GSI Technology, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021. Although the request identifies “2020 Q4,” this filing is an annual report for FY2021; it also reports the quarter ended March 31, 2021.
Business context
GSI is a fabless semiconductor company whose principal business is high-performance SRAM for networking, telecommunications, aerospace, defense, industrial and other markets. It is also developing associative processing unit (APU) products for data-intensive applications. SRAM generated approximately 98% of FY2021 revenue. The company outsources wafer production, primarily to TSMC, and relies on external assembly and test suppliers.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $27.7 million | $43.3 million |
| Gross profit / margin | $13.2 million / 47.7% | $25.3 million / 58.5% |
| Operating loss | $21.3 million | $10.8 million |
| Net loss | $21.5 million; $0.91 per share | $10.3 million; $0.45 per share |
| Cash used in operations | $15.3 million | $4.7 million |
- Revenue fell 36.0%; units shipped declined 30.9% and overall average selling price declined 5.5%.
- At March 31, 2021, cash and cash equivalents were $44.2 million, short-term investments $9.7 million and long-term investments $5.8 million, totaling $59.7 million. Working capital was $56.0 million. The company reported no debt.
- Total assets were $87.6 million and stockholders’ equity was $75.6 million. Capital expenditures were $0.2 million.
- Fourth-quarter FY2021 revenue was $7.7 million and net loss was $5.0 million.
Material changes and management commentary
- Revenue declined amid reduced customer demand, COVID-19 disruption and lower Nokia shipments. Nokia accounted for approximately 39% of FY2021 revenue, versus 38% in FY2020; Nokia sales declined from $16.3 million to $10.9 million.
- Gross margin contracted 10.8 percentage points, which management attributed mainly to product and customer mix and inventory reserve charges.
- Research and development expense was $23.3 million, down 7.5%, while selling, general and administrative expense rose 2.0% to $11.1 million. Management expects substantial R&D spending to continue.
- Management said COVID-19 is expected to continue to affect demand and operations in FY2022. It cited sales restrictions, delayed customer investment, longer wafer and assembly lead times, and higher input costs; it also noted that manufacturing operations had experienced minimal disruption to date.
- Management expected APU productization to be completed in calendar 2021 and anticipated an optimized product ready for production that year. These are targets, not guaranteed outcomes; the filing provides no quantitative revenue or earnings guidance.
- The company said existing liquidity and expected operating cash flows should cover working capital and capital needs for at least 12 months, while acknowledging pandemic-related uncertainty and possible need for additional funding under adverse conditions.
Risks, contingencies and unusual items
- Customer and channel concentration is significant: Nokia represented approximately 39% of revenue, and Avnet Logistics represented 29.8%. Four customers accounted for 91% of accounts receivable at year-end.
- TSMC supplied all SRAM wafers; the company has no long-term wafer supply agreement. Most products are assembled in Taiwan, exposing supply to capacity constraints, geopolitical risks and natural disasters.
- FY2021 included a $13.0 million valuation allowance against deferred tax assets. A $378,000 tax benefit arose from a CARES Act NOL carryback; an Israeli tax audit settlement also contributed to tax expense.
- A contingent consideration liability related to the MikaMonu acquisition was $4.2 million. A further $4.0 million could become payable if revenue milestones are achieved by January 1, 2022; additional earnouts could total up to $30.0 million through 2025.
- The auditor issued unqualified opinions on the financial statements and internal control. Inventory valuation and contingent consideration valuation were identified as critical audit matters; these are areas of significant estimation judgment, not separate audit opinions.
- No legal proceedings were reported. The company stated that goodwill impairment testing found no impairment in FY2021.
Important facts for investors to verify
- Whether SRAM demand and Nokia-related sales stabilize, and whether customer concentration changes.
- APU productization, customer evaluations, production readiness and evidence of commercial revenue generation.
- Cash burn, liquidity runway and whether cash and investments remain sufficient as losses continue.
- Gross-margin recovery amid product mix changes, inventory reserves and higher manufacturing costs.
- TSMC and other supplier capacity, lead times and geographic concentration risks.
- Progress toward MikaMonu earnout milestones and the assumptions underlying the $4.2 million liability and deferred-tax valuation allowance.