AMCC

Applied Micro Circuits Corporation (AMCC)

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Applied Micro Circuits Corporation (AMCC)

F2Q2011 (Qtr End 09/30/2010) Earnings Call

October 28, 2010 05:00 pm ET

Executives

Paramesh Gopi - President and CEO

Robert Gargus - SVP and CFO

Analysts

Rick Schafer - Oppenheimer

Sandy Harrison - Signal Hill

Jeff Osher - Harvest Capitals

Christian Schwab - Craig-Hallum Capital Group

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Applied Micro Circuits Corporation earnings conference call. (Operator Instructions)

I would now like to turn the call over to your host, Mr. Robert Gargus, Senior Vice President and Chief Financial Officer.

Robert Gargus

Good afternoon, everyone, and thank you for joining today's conference call. On the call today with me is Dr. Paramesh Gopi, our President and CEO.

Before turning the call over to Paramesh, I want to remind you that forward-looking statements discussed on this call, including guidance we will provide on revenues, 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 statements, including product demand and mix, product development and introductions, design wins, manufacturing and supply availability, the impact of workforce reductions, employee relations and the integration of new or moved operations, risk relating from 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, 2010.

Our actual results may differ materially from these forward-looking statements. Applied Micro assumes no obligation to update forward-looking statements made on this call. I want to point out that Applied Micro 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 Paramesh.

Paramesh Gopi

Thanks, Bob, and good afternoon everyone. During the September quarter we saw our total revenues increase sequentially by approximately 8.5%, and product revenues, excluding our licensing revenues increase sequentially by approximately 8%.

We are entering the December quarter with approximately 94% of the December quarter guidance already on the books. Since this is down from the greater than 100% we had last quarter, let me pause here and add some color to the September quarter.

To start, I will remind everyone that we entered the September quarter with a very strong backlog and our revenue forecast has been based primarily on our supply pipeline. At the start of the September quarter, we were expecting to catch up on delinquent processor shipments, but this did not occur and instead we were able to source and ship more transport products than anticipated.

Additionally, we did see orders slow particularly in the month of September, and we saw several orders pushed out off the December quarter and into the March quarter.

I would like to preface the rest of today's call with our business outlook that is based on first-hand discussion with our major customers and their major customers. We believe that the market is going through the classic communications-related ramp, pause, ramp pattern that is common with major technology inflection points.

Our conversations confirm that all of our end markets, telco, the enterprise and the SMB markets will show strong growth over the next six quarters. However, we do see the next one to two quarters being the pause part of the pattern we talked about. This pause is normal and covers a variety of inventory corrections, channel adjustments and end customer deployment issues.

Specifically, our research with our customers' indicate that the slowness in push-outs were caused by a combination of excess inventory and a variety of inventory imbalances. The imbalance issue is the result of having some parts but not all of the parts you would need to build and deploy end system solutions.

The imbalance issue appears to be the primary cause for the slowdown, and our customers have singled out next generation optical modules and various discrete components as the primary imbalance culprits. We also believe that some carriers, example, AT&T are delaying metro and LTE deployments unto the start of the next calendar year.

Lead times for transport products improved significantly during the quarter, while supply constraints for the processor side of our business continued with no improvement. Going back to the 94% visibility entering the December quarter, I will remind everyone that this "turns" number of 6% is the lowest number in at least the 12 quarters preceding FY '11.

Total book-to-bill was 0.96X and backlog visibility for the March quarter is greater than 50%, an increase in sheer dollars from the equivalent basis last quarter. All three of our product families recorded sequential growth in September over the June quarter. Processor revenue grew sequentially by 5%, transport revenues by 11% and our licensing revenues grew 15% sequentially.

For the September quarter, the TPACK revenues are reflected in the licensing revenues and with a modest $0.1 million for the quarter. I am extremely pleased to note that we have surpassed our guidance and have executed particularly well in growth and profitability. And Bob will cover the specifics of this in his section of the call.

Our long term success remains a function of our new product pipeline, and during the quarter, we announced our PacketPro line of processors. This represents our newest generation 40 nanometer power architecture multicore devices that scale in performance up to gigahertz. This product has received significant coverage in the press along with excellent customer attraction in both the data price and SMB volume platforms.

Read the rest of this transcript for free on seekingalpha.com