GSI Technology, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2022. Amounts are in U.S. dollars; financial statement figures below are in millions unless otherwise noted.
Business context and financial results
GSI designs and sells integrated circuits, principally Very Fast SRAM products for networking, telecommunications, defense and other markets. It is also developing associative processing unit (APU) products for AI and high-performance computing applications. SRAM represented approximately 97% of revenue for the nine-month period.
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Nine months ended Dec. 31, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $6.447 | $8.065 | $24.309 | $24.653 |
| Gross profit / margin | $3.706 / 57.5% | $4.462 / 55.3% | $14.673 / 60.4% | $13.421 / 54.4% |
| Operating loss | $(4.789) | $(4.532) | $(11.936) | $(13.410) |
| Net loss | $(4.812) | $(4.581) | $(12.016) | $(13.357) |
| Net loss per share, basic and diluted | $(0.20) | $(0.19) | $(0.49) | $(0.55) |
Cash flow, balance sheet and liquidity
- For the nine months, operating cash outflow was $12.245 million, versus $9.942 million in the prior-year period. Investing activities provided $6.742 million, mainly from investment maturities; financing activities provided $0.402 million from employee stock plans. Cash and equivalents declined $5.101 million to $31.870 million.
- At December 31, 2022, cash, cash equivalents and short-term investments totaled $35.2 million; the company reported no debt. Current assets were $46.362 million and current liabilities were $7.144 million. Total liabilities were $9.348 million and stockholders’ equity was $54.800 million.
- Inventory was $6.199 million, up from $4.655 million at March 31, 2022. Goodwill was $7.978 million; net intangible assets were $1.848 million.
- Management said existing liquidity and expected operating cash flows should meet working-capital and capital needs for at least 12 months, with no current expectation of needing additional cash infusions. Purchase obligations were $2.5 million, of which $1.1 million was payable within 12 months. Contingent consideration was $1.893 million, payable through December 2025.
Material changes versus comparable periods
- Quarterly revenue fell 20.1%; management attributed the decline to customer buying patterns and economic conditions. Units shipped decreased 30.0%, while average selling price rose 13.3%, reflecting product mix and prior price increases. Nine-month revenue was down 1.4%.
- Gross margin improved by 2.2 percentage points for the quarter and 6.0 points for the nine months, primarily from product and customer mix, including higher-margin radiation-hardened SRAM shipments in the nine-month period.
- Quarterly operating loss widened despite lower R&D expense; quarterly net loss increased to $4.812 million. Nine-month net loss narrowed to $12.016 million from $13.357 million.
- Nokia remained the largest customer: approximately 20% of quarterly revenue and 16% of nine-month revenue, versus 24% and 31%, respectively, in the prior-year periods. Direct and indirect Nokia sales were $1.3 million for the quarter and $3.8 million for the nine months.
- Operating cash use increased year over year. The company cited payment of prior-year incentive compensation accruals and higher inventory as significant cash uses.
Outlook, management commentary and key risks
- No specific revenue or earnings guidance was provided. Management expects economic pressures to weigh on demand and said supply constraints were not expected to ease significantly through at least fiscal 2023. Wafer costs rose 20% in early calendar 2022, with a further 6% increase in early calendar 2023; higher manufacturing costs were expected to continue through calendar 2023.
- In November 2022, GSI announced cost reductions intended to lower annualized operating expenses by approximately $7 million, including an approximately 15% global workforce reduction and targeted R&D cuts. Management said core Gemini-II chip and APU software development, Gemini-I launch plans, and priority APU sales and engineering efforts would be maintained. The filing reports $0.3 million of severance charges incurred and expects another $0.3 million in the following quarter; management described total cash termination-related expenditures, including accrued vacation, of approximately $850,000.
- A sustained stock-price decline triggered a goodwill impairment assessment. The assessment found reporting-unit fair value exceeded carrying value, so no goodwill impairment was recorded. Intangible-asset recoverability testing also found no impairment; failure to achieve APU revenue forecasts could lead to future non-cash impairment charges.
- Disclosure controls were deemed ineffective at December 31, 2022 because a material weakness in controls over forecasts used for contingent consideration and asset impairment assessments had not been remediated. Management was implementing remediation measures and additional review procedures.
- Principal risks include ongoing losses, dependence on volatile customer and distributor orders (including Nokia and Avnet), reliance on single-source suppliers such as TSMC and ASE, supply-chain and geopolitical exposure in Taiwan, uncertain APU commercialization, inflation and interest rates, and potential future impairment charges. COVID-19 and broader economic conditions were also cited as risks. The filing states the listed risk factors had no material changes from the prior annual report.
Important facts for investors to verify
- Whether revenue, unit shipments and gross margins stabilize, and how customer and product mix affect results.
- Whether Nokia and major distributor exposure, including Avnet, changes materially; also monitor customer concentration in receivables.
- Whether the announced cost reductions deliver the stated savings without impairing product development, APU launches or sales execution.
- Cash burn, available liquidity and supply-chain costs, particularly wafer and assembly availability and pricing.
- Progress in remediating the material weakness and whether future forecasts support goodwill and intangible-asset carrying values.
- Commercial adoption and revenue contribution from APU products, alongside the continuing dependence on Very Fast SRAM.