Analyst Conference Call Summary

conference date: May 9, 2012 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2012 (first quarter, Q1 2012)

Forward-looking statements

Overview: Strong revenue growth in quarter, a surprise. In the red by GAAP, but showed a non-GAAP profit.

Basic data (GAAP) :

Revenues were $54.7 million, up 16% sequentially from $47.0 million and up 11% from $49.2 million in the year-earlier quarter.

Net income was negative $1.8 million, up sequentially from negative $6.6 million, but worse than the negative $1.3 million of the year-earlier quarter.

EPS was negative $0.03, up sequentially from negative $0.12, but down a penny from negative $0.02 year-earlier.

Guidance:

Q2 revenue between $48 and $52 million. Non-GAAP EPS from negative $0.03 to positive $0.01 per share.

Conference Highlights:

Non-GAAP numbers: revenue $54.6 million, up 14% from $48.0 million sequentially and 12% from $48.5 million year-earlier. Gross margin 29.3%, a six-year high. Net income $1.9 million. EPS $0.03. Excludes stock-based compensation expense of $0.8 million.

Tier 2 OEM sales did particularly well. Indirect channel sales also grew. New mid-range product launch is scheduled for later in 2012. There was a spike in demand from a 4G cellular infrastructure partner, which will not be repeated in Q2.

Mainly successful in getting enough hard disk drives to meet demand, but no meaningful drive price reductions yet. The situation should continue to improve. Passed on price increased to clients for HDDs in February.

Cash and equivalents ended at $41.4 million, down $4.8 million in the quarter. Decline was for restructuring charges and building HDD inventory.

Hoping for more substantial growth later this year and into 2013 by mid-range introductions and signing more OEMs. New tier-2 OEMs are ramping, and a few more are in the pipeline. Increased R&D expense to prepare for this.

Hopes to be a first-to-market leader in new mid-range devices. On track for a summer launch, with partners identified and testing samples already.

Seeing strength in the video and rich media markets.

Trying to sell AssuredUVS and some other IP. Resources were diverted to core products.

61% of revenue came from largest customer [HP], a drop in % but not revenue. Almost 100% y/y growth in channel revenue.

Cost of goods sold (GAAP) was $39.6 million, leaving gross profit of $15.2 million. Operating expenses of $17.1 million included: $9.9 million for research and development; $3.5 million sales and marketing; $3.1 million general and administrative; $0.6 million restructuring. Leaving an operating loss of $2.0 million. Minor income tax benefit.

Restored wages to 2010 levels, which increase operating expenses.

Q&A:

There were no questions asked, probably due to conflicting conferences.

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