萊迪思半導體 (LSCC) 2008 Q4 法說會逐字稿

Good evening.

At this time, I would like to welcome everyone to the Lattice Semiconductor fourth-quarter 2008 conference call.

All lines with been placed on mutes to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

Thank you.

I would now like to turn the call over to Robert O'Brien, interim Chief Financial Officer.

Sir, you may begin.

Thank you, and good afternoon, everyone.

This is Rob O'Brian, joining me on the call today is Bruno Guilmart, our President and CEO.

Before we begin, I would like to read a Safe Harbor statement and give a review of the financial fourth quarter.

After that, Bruno will provide a business review followed by our first-quarter 2009 business outlook.

We will then hold a question-and-answer session.

I will now begin by reading the Safe Harbor statement.

It is our intention that this call will comply with the requirements of SEC regulation FD.

This call includes and constitutes the company's official guidance with the first quarter of fiscal 2009.

If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call.

The matters that we discuss today, other than historical information, include forward-looking statements related to our future financial performance and other performance expectations.

Investors are cautioned that forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements.

Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission including our fiscal year 2008 Form 10-K, filed in March of 2008, and our quarterly reports on form 10-Q.

The company disclaims any obligation to publicly update or revise such forward-looking statements to reflect events or circumstances that occur after this call.

Our prepared remarks also will be presented within the requirements of SEC regulation G regarding generally accepted accounting principles or GAAP.

Such financial information presented by us during the call will be provided on both a GAAP and a non-GAAP basis.

By disclosing certain non-GAAP information, management intend to provide investors with additional information to permit further analysis of the company's performance for results and underlying trends.

Management uses non-GAAP measures to better assess operating performance and to establish operational goals.

Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.

If we use any non-GAAP financial measure during the call, you will find the required presentation and reconciliation to the most directly comparable GAAP financial measure in the company's earnings release.

Now, what I'll do is I'll go over the financial review.

For the fourth quarter.

Revenue for the fourth quarter was $50 million.

That's down 13.3% from revenue of $57.6 million in the prior quarter, and down 5.8% from the $53.1 million reported in the same quarter a year ago.

Gross margin for the fourth quarter came in at 48.7%, which was below our guidance and under the gross margin posted in the third quarter, which was 54%.

The sequential decline in gross margin was primarily due a charge to cost of sales, the obsolescence of selected inventory parts and, to a lesser extent, product mix.

As Bruno will provide guidance later in this call, we anticipate that the gross margins will return to recent historical levels for next quarter.

Total operating expenses excluding intangible asset amortization and restructuring expenses for the fourth quarter came in at $29.4 million, $2.7 million lower than the $32.1 million reported in the third quarter.

The lower quarter-over-quarter operating expenses were primarily the result of reduced labor costs related to the -- to our 2008 restructuring plan initiated at the end of the third quarter.

Quarterly R&D expense came in at $15.5 million, which was lower than the $17.5 million reported last quarter, and quarterly SG&A expense came in at $13.9 million.

That was lower than the $14.5 million reported in the third quarter.

The company recorded a $0.3 million restructuring charge for the fourth quarter, primarily related to the costs associated with the 2008 restructuring plan that I just mentioned and is now substantially complete.

Intangible asset amortization was $1.4 million for the fourth quarter and will be $228,000 in Q1 of 2009, after which we'll no longer incur this charge.

In the other income category, our income statement -- you'll see a negative $7.6 million and negative $1 million for the fourth and third quarter respectively.

During the current quarter, we recorded an $8 million impairment charge compared to last quarter's charge of $1.4 million.

Both charges were related to an other than temporary decline in fair value of auction rate securities.

I will provide more detail on the auction rate securities later during this call.

We recorded a tax provision of $102,000 during the fourth quarter, primarily the result of income at our foreign operations.

The company has the benefit of significant net operating loss carry-forwards and, therefore, we do not expect to pay US federal income taxes in the foreseeable future.

In the fourth quarter, GAAP net loss was $14.4 million or $0.12 per share as compared to a $7 million loss or $0.06 per share we posted in the third quarter.

The fourth-quarter results include total charges of $10.7 million for an impairment charge for other than temporary decline in fair value of investments.

The amortization of intangible assets, a restructuring charge, and stock-based compensation expense.

If I exclude these just-mentioned charges and expenses, our non-GAAP net loss was $3.7 million in the fourth quarter, and compares to a $1.4 million positive income posted in third quarter and a $1.7 million loss posted in the comparable fourth quarter last year.

And last -- in Q4 of 2007, you also have to adjust out the goodwill impairment charge that we took.

Our liquidity position remains strong.

And I'd like to summarize a couple points as it relates to this.

First, GAAP cash flow from operations for the three and 12-month period ended January 3, 2009, was $2.4 million, and $26.9 million respectively.

Included in these amounts are drawdowns from our cash advance to our foundry partner, few IT see sue, of $3.3 million and $16 million respectively.

Second, as of January 3, 2009, we had $65.9 million in cash and cash equivalents and short-term marketable securities.

Third, we have a remaining benefit of our cash at Fujitsu that totaled $91.6 million at the end of the fourth quarter.

Of this amount, $60 million is recorded as an "Other receivable," as Fujitsu has agreed to pay us in two installments of $30 million in Q2 and Q4 of 2009.

The remainder will be returned to us in the form of wafers and other services until completely utilized.

When I add these items just mentioned up, our total liquidity position remains strong at $157 million at January 3, 2009.

We have no long-term debt.

In addition, not included in the $157 million we have auction rate securities that I mentioned earlier in the call, with a fair value of $19.5 million which represents approximately a 50% discount to par, due to the liquid markets for these type of investments, these auction rate securities are classified as long-term assets under long-term marketable securities.

The auction rate securities market remains weak with auctions that continue to fail.

And we experienced downgrades to our auction rate security holdings.

As a result, we record an additional other-than-temporary charge in the fourth quarter of $8 million.

For the year, we have charged off a total of $19.7 million.

Accounts receivable at January 3 were $26.4 million compared to $29.9 million at the end of last quarter, and days sales outstanding were 48 days.

That's up one day from last quarter, but better than the seasonal, comparable Q4, 2007, of 50 days.

Inventory at January 3 was $32.7 million, a decrease of $3.1 million from September 27.

This represents our lowest level since Q1 of 2006.

Months of inventory now stand at 3.8 months compared to 5.1 months at the end of Q4 of 2007.

We spent $1.6 million on capital expenditures during the fourth quarter, and the quarterly depreciation expense of $3.3 million, down slightly from the prior quarter.

Deferred income at January 3 was $5.7 million.

That's down $1 million from the prior quarter.

This concludes the financial review portion of the call.

And I will now turn things over to Bruno for a business review.

Thank you, Rob.

It is clear that we're in a very challenging time not just for the semiconductor industry but for the entire worldwide economy.

In the midst of this uncertainty, I am pleased by both Lattice's solid liquidity position and our ability to manage our cash flow, even in this difficult revenue environment.

Our strong balance sheet has given us the ability to entertain different ways of increasing shareholder value.

For example, last quarter, we announced that our Board of Directors has arrived at a $20 million share buy-back program.

We're also ready to focus on optimizing our supply chain.

Our analysis has gone several ways to both shrink costs out of the supply chain and to simultaneously increase our responsiveness to our customers.

This transition by our product operations team fits in well with initiatives that we launched last year to reorganize our business to better reflect our strategy going forward, and achieve greater efficiency.

Let me give you a quick update on some of those initiatives.

Our high-density team is finishing the work that will focus them on specific vertical markets where we believe our differentiated technology strengths can give us solid and dependable position going forward.

Our low-density and mixed signal team is working to increase sales through deeper partnerships with our sales channels, and is also developing a product roadmap that will reassert our commitment to markets where we have historic strengths and leadership positions.

Our R&D team has established global centers of excellence, eliminating functions and focusing on the development of the most efficient design process they can.

Let me now give you some more color on our business last quarter.

There were no material changes between end market segments on a sequential basis last quarter, indicating to us that the softness we are seeing is across all markets.

Last quarter, industry saw a slight increase in its share of revenue at several military and aerospace accounts, increased their purchases.

Consumer saw a slight decline in its share of revenue as several American consumer companies scaled back.

