Applied Micro Circuits Corporation (AMCC)

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Applied Micro Circuits Corporation (AMCC)

Q2 2013 Earnings Conference Call

October 25, 2012, 17:00 PM ET


Bob Gargus -- SVP and CFO

Dr. Paramesh Gopi -- President and CEO


Patrick Wang -- Evercore Partners

Shawn Simmons -- Oppenheimer & Company

Sandy Harrison -- Wunderlich

Vijay Rakesh -- Sterne Agee

Christian Schwab -- Craig-Hallum Capital Group

Christopher Longiaru -- Sidoti & Company

Brian Thonn -- Kingdom Ridge Capital



Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Applied Micro Circuits Corporation Earnings Conference Call. My name is Diana and I'll be the operator for today. At this time, all participants are in a listen-only mode. Later, we will take questions. (Operator Instructions). And as a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to your host for today Mr. Bob Gargus, Senior Vice President and Chief Financial Officer. Please go ahead.

Bob Gargus

Good afternoon, everyone and thank you for joining today's conference call. On the call 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 that we will provide on revenue, non-GAAP gross margins, 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, risks such as product development and introductions, design wins, manufacturing and supply availability, product demand and mix, the impact of personnel reductions and departures, employee relations and the integration of new or moved operations, risk resulting 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, 2012.

Our actual results may differ materially from these forward-looking statements. AppliedMicro assumes no obligation to update forward-looking statements made on this call. I want to point out that AppliedMicro has several analysts to cover our stock and this creates a range of variability relative to the Street financial models. 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?

Dr. Paramesh Gopi

Thanks, Bob. Let's start with the general overview of second quarter fiscal year 2013 before going into details on the individual product lines. Here are some highlights of the September and our related guidance.

We exceeded the top line for the September quarter and met the bottom line. Our overall increased gross margin from the higher revenue was offset by additional expenditures associated with our 64-bit ARM server on a chip platform development.

September quarterly profits would have been a positive 1.1 million or $0.02 EPS without the ARM related expenditures and were a loss of $10.5 million or $0.16 EPS inclusive of the ARM expenditures. Overall, book to bill for the quarter was 1.05.

We will be guiding revenues up to the 8% to 12% sequentially for the December quarter and we are entering the quarter with a healthy 81% in backlog at the start of the quarter. Turns required to make the December quarter would be the second lowest we have done since the first quarter of fiscal year 2011.

X-Gene, the world's first ARM v8 64-bit server on a chip platform is executing to schedule and our design win momentum continues to be extremely strong. More details as well as additional use regarding this category defining product will come out at the ARM Technology Conference next week. Our strategy to converge processes and connectivity into the data center is working well and our new products are beginning to ramp.

Finally, we remain committed and on track to achieving quarterly breakeven in the upcoming March 2013 quarter at the $55 million to $60 million revenue level. With that, let me get into each of the product lines with the business update, design wins and new product picture as well as a brief summary.

Let's begin with our connectivity business. Despite the rather flat overall market for optical components in the September quarter, APM's connectivity business continued to grow, fueled by the success of our new product ramps as we transition into a data center product focus.

The new products defined as those released in fiscal year 2009 or later and mostly aimed at the data center grew from 19% in the March quarter to 24% of connectivity revenues in the June quarter and reached 33% of connectivity revenues this quarter. This success reflects strong penetration in the newest customer systems and LAN cards that are growing disproportionately when compared to legacy products.

A fine example of this would be Cisco's ASR 9k platform. Product revenue for the connectivity products was $21.3 million for the September quarter and was up 22% sequentially over the June quarter.

Let's look at what drove the improvements in our connectivity business. Our data center PHY products are showing very strong strength, led by our breakthrough CMOS QPSK 100-gigabit per second Mux and Gearbox product lines, while our PQX family of OTN data center products continued to gain traction.

The QPSK 32-gig transmitter for coherent optical modules has taken advantage of a redesign cycle by numerous module producers and more than seven of them have chosen us in the September quarter alone. Our Gearbox product has the best telecom rate performance of any CMOS mixed signal device in the industry making it the component of choice for metro and data center scale out platforms.

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