Third Quarter Operating Performance
Net sales were $94.8 million compared with $88.2 million in the prior-year quarter, due to increased demand for wireless products for smartphone programs in which the company participates, offset by modest declines in the network and power segments. Sequentially, consolidated net sales increased 7.5 percent compared with second quarter net sales of $88.3 million mainly due to recovery of wireless product demand and strength in network from accelerated orders for products subject to the Halo injunction.
Cost of sales increased 2.7 percent to $73.2 million from $71.3 million in the prior-year quarter. The company’s gross profit margin was 22.8 percent compared with 19.2 percent in the prior-year quarter and 23.5 percent in the second quarter. The higher gross profit margin compared to the prior year reflects the favorable effects of higher wireless revenue and resulting efficiencies. It also reflects manufacturing plant consolidations and other cost reduction programs. The sequential decrease in gross margin was mainly due to a higher mix of wireless revenues and the implementation of the second portion of government-mandated wage increases at the company’s manufacturing facilities in China, as expected.
Operating expenses were $18.4 million, essentially flat from the third quarter of 2012, which included a $1.0 million favorable impact of an intellectual property licensing agreement. On a comparable basis excluding the IP item, operating expenses declined 3.5 percent. Operating expenses declined 3.1 percent compared to the second quarter due to ongoing expense controls and lower compensation expense. The company anticipates further expense reductions in future quarters resulting from its previously announced expense reduction initiative.
Operating profit (U.S. GAAP) was $0.5 million compared with a loss of $5.8 million in the prior-year quarter. Third quarter operating profit included $2.7 million for severance, impairment, and associated costs in connection with the expense reduction initiative, cost reductions related to operational process improvements, and impairment of assets from the early phase of a continuing development program. Non-GAAP operating profit was $3.6 million compared with a loss of $0.6 million in the prior-year quarter and a profit of $2.2 million in the second quarter.