Consumer, however, has experienced the strongest year-on-year dollar growth of any dollar segment growing 15%.

This increase was driven by the success of our isp2 product in that market.

Revenue for all segments was down.

Though our performance in the Americas was better than other geographies.

The Americas posted only a single-digit quarter-on-quarter decline, while Europe and Asia each saw double-digit declines.

In the face of the systemic industry decline, we did have some bright spots.

As an example, our largest Chinese and Japanese communication accounts were up over 15% quarter on quarter with double-digit gains in both our high-density and low-density products.

Looking at revenue by life cycle, new products continue to claim an increasing share of our revenue.

Our revenue from all product categories declined quarter to quarter, new products grew 3 points from 30% to 33% of revenue.

Our new EPC2/M and SC did quite well, growing at 10% quarter on quarter.

Last quarter, EPC2/M showed particular strength in communications, and in Asia.

In November, the EPC2/M family was again recognized by the technical community when it won a prestigious China award as a leading logic product.

[The 4.2 cores] in our IC products were also recently recognized by the technical community, winning product of the year best system connect elements from the Eng News Network.

Our isp2 non-volatile SPGAs grew over 5% last quarter, driven by adoption in the consumer segment.

Our Mach XL non-volatile PLD's also posted slight growth last quarter continuing to get traction in both communications and Asia.

Revenue from our mainstream products declined 17%, dropping from 44% to 42% of revenue.

These declines were primarily attributable to lower demand for our 180-nanometer PLDs and our older SPOC products.

Product revenue fell 18% quarter on quarter and now accounts for 25% of our operating revenue.

Because of the lack of visibility in the markets, we have chosen to broaden the range of our revenue guidance on project 10 to 20% down on a sequential basis.

We expect gross margin to trend closer to more historic recent levels of 52% to 54%.

We are planning an OpEx of approximately $28 million.

First-quarter '09 is our last quarter of intangible asset amortization.

We will have a charge of $228,000 this quarter, then it will go to zero in the second quarter of 2009.

As I complete my remarks today, lets me re-emphasize several points.

First, though the direction of the market isn't clear, we face it with a solid balance sheet, with strong liquidity and no debt, and with a demonstrated ability to manage our cash flow despite revenue challenges.

Second, it is our intent to capitalize on this downturn.

Self of our key product lines offer strong value to customers.

Our Mach XL non-volatile family leads the process mode and has diversified features such as unlimited memory and PLFs which are broadly attractive.

Our EPC2/M family is the lowest power surge SPGA in its class and offers a competitive price point.

We believe the competition of our high-density product focus and strengthened low-density channel relationships will strategically position Lattice emerge stronger and more competitive.

Operator, you may start the question-and-answer session.

(Operator Instructions).

We do have a question from the line of Dan Berkeley with O'Connor.

Hi, you guys there?

Yes.

What's the timing during the second and fourth quarter of the Fujitsu receivables and what was the thought process on taking it, in the second and fourth quarter?

For the timing of the receipt is early, I would say in the -- in the second and fourth quarter, roughly in the April and October timeframe, the rationale for calling back a portion, by the way, of that money was better use of cash going forward and at the same time obtaining strategic relationship with Fujitsu, who was our sole source for our advanced technologies.

Okay.

So making some assumptions on high levels of burn you could have over $50 million of cash or -- I'm sorry.

You know, 30 plus the, call it 50, call it $80 million of cash, sometime in the middle of the June quarter.

What are the priority uses of cash?

Well, as you've probably also seen, we've announced a share buy-back program for $20 million in December.

And so as we move forward, we may use some of that cash for that purpose.

But bottom line is given the current environments, we believe in having a strong balance sheet is critical.

And we want to keep our flexibility going forward with, you know, having plenty of cash to weather the recurrent environment we're in -- weather the current environment we're in.

Okay.

And I assume if it wasn't in the press release you didn't buy any stock in the December quarter?

No, we did not.

Okay.

Thank you very much.

Good luck.

Thank you.

(Operator Instructions).

There are no questions at this time, sir.

Okay.

That concludes the call.

Thank you, everybody.

That concludes this evening's teleconference.

You may now disconnect.