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conference date: February 22, 2007
for quarter ending: December 31, 2006 (Q4 quarter)
Overview: Solid improvement in revenue leaves company still generally weak.
Basic data:
Revenue was $59.4 million, up 8% sequentially from $54.8 million and 5.5% sequentially from Q4 2005.
Net loss was $9.1 million, sharply down from Q4 net income of $22.5 million. In Q3 2006 the loss had been $60.1 million due to a large legal settlement.
Cash and equivalents were $99.7 million.
Guidance:
Q1 2007 revenues are estimated at $46 to $49 million with net loss per share estimated between $0.20 and $0.23.
This is attributed to seasonal trends at largest customer.
Don't expect to return to profitability until 2008.
Conference Highlights:
Excluding effects of foreign taxes related to Crossroads settlement, non-GAAP net loss was stated at $8.6 million.
Gross margin was 7.9%, down from 12.8% in Q3. This was due to ramp up of 2730 storage product, which currently has negative margins.
Revenues may fluctuate in future quarters due to variable demand.
2730 product revenue worth $9.7 million, becoming 16% of total revenue. When transition to offshore production is completed this product will have positive margins.
Overhead expenses for other new products are contributing to low margins.
Contract manufacturing outsourcing solution announced today with MiTAC and Synnex, which should help gross margins when implemented. Margins should begin increasing mid-2007.
$4.1 million for sales and marketing. R&D $6.5 million. G&A $3.8 million. Total operating expenses $15.9 million.
Sales to largest customer [Sun] were steady. 75% of sales were to this customer, but that is down from 86% year-earlier.
Some competitors to 2730 are still having problems with their products.
There is new business in the pipeline. New higher margin products will be launched.
Q&A:
ASPs of 2730? Lots of configurations, selling mainly RAID heads, but price varies greatly with configuration.
Existing products will continue production with Selectron; new lines with MiTAC/Synnex.
Guidance on largest customer for 2007? Revenues likely to be down a bit unless there is a follow-on for their current product. Their forecast is robust. So far demand is pretty good.
Second large pending customer? Safe to assume no revenue before June quarter. Not much visibility.
Cash bottom? Expect continued use in cash in 2007. Hope to improve working capital. When we turn profitable, that will be the cash bottom. $15 to $20 million total burn before bottom.
Stock option costs? $700,000 in quarter.
Operating expenses? Should be flat going out from Q4 2006.
R&D expense? Does not expect to need to increase it despite working on new products.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers