PMCS

PMC - Sierra, Inc. (PMCS)

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PMC-Sierra (PMCS)

Q1 2014 Earnings Call

May 01, 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

Kevin E. Cassidy - Stifel, Nicolaus & Company, Incorporated, Research Division

Sundeep Bajikar - Jefferies LLC, Research Division

Ryan Goodman - CLSA Limited, Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the PMC Q1 2014 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, May 1, 2014. I would now like to turn the call over to Suzanne Schmidt, Investor Relations for PMC. Please go ahead.

Suzanne Schmidt

Hello, everyone. Thank you for joining us on the call today. 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 first quarter of 2014, and Steve will then discuss the financial results for the first quarter of 2014 and then the business outlook for the second quarter of 2014. Please note that our first quarter 2014 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. And 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 concentrations, 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. And 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 will now turn the call over to Greg Lang.

Gregory S. Lang

Thank you for joining us today, and welcome to our first quarter 2014 earnings call. We're off to a good start in 2014, as first quarter top and bottom line results came in above the midpoint of our outlook range. Revenues totaled $126.5 million and were driven primarily by strength in sales of our flash controllers and OTN products, 2 of our key growth drivers. This revenue is roughly flat sequentially and up 1% over Q1 2013. Non-GAAP net income was approximately $16 million, and non-GAAP EPS was $0.08 per share, an increase of 20% from Q1 2013.

With this backdrop, I'll give you an overview of the Q1 results. Storage revenues declined by approximately $3.7 million or 4% during the last quarter. While we saw continued strength in our flash controller products, these gains were more than offset by normal seasonality for the balance of our storage products. Our carrier revenue increased by approximately $3.3 million or 9% quarter-over-quarter, with optical upside driven by sales of our OTN products while mobile was essentially flat.

In terms of mix, storage represented 69% of total revenue. Optical came in at 19%, and mobile was 12% of the total. For those of you tracking the legacy portion of our revenue, it was approximately 5.5% of total revenue in Q1, up a bit from 4.5% in Q4 due to the strength in our SONET business.

Now a bit more detail in each of the market segments. First, in storage. We remain optimistic about the potential for our storage business from both the systems as well as the service side of the business. With the growing adoption of high-density, cloud-based delivery models and the rise of alternative storage architectures based on flash, we are positioned well. We continue to see strong interest in our flash controllers from next-generation cloud and enterprise data centers -- customers as well as large flash memory manufacturers. Additionally, with the pending transition to Intel's Grantley platform, we're poised to benefit from the design wins that we already have in place when the transition to 12-gig SAS is expected to occur in the second half of this year.

Revenue from our storage business overall declined by 4% versus last quarter. Within this market segment, we saw a continued strength in our flash controller business as one of our major customers finished their initial ramp. As we said in the past, we expect some lumpiness, as we are still working with a fairly narrow customer base and near-term sales are tied to buildouts of large data centers. Therefore, while Q4 saw a nice increase in revenue from our flash controllers, Q2 is expected to be lower due to timing of these buildouts and the ramp of new customers. We continue to believe we can generate incremental annual revenue from this business in the $20 million to $40 million range of share and believe that in the future, a broader base of customers will give us better diversification and continued growth of this revenue stream.

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