PMCS

PMC - Sierra, Inc. (PMCS)

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PMC-Sierra (PMCS)

Q3 2013 Earnings Call

October 28, 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

Sundeep Bajikar - Jefferies LLC, Research Division

Srini Pajjuri - CLSA Limited, Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the PMC Third Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is also being recorded today, October 28, 2013. I would now like to turn the conference over to our host, Ms. Jennifer Gianola, please -- Director of Investor Relations. Please go ahead, ma'am.

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 third quarter of 2013, and Steve will then discuss the financial results for the third quarter of 2013 and the business outlook for the fourth quarter of 2013.

Please note that our third 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 Securities and Exchange Commission 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 in our outlook will be posted on our website under the Financial Reports section of the Investor Relations tab. [Operator Instructions] Thank you. And I'll now turn the call over to Greg Lang.

Gregory S. Lang

Thank you for joining us today, and welcome to our third quarter earnings call. We reported that our third quarter revenues were up 1% sequentially, at $128.9 million, within the expected outlook range. Our non-GAAP net income was approximately $20 million and non-GAAP EPS was $0.10, up 23% from the second quarter. This translates to 16% operating margin, higher than the second quarter operating margin of 12% due to improved revenue and continued focus on expenses. The third quarter was largely in line with our expectations. We have not seen a material improvement in the end markets, so the environment continues to be a challenging one. With this backdrop, I'll give you an overview of the results for Q3. Carrier business was down 1% quarter-to-quarter, with optical down 3% and the mobile segment up 2%. Storage revenues were up $1 million or 2% due to strength in the OEM side of our business.

And at the top level, the storage segment represented 66% of total revenue, optical came in at 20% and mobile revenues came in at 14% of the total. The legacy portion of our revenue was approximately 6% of total revenue in Q3.

Now I'll provide a bit more detail in each market segment, starting with storage. Our storage market segment was up 2% versus last quarter, slightly better than expected due to our SAS and RAID solutions. We saw a strength in our storage in server OEM business and our large customers, offset by lumpy days and our revenues in the third quarter. The traditional enterprise server and storage customers rebounded nicely after a weak Q2. We also benefited from the new platform ramps that are top 2 customers, EMC with the VNX 2 and HP with their Ivy Bridge server platforms.

In the third quarter, we introduced the Adaptec series 8 12-gig SAS/RAID adapters, establishing PMC as the only supplier of an end-to-end 12-gig architecture from controller to solid-state drives. Systems design with our solutions can provide double the overall storage connectivity, as competing solutions with fewer -- double the storage connectivity of competing solutions, with fewer components, less space and less power.

Furthermore, our 12-gig solutions offer the highest I/O performance of any SAS solution in the industry, which is critical for the much higher performance afforded by SSDs. We're pleased to see third-party reviews that support this claim. In the performance testing done by the SSD review, they highlighted the outstanding performance we've achieved. I'll give you a snippet here. "Series 8 is a great RAID adaptor. It offers 16 ports of 12-gig SAS with amazing throughput. We had no issues of hitting 700,000 IOPS and 6 gigabytes per second. Those are amazing maximus, but we were more impressed with the incredible consistency that we observed. With sub-microsecond variance, the Series 8 destroyed our latency tests."

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