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PMC-Sierra Inc. (PMCS)
Q2 2014 Earnings Conference Call
July 31, 2014 04:30 PM ET
Suzanne Schmidt - IR
Greg Lang - President and CEO
Steve Geiser - VP and CFO
Ryan Goodman - CLSA
Sundeep Bajikar - Jefferies
Previous Statements by PMCS
» Q2 2014 Pmc Sierra Inc Earnings Conference Call (Webcast)
» PMC-Sierra Management Discusses Q1 2014 Results - Earnings Call Transcript
» PMC - Sierra (PMCS) Q1 2014 Results Results - Earnings Call Webcast
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 of 2014, and Steve will then discuss the financial results for the second quarter of 2014 and the business outlook for the third quarter of 2014. Please note that our second quarter 2014 earnings press release was disseminated today via Business Wire 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 rates, changes in inventory, foreign exchange rates and tax 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 Web site under the Financial Reports section of the Investor Relations tab.
If you are asking a question during the Q&A session of today's call, we request that you limit yourselves to one question. If you'd like to ask a second question, please re-queue with the operator.
Thank you. And I will now turn the call over to Greg Lang.
Thank you for joining us today, and welcome to our second quarter 2014 earnings call. We had a very solid quarter with both our top and bottom line results once again coming at above the midpoint of our outlook range. Q2 revenues totaled $126.8 million, well above the midpoint of our outlook and up slightly over last quarter. Strength in sales of our Optical and Mobile products more than offset lower storage revenue. Non-GAAP net income was approximately $18 million, up 15% from Q1 and non-GAAP EPS was $0.09 per diluted share.
So with that backdrop, I'll give you an overview of the Q2 results by end market. The Carrier revenue increased by over 11% or $4.5 million in the quarter, with Mobile up 20% sequentially and Optical up by 6%. Our OTN family of products continues to grow with six straight quarters of growth, while Mobile saw increases, driven by both 3G and 4G mobile backhaul deployments, matching a high mark not seen since 2012. The growth was underpinned by the LTE rollout in China, as well as strength in North America.
Storage revenues declined by 4.7%, or approximately $4.1 million versus last quarter due to the inventory consumption expected at two large customers. In terms of mix, Storage represented 65% of the total revenue mix, Optical came in at 20% and Mobile was 15% of the total.
For those of you tracking the legacy portion of our revenue, it was approximately 7.3% of total revenue in Q2 due to strength in our SONET business in emerging markets, compared with 5.5% last quarter. We anticipate this percentage will drop back down to the 4% to 5% range of revenues next quarter.
Now I'll provide a bit more detail on each of the end market segments. Our Storage business performed largely as expected. Revenue from our Flash Controller was lower due to the timing of data center build-outs and our core storage products were down after a challenging first quarter as experienced by our large enterprise storage customers, resulting in some inventory consumption in Q2. In Q3 we expect to work through the remaining inventory and experience positive seasonality. We also expect to see a small uplift from the Grantley launch and related 12 gig SAS share gains.
In the last quarter we were awarded 12 gig sockets from a major Tier I storage system vendor, which now gives PMC a clean sweep of all three of the top three storage system OEMs. We are increasingly confident about our share gains across our SAS and SATA controllers and disk switching business in both storage systems and servers.
In Flash Controllers, we anticipate an increase quarter-to-quarter, due to an expanded customer base and improved data center build-outs. The latest production release by a major customer brings our Tier I customer base to three, one large manufacturer, one large data center customer and one large storage OEM.