GSI Technology, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2020, the first quarter of fiscal 2021. Comparisons are with the three months ended June 30, 2019, unless otherwise noted. GSI designs and sells integrated circuits, principally Very Fast SRAM products. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net revenue | $6.62 | $13.02 |
| Gross profit / gross margin | $3.05 / 46.1% | $8.24 / 63.3% |
| Operating expenses | $8.75 | $8.47 |
| Operating loss | $(5.70) | $(0.23) |
| Net loss | $(6.08) | $(0.13) |
| Diluted loss per share | $(0.26) | $(0.01) |
| Net cash used in operating activities | $(3.58) | $(1.25) |
- Revenue fell 49.1%. Management attributed the decline to COVID-19-related limits on sales activity, lower customer demand and delayed investment in some sectors. Nokia-related sales declined to $1.8 million from $6.0 million; Nokia represented approximately 27% of revenue, versus 46% in the prior-year quarter.
- Average selling price declined 24.8%, reflecting product mix, including fewer higher-density, higher-priced products. SigmaQuad products were 46.3% of shipments, versus 67.9% a year earlier.
- Gross margin fell 17.2 percentage points. Cost of revenue declined less than sales, and management cited product/customer mix and inventory-reserve charges as factors.
- R&D increased 4.1% to $5.83 million, primarily to develop associative-computing devices. SG&A was approximately flat at $2.92 million.
- The $0.49 million income-tax provision included a $0.479 million discrete provision from settling an Israeli tax audit covering fiscal 2016–2019. The settlement also resulted in a $0.713 million tax liability recorded in accrued expenses and other liabilities.
Cash, liquidity and obligations
- At June 30, 2020, cash and cash equivalents were $50.97 million, short-term investments $13.60 million, and long-term investments $4.86 million: approximately $69.43 million combined. Cash, cash equivalents and short-term investments totaled $64.57 million.
- GSI reported no debt. Total liabilities were $11.87 million, including $3.92 million of non-current contingent consideration related to the MikaMonu acquisition and $0.49 million of operating lease liabilities.
- Total assets were $98.56 million and stockholders’ equity was $86.68 million. Cash and cash equivalents decreased by $0.54 million during the quarter.
- Investing activities provided $0.70 million net; financing activities provided $2.34 million, mainly from employee stock-plan share issuance. Capital expenditures were $0.05 million.
- Contractual obligations totaled $2.23 million, primarily wafer, software and test purchase obligations ($1.72 million) and facilities/software leases ($0.51 million). Contingent consideration of $3.92 million is payable at various dates through December 31, 2025, subject to revenue targets.
Outlook, risks and notable items
- Management said existing cash, investments and expected operating cash flows should cover working capital and capital needs for at least 12 months, with no current expectation of needing additional cash infusions. No specific revenue or earnings guidance was provided.
- Management expects the COVID-19 pandemic may adversely affect demand, results, financial position and liquidity during fiscal 2021. Customer-facing restrictions hampered sales and new-market development; manufacturing in Taiwan had experienced minimal disruption apart from longer wafer and assembly lead times.
- GSI’s results remain exposed to semiconductor cyclicality, customer order volatility and dependence on Nokia and distribution channels. The filing notes that Avnet Logistics represented 35.5% of quarterly revenue.
- Most products are SRAMs, and the company’s future strategy depends in part on commercializing associative-computing products. Substantial R&D spending is expected to continue and may contribute to operating losses.
- Other material risks include reliance on single-source suppliers—particularly TSMC for wafers—product price erosion, supply-chain disruption, and customer order cancellations. The company stated that risk factors were not materially changed from its FY2020 Form 10-K.
- GSI held no repurchases under its share repurchase program during the quarter; the filing reported $4.3 million of remaining authorization. Disclosure controls were assessed as effective, with no material control changes reported.
Important facts for investors to verify
- Whether customer demand, Nokia orders and average selling prices recover, and whether the unusually low quarterly revenue persists.
- Whether COVID-19-related sales and supply-chain effects worsen or improve, particularly in fiscal 2021.
- Progress, customer adoption and commercial timing for associative-computing products, alongside the level of continuing R&D costs.
- Cash consumption and liquidity if operating losses continue; management’s cash sufficiency statement is forward-looking.
- Resolution and timing of contingent consideration, tax matters and other contractual obligations, including the Israeli tax settlement.