GAAP basis net income was $16.3 million, and non-GAAP EPS was $0.08 per share, right at the midpoint of our outlook and up 22% from the first quarter. The second quarter was largely in line with our expectations. The environment continues to be challenging due to economic softness, cautious enterprise and carrier spending.

And as we look forward to the second half and beyond, we remain excited about the new product cycles in front of us and expanding addressable markets across all of our major businesses. Over the next 6 quarters, we expect new revenue growth from our Flash controller wins, 6-gig data center wins, 12-gig SAS share wins, the ramp of our OTN product families and later, in 2014, we expect our first revenue from our Remote Radio Head products. With the continued growth of data creation and data traffic, we're very optimistic about our growth prospects. But in this environment, we'll continue to tightly manage our expenses without major compromise to long-term growth and ensure our resources are invested in the areas that enabled us to grow as our markets recover and focus on winning the sockets that count across our target market segments.

And with that backdrop, I'll give you an overview of the results for Q2. Our carrier business was up 11% over Q2, driven by major product areas of our optical and mobile market segments. Optical was up 7%, while the mobile segment was up 16%. Storage revenues were down $1.5 million, or 2%, reflecting continued weakness in enterprise spending. At the top level, the storage market segment represented 65% of total revenue, optical came in at 21% and mobile revenues came in at 14% of the total. For those of you tracking the legacy portion of our revenue, it's approximately 7% of total revenue in Q2 and we expect Q3 to be down to approximately 5%.

Now I'll provide a bit more detail on each market segment, starting with storage. Our storage market segment was down 2% versus last quarter, lower than expected due to continued sluggish enterprise spending. In fact, 5 of our 6 largest server and storage customers were down quarter-to-quarter after a disappointing Q1. But on a positive note, we continue to see healthy build-outs at our hyperscale data center customers offsetting most of the enterprise weakness. I'm pleased to report that the second quarter, we posted record revenues again in our data center products.

Last quarter, we expanded our Adaptec 6-gig SAS storage product line with the industry's first and only low profile 24-port RAID adapter, enabling new dense architectures for hyperscale or space-limited data centers. With 24-port's native in the device, this product triples the storage connectivity by replacing up to 3 8-port RAID adapters and more than doubles the performance of competing solutions, significantly reducing space, cost and power.

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