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PMC-Sierra (PMCS)

Q3 2012 Earnings Call

October 29, 2012 4:30 pm ET


Jennifer Gianola

Gregory S. Lang - Chief Executive Officer, President and Director

Michael W. Zellner - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance


James Schneider - Goldman Sachs Group Inc., Research Division

Harlan Sur - JP Morgan Chase & Co, Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

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

William S. Harrison - Wunderlich Securities Inc., Research Division



Welcome to the PMC Third Quarter 2012 Earnings Conference Call. My name is Christine, and I'll be your operator for today's conference. [Operator Instructions] Please note, today's conference is being recorded. I will now turn the call over to Jennifer Gianola, Director of Investor Relations. You may begin.

Jennifer Gianola

Thank you, Christine. Good afternoon, everyone, and thank you for joining the call, and special thank you to those of you who are joining us today in the throes of the storm. We appreciate your time, stay safe.

Today with me are Greg Lang, President and CEO; and Mike Zellner, Vice President and CFO. Greg will begin the call with a discussion of the business and key highlights from the third quarter 2012, and Mike will then discuss the financial results for the third quarter of 2012 and the business outlook for the fourth quarter of 2012.

Please note that our third quarter 2012 earnings press release was disseminated today via BusinessWire, 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'll 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 demand, market segment growth or decline, customer concentration, bookings rate, changes in inventory, supply constraints, foreign exchange rates and volatility in global financial markets 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 Form 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 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

Thanks, Jennifer, and thank you for joining us today and welcome to our third quarter earnings call. Our third quarter revenues were $132 million, within the range of our guidance for the quarter. Our non-GAAP EPS was $0.10 a share, $0.01 above the top of our range. We generated over $24 million cash from operations on $132 million of revenue. Non-GAAP net income was $21.4 million, about flat with Q2 despite $6 million less in revenue. Most of this was due to nearly $5 million in reduced OpEx in Q3.

The global economy is weighed on infrastructure sales throughout the year and continues today. ABI Research reports that Q2 was the weakest quarter for wireless equipment sales in nearly 9 years. I'm sure that doesn't surprise anyone here, that's pretty telling about the state of the infrastructure investments.

With this macro uncertainty, we've not seen a normal cycle recovery after a weak Q1. However, there are some potential positive signs for 2013. Wireless carriers in North America and China have placed orders and issued RFQs for new wireless deployments. And it appears that China will start its LTE build-out late in 2013. This would be a welcome change in carrier investment.

Given the macro climate, we continue to focus on the things in our control, building great products, winning key designs that position ourselves for growth and tightly managing our OpEx. With this backdrop, I'll now discuss the results of Q3.

Overall, revenue was down about 4%; storage revenues grew a few percentage points, as expected, while optical and mobile segments declined by double digits. At the top level, the Storage Network segment was 68% of total revenue, up from 62% in Q2; optical revenue came in at 20% of the total, down from 23% last quarter; and mobile revenues came in at 12% of the total, down from 15% last quarter. And for those of you tracking the legacy portion of our revenue, it was 8% of total revenue in Q3.

Now I'll comment by market segment. First, the storage end market segment. Our storage market segment was up 4% versus last quarter due to improvement in our 6-Gb SAS business and resumption of growth in our channel business. During the quarter, we continued to demonstrate our storage leadership with introduction of the industry's first RAID adapter family that takes full advantage of the PCI Express Gen 3 bus bandwidth. PMC announced the Adaptec Series 7 portfolio of products, which set a performance benchmark of 450,000 IOPS and 6.6 gigabytes per second throughput, which is equivalent to approximately 2.5x the performance of the nearest competitive solution. This level of performance is critical to get the most from today's high-performance Flash drives.

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