GSI Technology, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended September 30, 2019. The filing was signed November 5, 2019. Unless noted otherwise, financial amounts below are in U.S. dollars.
Business context
GSI is a fabless semiconductor company focused primarily on Very Fast SRAMs for networking and telecommunications markets. It is also investing in in-place associative computing products. SRAM products accounted for approximately 99% of revenue in the six-month period. Nokia represented approximately 46% of six-month revenue, and management says Nokia-related sales can fluctuate significantly.
Financial performance
| Metric | Three months ended Sep. 30, 2019 | Year-over-year change | Six months ended Sep. 30, 2019 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $11.74 million | Down 8.5% | $24.76 million | Up 2.7% |
| Gross profit / margin | $6.57 million / 55.9% | Down from $8.03 million / 62.6% | $14.81 million / 59.8% | Up from $13.82 million / 57.4% |
| Operating expenses | $8.49 million | Up from $8.43 million | $16.96 million | Up from $15.87 million |
| Operating loss | $1.92 million | Wider than $0.39 million | $2.15 million | Wider than $2.05 million |
| Net loss | $1.77 million; $0.08 per share | Wider than $0.35 million; $0.02 per share | $1.89 million; $0.08 per share | Narrower than $2.00 million; $0.09 per share |
Quarterly revenue declined despite a 1.0% increase in average selling price, reflecting product and customer mix. Six-month average selling price increased 16.6%, also attributed to mix. The quarter’s gross margin fell year over year; for the six months it improved. Research and development expense was $5.83 million for the quarter and $11.43 million for six months, reflecting continued product-development investment.
Cash, liquidity and balance sheet
- At September 30, 2019, cash and cash equivalents were $45.72 million, short-term investments $22.35 million, and long-term investments $4.79 million. Cash plus short-term investments totaled $68.08 million; total cash and investments were $72.86 million.
- Six-month operating cash use was $1.13 million, compared with $0.62 million a year earlier. Investing activities provided $1.21 million, primarily reflecting investment maturities net of purchases; employee stock plans provided $3.15 million in financing cash.
- Cash and cash equivalents increased $3.23 million from March 31, 2019. Total assets were $108.77 million and stockholders’ equity $95.77 million at September 30, 2019.
- The filing reports no debt. Total liabilities were $13.00 million, including $0.95 million in operating lease liabilities and $4.26 million in contingent consideration. Current assets were $83.84 million versus current liabilities of $8.28 million.
Changes, outlook and notable items
- Quarterly results weakened year over year: revenue fell and the operating and net losses widened, primarily reflecting lower revenue and gross profit relative to operating costs. Six-month revenue and gross profit increased, while net loss narrowed slightly.
- Management expects overall average selling prices to increase over the next several quarters as product mix shifts toward higher-priced, higher-density products. It expects substantial R&D spending to continue, particularly for associative computing, and cautions that this may contribute to operating losses. No specific revenue or earnings guidance is provided.
- Management believes existing cash, cash equivalents, short-term investments and expected operating cash generation should meet working-capital and capital-expenditure needs for at least 12 months, while noting future funding needs may arise and financing may not be available on acceptable terms.
- Key risks include customer and market concentration, fluctuating and cancelable orders, cyclical networking and telecom demand, product price erosion, competition, and dependence on outside foundries and suppliers. TSMC is the principal wafer source for Very Fast SRAM and APU products; Powerchip supplies LLDRAM wafers. The filing also highlights execution and commercialization risks for the associative-computing program.
- The company adopted the new lease accounting standard on April 1, 2019, recognizing approximately $1.1 million each of right-of-use assets and lease liabilities at adoption, with no material income-statement impact. The filing reports no material changes to previously disclosed risk factors and no material changes in internal control.
- A director-affiliated company, Wistron Neweb Corp., received approximately $230,000 for engineering services related to a PCIe board for the Gemini I associative-computing product.
Important facts for investors to verify
- Whether Nokia demand and distributor/contract-manufacturer purchases remain stable; Nokia accounted for about 46% of six-month revenue.
- Whether the improved six-month selling-price and gross-margin trends persist, given the weaker September quarter.
- Milestones, required spending and customer adoption prospects for Gemini I and other associative-computing products.
- Wafer supply, capacity and cost exposure at TSMC, Powerchip and other outsourced manufacturing partners.
- Timing and outcome of the $4.26 million contingent consideration obligation, which is tied to MikaMonu-related employee retention and revenue targets.
- Whether operating cash use and continued losses remain consistent with management’s stated liquidity outlook.