GSI Technology, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2019. Comparisons are with the corresponding 2018 periods unless otherwise noted. Financial amounts are in U.S. dollars.
Business context
GSI is a fabless semiconductor company, primarily selling very-fast SRAM products for networking and telecommunications markets. It is also investing in in-place associative computing products. The company reported one operating segment. Nokia was its largest customer; purchases attributed to Nokia were approximately 40% of nine-month revenue.
Financial performance
| Metric | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2019 |
|---|---|---|
| Revenue | $10.0 million, down 31.6% | $34.8 million, down 10.3% |
| Gross profit / margin | $6.0 million / 60.2% (68.3% prior year) | $20.9 million / 59.9% (61.5% prior year) |
| Operating expenses | $10.8 million | $27.8 million |
| Operating income (loss) | $(4.7) million | $(6.9) million |
| Net income (loss) | $(4.6) million; $(0.20) per diluted share | $(6.5) million; $(0.28) per diluted share |
| Operating cash flow | Not separately presented for the quarter | $(1.2) million, versus $0.8 million provided |
Quarterly average selling price declined 17.7% year over year; the nine-month average increased 3.7%. Nokia sales fell to $2.6 million for the quarter from $6.6 million, and to $13.9 million for nine months from $17.9 million.
Liquidity, assets and obligations
- At December 31, cash and cash equivalents were $48.0 million, short-term investments $20.3 million, and long-term investments $5.3 million. Management cited $68.3 million of cash, cash equivalents and short-term investments as principal liquidity, compared with $61.8 million at March 31, 2019.
- Current assets were $80.8 million and current liabilities $9.0 million. Total assets were $105.9 million; stockholders’ equity was $92.2 million.
- The filing reports no debt. Operating lease liabilities totaled $0.8 million. Contingent consideration related to MikaMonu was $3.8 million, with payments potentially due through December 31, 2025.
- Nine-month investing cash flow was $3.5 million provided, mainly reflecting investment maturities net of purchases. Financing cash flow was $3.2 million provided, mainly from employee stock-plan share issuances.
- Contractual obligations totaled $4.9 million, including $4.1 million of wafer, software and test purchase obligations and $0.8 million of lease payments.
Material changes and management outlook
- Revenue and gross profit declined, while operating results shifted from profit to loss. Gross margin contracted, primarily reflecting product/customer mix and inventory-reserve differences.
- Research and development expense rose 58.7% for the quarter and 24.5% for nine months. A $2.7 million charge for purchased intellectual property with no alternative future use was a principal driver; increased associative-computing development costs also contributed.
- Management expects substantial R&D spending to continue and says it may result in operating losses in some periods. It believes overall average selling prices may rise over the next several quarters as product mix shifts toward higher-priced, higher-density products; this is an expectation, not numerical guidance.
- Management believes existing liquidity and expected operating cash flows should meet working-capital and capital-expenditure needs for at least 12 months, while noting that additional funding could be required or chosen and may not be available on acceptable terms.
- Key risks include revenue volatility and customer concentration, declining networking and telecommunications markets, semiconductor price erosion, dependence on single-source Asian suppliers, and successful commercialization of associative-computing products. The filing also identified the early-stage coronavirus outbreak as a potential supplier and regional disruption risk.
Contingencies and other notable items
The company disclosed $0.6 million of long-term unrecognized tax benefits, with resolution timing uncertain. It described contingent indemnification obligations but said historical payments had not materially affected results. Product warranty costs and accrued warranty liability were not material. The filing references recent protracted patent-infringement litigation as a risk but does not provide a clear current case status or quantified exposure in the supplied text. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether Nokia demand and customer concentration continue to drive material quarterly revenue swings.
- Whether gross margins stabilize and revenue performance supports ongoing R&D investment.
- Milestones, commercialization prospects and further costs for associative-computing products, including the purchased intellectual property.
- Cash burn, investment liquidity and the sufficiency of management’s 12-month funding assessment.
- Exposure and timing for MikaMonu contingent consideration, tax matters and any patent litigation.
- Potential supply interruptions or cost changes involving TSMC, Powerchip and other concentrated suppliers.