GSI Technology, Inc. — Form 10-Q Summary
Business context and reporting period
Fabless semiconductor company designing and selling Very Fast SRAM and low-latency DRAM, primarily for networking and telecommunications markets. This filing covers the fiscal second quarter ended September 30, 2015, and the six months then ended; comparisons are with the corresponding 2014 periods. Financial statements are unaudited.
Financial performance
| Metric | Three months ended Sep. 30, 2015 | Three months ended Sep. 30, 2014 | Six months ended Sep. 30, 2015 | Six months ended Sep. 30, 2014 |
|---|---|---|---|---|
| Revenue | $13.6 million | $13.3 million | $27.6 million | $26.2 million |
| Gross profit / margin | $6.9 million / 50.9% | $6.1 million / 45.7% | $14.2 million / 51.5% | $12.0 million / 45.8% |
| Operating expenses | $7.2 million | $7.1 million | $15.5 million | $14.5 million |
| Operating loss | $0.3 million | $1.0 million | $1.3 million | $2.5 million |
| Net loss | $0.35 million; $0.02/share | $0.95 million; $0.04/share | $1.26 million; $0.06/share | $2.40 million; $0.09/share |
Cash flow: Six-month operating cash use was $0.1 million, versus $1.7 million in 2014. Investing activities provided $5.3 million, principally from investment maturities; financing activities used $2.5 million, including $3.1 million of share repurchases. Cash and cash equivalents rose to $39.4 million from $36.8 million at March 31, 2015.
Liquidity and balance sheet: Cash, cash equivalents and short-term investments totaled $60.4 million at September 30, compared with $59.0 million at March 31; cash, cash equivalents and all short- and long-term investments totaled $77.9 million. Total assets were $103.7 million, total liabilities $10.1 million, and stockholders’ equity $93.6 million. The company reported no debt. Contractual obligations totaled $2.0 million, primarily wafer, test and mask purchases due within one year.
Material changes versus prior comparable periods
- Revenue increased 2.4% for the quarter and 5.3% for the six months. Management attributed growth mainly to stronger Alcatel-Lucent demand, partly offset by lower Cisco sales and weakness in Asian networking and telecommunications markets.
- Gross margin improved to 50.9% for the quarter and 51.5% year to date, primarily due to favorable product and customer mix. SigmaQuad shipments rose to 53.0% of shipments for the six-month period from 40.6%.
- Net losses narrowed substantially, reflecting higher revenue and gross profit. Six-month SG&A nevertheless increased 12.8%, including higher legal and professional expenses.
- Alcatel-Lucent represented approximately 29% of six-month revenue; Cisco represented approximately 9%. Avnet Logistics, a distributor, accounted for 28.1% of six-month revenue.
- Share repurchases were $3.1 million in the six months, versus $26.4 million in the prior-year period, which included a $25 million tender offer.
Outlook, commentary, risks and unusual items
- Management said existing cash, investments and expected operating cash flow should meet working-capital and capital-expenditure needs for at least the next 12 months. No specific revenue or earnings guidance was provided.
- Management expects overall average selling prices to increase over the next several quarters as product mix shifts toward higher-priced, higher-density products; it also expects R&D spending to rise in future periods.
- The company settled its patent-infringement and antitrust litigation with Cypress Semiconductor in May 2015. Both parties dismissed claims with prejudice and released related claims; each denied liability. Management said Cypress-related significant legal costs ceased after the June quarter, but legal expenses for separate litigation in which GSI is the plaintiff were expected to remain substantial through the quarter ending December 31, 2015.
- Key risks include cyclical end markets, volatile and cancelable customer orders, revenue concentration, declining product prices, and dependence on outsourced, single-source wafer suppliers TSMC and Powerchip. Management also cited continuing weakness in global networking and telecommunications markets, particularly Asia, and design-in losses associated with uncertainty during the Cypress litigation.
- Management reported disclosure controls were effective at September 30, 2015 and no material change in internal control over financial reporting during the quarter. The filing states previously disclosed risk factors had no material changes.
Important facts for investors to verify
- Whether Alcatel-Lucent demand and reduced Cisco purchases continue to drive materially different quarterly revenue results.
- Whether the improved gross margin and favorable product mix are sustainable, given price erosion, product demand and outsourced manufacturing costs.
- Actual legal expenses and outcomes in the separate pending litigation, and whether they materially affect cash flow or results.
- Cash generation and liquidity trends while the company remains loss-making, including the impact of further share repurchases.
- Supplier capacity and concentration exposure, especially reliance on TSMC, Powerchip and Asia-based manufacturing and testing.