PMCS

PMC - Sierra, Inc. (PMCS)

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PMC-Sierra (PMCS)

Q4 2013 Earnings Call

January 30, 2014 4:30 pm ET

Executives

Suzanne Schmidt - Managing Director

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

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

Sundeep Bajikar - Jefferies LLC, Research Division

Ryan Goodman - CLSA Limited, Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the PMC-Sierra Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded. I would now like to turn the conference over to Suzanne Schmidt of -- excuse me, with The Blueshirt Group. Please go ahead.

Suzanne Schmidt

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 fourth quarter of 2013, and Steve will then discuss the financial results for the fourth quarter of 2013 and the business outlook for the first quarter of 2014. Please note that our fourth quarter 2013 earnings press release was disseminated today via BusinessWire after the market close, 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 the 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, and 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 will now turn the call over to Greg Lang.

Gregory S. Lang

Thank you for joining us today, and welcome to our fourth quarter and full year 2013 earnings call. We completed 2013 with solid financial results marked by fourth quarter revenues of $126.1 million in the upper portion of our outlook range. Our non-GAAP net income was approximately $18.5 million and non-GAAP EPS was $0.09 per share. This translates to just over 15% operating margin.

For the full year, we reported revenues of $508 million, down 4% year-over-year as we were impacted by weakness in enterprise storage and server spending during the year, as well as $12 million decline in legacy carrier products. Although 2013 proved to be a challenging year, I'm encouraged to see the fourth quarter finish stronger and storage revenue matching the best quarter in 2 years.

And with this backdrop, I'll give you a little bit more background on the Q4 results. Storage revenues were up $6 million or 6.5%, primarily due to strength in our SAS and Flash product lines. Our carrier revenue was down approximately $8 million or 19% quarter-to-quarter, with the optical down by $5.5 million and mobile down by $2.7 million. In terms of mix, storage represented 71% of total revenue, optical came in at 16% and mobile came in at 13% of the total revenue. For those tracking the legacy portion of our revenue, it was approximately 4.5% of total revenue in Q4 compared to 6% in Q3.

Now a bit more detail in each of the market segments. Our storage business is at the center of the Big Data transformation. We're delivering leading silicon and software solutions with the greatest density and performance in the industry, all designed for next-generation cloud and enterprise data centers. And now with our Flash controllers, having a strong footprint in the world's largest data centers, we will continue to accelerate and expand our market position.

Revenues form our storage business increased by 6.5% versus last quarter, better than expected and primarily due to new customer ramps in our storage system products and early Flash controller revenues. In the fourth quarter, we continue to secure design wins in cloud data centers with our new I/O controller and HBA products. Our cloud data center revenue nearly doubled from 2012 to 2013. And we expect to continue to grow faster than the market in 2014 based on our design win position and short-term opportunities.

As we've mentioned in previous calls, we have design wins that represent more than 10% share gains in the transition from 6-gig to 12-gig SAS. We continue to secure new 12-gig design wins in major server and storage OEMs with our end-to-end SAS and SAN architecture. We expect the majority of these wins to start to ramp up with Intel's Grantley launch in the second half of 2014, with some early revenue in Q2.

We're also pleased to see new third-party reviews of our data center-optimized Adaptec products, recognizing our industry-leading performance. A recent review of our Adaptec Series 7 RAID card family by the Storage Review noted the benefits of flexibility and performance, while another review in TweakTown noted how the end-to-end solution provided by our family of products is built to address the changing landscape of the data center. Links to both of these reviews can be found on our website, and we're proud to have our Advanced Technology recognized by these industry experts.

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