GSI Technology, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2020. The filing was signed November 5, 2020. Financial amounts below are in U.S. dollars; figures are rounded to millions unless noted.
Business context
GSI is a fabless semiconductor company focused on Very Fast SRAMs, primarily for networking and telecommunications, and is developing in-place associative computing products. SRAM products accounted for approximately 98% of revenue in the six-month period. Nokia was the largest customer, representing approximately 39% of six-month revenue, versus 46% a year earlier.
Financial performance and liquidity
| Metric | Three months ended Sept. 30, 2020 | Six months ended Sept. 30, 2020 | Prior-year comparable period |
|---|---|---|---|
| Revenue | $6.7 million | $13.3 million | $11.7 million and $24.8 million |
| Gross profit / margin | $3.1 million / 46.7% | $6.2 million / 46.4% | $6.6 million / 55.9%; $14.8 million / 59.8% |
| Operating loss | $5.2 million | $10.8 million | $1.9 million and $2.2 million |
| Net loss | $5.2 million; $0.22 per share | $11.3 million; $0.48 per share | $1.8 million and $1.9 million; $0.08 per share |
For the six months, operating expenses were $17.0 million, including $11.5 million in research and development. Cash used in operating activities was $8.3 million, compared with $1.1 million a year earlier; capital expenditures were $0.1 million. Cash and cash equivalents were $44.0 million at September 30, down from $51.5 million at March 31. Cash, cash equivalents and short- and long-term investments totaled $64.7 million. The company reported no debt. Total assets were $94.0 million, total liabilities $11.8 million, and stockholders’ equity $82.2 million.
Changes and notable items
- Revenue fell 43.3% for the quarter and 46.4% for the six months year over year. Management attributed the declines to COVID-19-related customer demand weakness, delayed investment in some customer sectors, and limits on sales and distributor activity. Six-month sales to Nokia decreased to $5.2 million from $11.3 million.
- Gross margin declined by 9.2 percentage points for the quarter and 13.4 points for the six months, reflecting product and customer mix and inventory-reserve charges. Research and development remained broadly stable; operating expenses did not fall enough to offset the revenue decline.
- Six-month net cash use increased, reflecting the larger loss and payment of prior year-end accruals, partly offset by lower accounts receivable. The company also made net investment purchases during the period.
- A settlement of an Israeli income-tax audit resulted in a $0.5 million discrete tax provision; the related $0.7 million liability was paid in the September quarter.
Outlook, risks and contingencies
Management expects existing liquidity and cash generated from future operations to cover working capital and capital needs for at least 12 months, and reported no current expectation that additional cash infusions would be required. It also warned that a continuing pandemic could adversely affect fiscal 2021 results, financial position and liquidity. The filing provides no numerical revenue or earnings guidance.
COVID-19 had lengthened wafer and assembly-service lead times, while manufacturing in Taiwan was otherwise described as minimally affected. Remote work and restrictions on in-person customer engagement were impairing sales activity, particularly with government and defense customers. Other central risks include reliance on Nokia and distributors, cyclical end markets, dependence on single-source suppliers including TSMC, and the uncertain commercialization and market development of associative computing products. The company stated that its risk factors had no material changes from its prior annual report.
Contingent consideration related to the MikaMonu acquisition was $3.9 million, payable subject to revenue targets through December 2025. The filing also disclosed a related-party engineering-services expense of approximately $84,000 for the six months, paid to Wistron Neweb Corp., whose chairman and chief strategy officer serves on GSI’s board. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether revenue and margins stabilize, and how much future performance depends on Nokia and other major customers.
- Whether operating cash use can be sustained or reduced against the $64.7 million liquidity balance, especially if pandemic-related weakness continues.
- Wafer and assembly supply availability, lead times and costs, given reliance on TSMC and other concentrated suppliers.
- Progress, commercialization prospects and continued R&D spending for associative computing products.
- Potential tax, acquisition-related contingent consideration, and other commitments or contingencies; the filing does not quantify a maximum potential payment for indemnification obligations.