SMSC Reports Third Quarter Fiscal 2009 Financial Results

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Hauppauge, New York - January 6, 2009- SMSC (NASDAQ: SMSC) today announced financial results for its fiscal third quarter ended November 30, 2008. Sales and revenues for the quarter were $84.3 million, a decrease of 13.3 percent sequentially and 19.5 percent when compared to the prior year. Despite the fact that the fiscal third quarter is typically a seasonally strong period, revenue was down due to the prolonged troubles in the global economy and to a major inventory correction in the PC market.

Operating margin was 6.9 percent in the third quarter fiscal 2009, compared to 10.3 percent in the previous quarter and 13.6 percent for the third quarter fiscal 2008. The primary drivers behind the decline in operating margin were reduced revenue as well as executive transition expenses of $1.8 million, offset somewhat by a significant reduction in stock-based compensation expense. On a non-GAAP basis, operating margin for the third quarter fiscal 2009 was 6.3 percent, compared to 13.0 percent in the previous quarter and 19.7 percent in the prior year. The unaudited non-GAAP financial measures in this release exclude charges and credits for stock appreciation rights (SARs) and stock options associated with the accounting pursuant to SFAS 123R and the amortization of acquired intangible assets.

Net income for third quarter of fiscal 2009 was $9.1 million, or $0.41 per diluted share compared to net income of $8.7 million or $0.36 per diluted share for the prior year. This EPS improvement was primarily due to the benefit of favorable foreign exchange rates during the quarter and $1.5 million in tax credits from Congress's recent extension of income tax credits related to qualified domestic research and development expenditures. Non-GAAP net income for third quarter fiscal 2009 was $8.7 million or $0.39 per diluted share, compared to $12.8 million or $0.53 per diluted share in the third quarter fiscal 2008.

"Despite the fact that we were able to meet our revised revenue and earnings objectives, business conditions continue to deteriorate, particularly in the PC and automotive markets," said Christine King, President and Chief Executive Officer. "The broad based malaise in our industry driven by unprecedented economic conditions is causing weak end-customer demand in all geographies. In response to these difficult times we intend to focus on maintaining our strong balance sheet and take appropriate actions to right size our business for the expected lower revenue levels while continuing our focus on new design wins."

Sales and revenues for the first nine months of fiscal 2009 were $274.3 million, a decrease of 3.3 percent compared to the first nine months of fiscal 2008. Net income for the first nine months of fiscal 2009 was $22.2 million, or $0.99 per diluted share, as compared to net income of $21.2 million, or $0.89 per diluted share, for the same period of fiscal 2008. Non-GAAP net income for the first nine months of fiscal 2009 was $28.1 million, or $1.25 per diluted share, compared to non-GAAP net income of $33.9 million or $1.43 per diluted share in the first nine months of fiscal 2008.

The Company generated operating cash flow during the quarter of $21.3 million. The sum of cash and long-term investments decreased in the third quarter of fiscal year 2009 from $179.0 million at August 31, 2008 to $176.6 million, after repurchasing $11.4 million of SMSC stock during the quarter and taking a $4.5 million temporary impairment on auction rate securities. SMSC has no bank debt, and the book value per share as of November 30, 2008 was $19.13 as compared with $19.49 as of August 31, 2008.

Business Outlook

The recent and ongoing difficult economic conditions and sharp decline in visibility continue to hinder the Company's ability to provide guidance. As a result, management cautions that it is important to consider the following guidance together with the caveats, assumptions and discussion that will be presented during a conference call and webcast as outlined below. Looking ahead to the fourth quarter of fiscal 2009, the Company expects:

Conference Call and Webcast Information

Christine King, President and Chief Executive Officer of SMSC, will host a conference call and web simulcast on January 6, 2009 at 5 p.m. ET, to discuss the Company's fiscal third quarter financial results and its updated business outlook. The teleconference may be accessed by dialing 1-888-819-8015 in the U.S. or 913-312-1378 from outside of the U.S. A replay of the call may be accessed by 1-888-203-1112 in the U.S. or 719-457-0820 from outside of the U.S. The live and replay teleconference confirmation code is 1846222. A web simulcast and replay will be available under the investor relations section of the Company�s web site atwww.smsc.com.

Use of Non-GAAP Financial Information

Included within the press release are non-GAAP financial measures that supplement the Company's Condensed Consolidated Income Statements prepared under generally accepted accounting principles (GAAP). These non-GAAP financial measures adjust the Company's actual results prepared under GAAP to exclude certain charges. In the schedules attached to this press release, the non-GAAP measures have been reconciled to and should be considered together with the Condensed Consolidated Income Statements. Reconciliations of GAAP to non-GAAP measures for both the three and nine month periods discussed herein are provided in schedules accompanying this release.

These non-GAAP measures are not meant as a substitute for GAAP, but are included solely for informational and comparative purposes. The Company's management believes that this information assists in evaluating operational trends, financial performance, and cash generating capacity. Management believes these non-GAAP measures allow investors to evaluate SMSC's financial performance using some of the same measures as management. However, the non-GAAP financial measures should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.

SMSC also presents unaudited non-GAAP financial measures and supplemental vertical market information to provide additional insight into underlying operating performance on a comparable basis. The unaudited non-GAAP financial measures exclude charges and credits for stock appreciation rights (SARs) and stock options associated with the accounting pursuant to SFAS 123R and the amortization of acquired intangible assets.

Forward Looking Statements

Our forward looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations and may not reflect the potential impact of any future acquisitions, mergers or divestitures. All forward-looking statements speak only as of the date hereof and are based upon the information available to SMSC at this time. Such statements are subject to change, and the Company does not undertake to update such statements, except to the extent required under applicable law and regulation. These and other risks and uncertainties, including potential liability resulting from pending or future litigation, are detailed from time to time in the Company's reports filed with the SEC. Investors are advised to read the Company's Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, particularly those sections entitled "Other Factors That May Affect Future Operating Results" or "Risk Factors" for a more complete discussion of these and other risks and uncertainties.

About SMSC

Many of the world's most successful global technology companies rely upon SMSC as a go-to resource for semiconductor system solutions that span analog, digital and mixed-signal technologies. Leveraging substantial intellectual property, integration expertise and a comprehensive global infrastructure, SMSC solves design challenges and delivers performance, space, cost and time-to-market advantages to its customers. SMSC's application focus targets key vertical markets including consumer electronics, automotive infotainment, PC and industrial applications. The Company has developed leadership positions in its select markets by providing application specific solutions such as mixed-signal system controllers, non-PCI Ethernet, ARCNET, MOST® and Hi-Speed USB.

SMSC is headquartered in Hauppauge, New York with operations in North America, Asia and Europe. Engineering design centers are located in Arizona, New York, Texas and Karlsruhe, Germany. Additional information is available atwww.smsc.com.

SMSC and MOST are registered trademarks of Standard Microsystems Corporation.

The attached Financial Tables are available only in Adobe® Acrobat® PDF Format.

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