SMART Modular Technologies CEO Discusses F1Q2011 Results – Earnings Call Transcript
SMART Modular Technologies (WWH), Inc. (SMOD)
F1Q2011 Earnings Call Transcript
December 16, 2010 4:30 pm ET
Executives
Suzanne Craig – IR, The Blueshirt Group
Iain MacKenzie – President and CEO
Barry Zwarenstein – SVP and CFO
Analysts
Jim Suva – Citigroup
Gary Hsueh – Oppenheimer & Company
Tim Luke – Barclays Capital
Betsy Van Hees – Wedbush Securities
Alex Kurtz – Merriman Capital
Rich Kugele – Needham & Company
Neil Mehta – Stifel Nicolaus
Presentation
Operator
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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the SMART Modular Technologies first quarter fiscal 2011 conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions)
This conference is being recorded today, Thursday, December 16, 2010. And I would now like to turn the conference over to Suzanne Craig, with Investor Relations. Please go ahead, ma'am.
Suzanne Craig
Thank you, operator and thank you to everyone for joining us on today's earnings conference call to discuss SMART Modular Technologies first quarter fiscal 2011 financial results.
Iain MacKenzie, President and CEO will begin the call with a discussion of market and business development, followed by Barry Zwarenstein, Senior Vice President and Chief Financial Officer, who will review the financial results in more detail and provide the forward guidance. We will then open the call to your questions.
Before we begin, I'd like to make the following Safe Harbor statement. During the course of this conference call, Iain or Barry may make projections or other forward-looking statements regarding future conditions or events concerning our future business, our current and new products and services, the size and strength of our markets and/or the future performance and outlook of the company.
These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. Should you review management – you should review management's discussion and analysis and related risk factors affecting future results contained in the forms and reports filed with the Securities and Exchange Commission, including the company's recently filed annual report on Form 10-K for fiscal year 2010.
We caution you that such statements are just projections. Accordingly, our future results may differ materially from such projections and investors are cautioned not to place undue reliance on any forward-looking statements.
These forward-looking statements are made as of today and SMART does not intend and has no obligation to update or revise any forward-looking statements. The first quarter fiscal 2011 earnings press release is available on the company's website at smartm.com or you may call our Investor Relations office at 415-217-7722 and we will fax you a copy.
Please note that non-GAAP financial results presented excludes stock-based compensation expense, the technology access charge and other infrequent or unusual items. Please refer to the non-GAAP information section of the reconciliation of non-GAAP financial measures table of our earnings press release for further detail and for a reconciliation of such items to GAAP.
An audio replay of this call will be available for two weeks by accessing the Investor Relations page at smartm.com or by dialing 303-590-3030 and using the pass code 4390981. And lastly, SMART will be presenting at the Needham Growth Conference in New York City on January 11th.
Now, I would like to introduce Iain MacKenzie, President and CEO of SMART Modular Technologies.
Iain MacKenzie
Thank you, Suzanne, and welcome to everyone on the call. In the first quarter of fiscal 2011 net sales totaled $216.4 million, non-GAAP gross profit totaled $44.2 million and non-GAAP diluted earnings per share totaled $0.27. We’re pleased with these results given the significant DRAM pricing declines in the latter part of our quarter and weaker end user demand from multinationals.
Compared with year ago period net sales grew by 76%, non-GAAP gross profit increased by 53% and non-GAAP earnings per share increased by over 200%. I will start with a discussion with review of our business in Brazil.
As a reminder, the financial results for Brazil subsidiary are included in one month lag in the fiscal quarters. During Brazil first two months obvious in September, prices from mainstream DDR3 1 gigabit pars declined by 2% and 12%, respectively, according to DRAM exchange.
In October, the third month of the quarter for Brazil places decline by another 14% for a cumulative quarterly decline of 26%. Despite an increase in module capacity in excess of 20%, this greater than anticipated DRAM price declines compressed gross profits in Brazil slightly, because module prices typically just faster than our inventory and working process turnaround time of approximately six weeks.
Since the end of October, however, the rate of DRAM price declines has increased with prices declining by another 24% in November alone and continue to decline rapidly so far in December.
While demand in Brazil remains robust, we are currently evaluating our capacity to address the sizable and sustain DRAM price reduction as well as the implication of upcoming technology transitions with a consequent pressure on revenue and margins in the country. This is reflected in our guidance for second fiscal quarter which Barry will present shortly.
With respect to flash products in Brazil we are now qualified by two customers and as planned we’re seeing initial sales of these consumer products, while continuing to expand our product lines and as a result, we are seeing more interest from local customers.
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