Second Quarter Operating Performance
Net sales were $94.8 million in the quarter compared with $116.5 million in the prior-year quarter primarily due to lower wireless sales and lower industry demand for network products, which were partially offset by strong growth in the power segment. Sequentially, net sales increased 7.7 percent compared with first quarter net sales of $88.0 million primarily due to strong growth in the power segment.
Cost of sales declined 15.4 percent to $72.4 million in the quarter from $85.6 million in the prior-year quarter. The company’s gross profit margin was 23.6 percent in the quarter compared with 26.5 percent in the prior-year and 20.9 percent in the first quarter. The lower gross margin compared to the prior year reflects lower volume, higher wage rates, higher raw material costs, and lower pricing for network products. These factors were partially offset by strong demand in the power segment and continued migration to lower-cost facilities in China. Compared to the first quarter, gross profit margin increased mainly due to better capacity utilization from higher power segment sales.
Selling, general and administrative expenses—which include research and development—decreased 13.9 percent to $21.3 million in the quarter from $24.7 million in the second quarter of 2010. The decrease in spending was due to prudent expense management in light of lower sales and the early benefits of expense reduction actions.Operating loss according to U.S. GAAP was $4.2 million in the quarter compared with a profit of $2.4 million in the prior-year quarter. Non-GAAP operating profit was $1.5 million compared with $7.7 million in the prior-year quarter. The operating loss according to U.S. GAAP included $3.9 million and $3.8 million for severance, impairment and associated costs in the second quarter of 2011 and 2010, respectively, and $1.5 million in second quarter 2011 related to an unsolicited takeover attempt.