Integrated Silicon Solution, Inc. (



F4Q10 Earnings Conference Call

October 27, 2010 4:30 PM ET


Scott Howarth – President and CEO

John Cobb – VP, Finance and Administration and CFO


Jeff Schreiner – Capstone Investments

Jie Liu – Auriga USA

Raji Gill – Needham & Company

Shawn Boyd – Westcliff Capital Management

Chris Sigala – B. Riley & Company

Andy Ng – Morningstar

Madhu Kodali – Yaksha Capital



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Good day, everyone, and welcome to the ISSI Fiscal Fourth Quarter 2010 Quarterly Earnings Conference Call. As a reminder, today’s conference is being recorded. At this time, I would like to turn the proceedings over to Mr. Scott Howarth, Chief Executive Officer. Please go ahead, sir.

Scott Howarth

Good afternoon and welcome to ISSI’s conference call for the quarter and fiscal year ended September 30


, 2010. I am Scott Howarth, President and Chief Executive Officer, and with me is John Cobb, our Chief Financial Officer.

Before we proceed, I have asked John to comment on the nature of this call and any forward-looking comments that may be made.

John Cobb

Thanks Scott and good afternoon. During the course of this conference call, we will provide financial guidance make projections, comments and other forward-looking statements regarding future market developments, the future financial performance of the company, new products or other matters.

We wish to caution you that such statements are just predictions or opinions, and that actual events or results may differ materially due to fluctuations in the marketplace, delays in developing new products, changes in demand or supply, or adverse developments in the global economy.

We refer you to the documents ISSI files from time-to-time with the SEC, specifically our most recent Form 10-K filed in September 2009 and our Form 10-Q filed in August 2010. These documents contain and identify important factors that could cause our actual future results to differ materially from those contained in our financial guidance, projections, comments or other forward-looking statements.

Scott Howarth

Thank you, John. We are pleased that we achieved record revenue in both the September quarter and in our fiscal year and that we achieved a record for annual net income. Demand growth and market share gains continued this quarter and pushed ISSI revenue to a new record for the company. Revenue growth was 3.4% from the previous quarter and 58.6% higher than the same quarter last year.

Our growth has been driven by secular growth in our key markets such as networking, telecommunications, industrial and automotive, coupled with market share gains in these same segments as customers seek stable long-term supply.

Pricing remains stable as other memory suppliers continue to deemphasize legacy and lower density segments of the memory industry. We believe this pricing environment reflects a healthy balance between market supply and demand. Overall, we expect these trends to continue for the rest of 2010 and into 2011.

We achieved a record level of revenue in the automotive market which grew by 16.4% from the previous quarter. Had another strong quarter of design wins and continue to see a high level of customer design activity in both DRAM and SRAM. However, customer orders began slowing in the middle of the quarter and was slower than expected through September. This weakness occurred primarily in our commodity DRAM, E2PROM, and some baseline DRAM as we saw slower demand in consumer electronics markets in Asia and also what appears to be an end-market inventory correction in some industrial telecom and networking markets. As a result of this slower demand, our September quarter revenue was just short of our revenue guidance range.

Looking at the December quarter, this demand softness has continued and we started the quarter with lower backlog than the September quarter, and we are expecting our December quarter revenue to be slightly down sequentially. We believe this slowness will be temporary and that we will see continued growth through 2011.

I will now discuss the results of this recent quarter. Our revenue in the September quarter was $73.6 million, which is the highest quarterly revenue in the company’s 22-year history. This compares to $71.2 million in the June quarter and $46.4 million in the September 2009 quarter. Our beginning backlog in July orders were strong. However, customer demand slowed in August and the market weaknesses continued through September and into October.

For all of fiscal 2010, we achieved record revenue of $252.5 million, compared to $154.3 million in fiscal 2009. This represents a 63.7% in year-over-year revenue.

Our gross margin was also a highlight for the quarter as we achieved gross margin of 37.8% in the September quarter. This margin includes a 1 percentage point net charge for inventory reserves. This compares to the 38.4% gross margin in the June quarter, which included a 1.7% benefit from the utilization of reserves.

Our gross margin was above our revenue range as pricing was stronger than we had anticipated. However, our operating expenses were higher than we expected due to primarily through product mass costs. Overall, our net income in the September quarter was $11.8 million.

We are very proud of the fact that we’ve been able to come out recession so strong and have demonstrated the strength of our business strategy to deliver profitable results for five consecutive quarters.

Looking ahead, end-market demand has softened and visibility has become more limited. There continues to be a lot of economic uncertainty in the US and other countries. However, we believe that our strategy is sound and we have the right products for our key markets, a very strong customer base, and we remain focused on long-term revenue and profit growth.

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