GSI Technology, Inc. (Nasdaq: GSIT) reported net income of $1.7 million, or $0.06 per diluted share, on net revenues of $20.8 million in its second fiscal quarter ended September 30, 2011, compared to net income of $5.2 million, or $0.18 per diluted share, on net revenues of $26.7 million in the comparable period a year ago. In the prior quarter ended June 30, 2011, the Company earned $3.3 million, or $0.11 per diluted share, on net revenues of $23.0 million.
Lee-Lean Shu, Chairman and Chief Executive Officer of GSI, remarked that second-quarter net revenues were somewhat lower than the Company's initial guidance of $22.8 million to $23.8 million provided early in the second quarter. The shortfall, as noted in the Company’s press release of October 13, 2011, is attributable to lower-than-anticipated sales to Cisco Systems, GSI's largest customer, and to softness in demand from a number of Asian OEM customers. "We believe that this softness in demand is largely a reflection of a global economy that continues to struggle as it emerges from the 2007-2009 recession."
Second-quarter gross margin and operating margin were, respectively, 43.6% and 9.2% compared to 45.5% and 25.0% a year ago and 44.2% and 18.0% in the prior quarter. With research and development expense essentially unchanged from the prior quarter at $2.7 million, the decline in operating margin was due in part to the reduced leverage on fixed costs that came with the lower net revenues and, more significantly, to a $1.0 million sequential increase in selling, general and administrative expense. Included in SG&A were legal expenses of $1.9 million, compared to $782,000 in the prior quarter, that were primarily associated with a previously announced patent infringement lawsuit filed against GSI by Cypress Semiconductor Corporation on March 30, 2011 and a related proceeding before the United States International Trade Commission that was instituted on July 21, 2011. Also included in second-quarter legal expenses were costs associated with an antitrust lawsuit filed by GSI against Cypress on July 22, 2011.