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SMART Modular Technologies Inc. F3Q10 (Qtr End 05/28/10) Earnings Call Transcript

SMART Modular Technologies Inc. F3Q10 (Qtr End 05/28/10) Earnings Call Transcript

SMART Modular Technologies Inc. (SMOD)

F3Q10 (Qtr End 05/28/10) Earnings Call Transcript

June 17, 2010 4:30 pm ET

Executives

Suzanne Craig – IR, The Blueshirt Group

Iain MacKenzie – President and CEO

Barry Zwarenstein – SVP of Finance and CFO

Analysts

Tim Luke – Barclays Capital

Gary Hsueh – Oppenheimer & Company

Jim Suva – Citigroup

Rich Kugele – Needham & Company

Kevin Cassidy – Thomas Weisel Partners

Presentation

Operator

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» SMART Modular Technologies (WWH), Inc. F2Q10 (Qtr End 02/26/10) Earnings Call Transcript
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Welcome to the SMART Modular Technologies third quarter 2010 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions)

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The conference is being recorded today, Thursday, June 17, 2010. I would now like to turn the conference over to our host, Ms. Suzanne Craig, Investor Relations.

Suzanne Craig

Thank you, operator. Good afternoon everyone and thanks to everyone for joining us on today's earnings conference call to discuss SMART Modular Technologies third quarter fiscal 2010 financial results. Iain MacKenzie, President and Chief Executive Officer, and Barry Zwarenstein, Chief Financial Officer joined me on today's call.

Before we begin, I would like to make the following Safe Harbor statements. 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 27-A of the Securities Act of 1933 and Section 21-E of the Securities and Exchange Act of 1934. 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 annual report on Form 10-K for fiscal year 2009, and the quarterly reports on Form 10-Q for the first and second quarters of fiscal 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 third quarter fiscal 2010 earnings press release is available on the company's website at smartm.com or you may call our Investor Relations office at area code 415 217-7722, and we will fax you a copy.

Please note that non-GAAP financial results presented exclude stock-based compensation expense, restructuring charges, goodwill impairment charges, net gain on repurchase of notes, gains from a legal settlement and other infrequent or unusual items.

Please refer to the non-GAAP information section and 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 area code 303 590-3030, and using the passcode 4313196. Now, I would like to introduce Iain MacKenzie, President and CEO of SMART Modular.

Iain MacKenzie

Thanks, Suzanne and welcome to everyone on the call. We had another good quarter with better than expected results, driven primarily by strong demand from US multi-national OEMs. Third quarter net sales increased 26% sequentially to $201.2 million, and gross profit totaled $45.5 million, up 8% sequentially.

Non-GAAP net income grew to $0.26 per diluted share, compared with $0.23 last quarter and $0.01 per share in the year-ago quarter. To put this improvement into sharper perspective, the cumulative net revenues for the three quarters ending with Q4 of our fiscal 2010 are expected to be $566 million, using the midpoint of our guidance for our fourth fiscal quarter. If achieved, this would represent a growth in net revenues of almost 80%, versus the $350 million for three quarters ending with and including Q1 of this fiscal year, which is about [ph] when the economy began to improve and end user demand started to return.

Additionally, our adjusted EBITDA has grown from a range of 5 to $10 million per quarter during fiscal 2009, to over $25 million per quarter so far in fiscal 2010. Thus we have clearly seen a step function improvement in our business. Although we continue to discuss our business largely in the context of DRAM versus non-DRAM, actually within DRAM there are two distinct parts. First, is our core specialty DRAM and logistics business; and second, is the portions we have in Brazil (inaudible) grade package and tested DRAM ICs as well as DRAM module manufacturing business.

Our non-DRAM business is also made up of two parts, namely the solid state storage and secondly our latest development of Flash-based consumer products in Brazil.

Based on our latest quarterly results, our core DRAM logistics business comprised approximately 42% of our overall net revenues. The core DRAM business outperformed our expectations with stronger than anticipated end user demand, particularly from the network and telecom end markets which grew 15% sequentially. This strength in end user demand for our specialty customized modules was a key factor for the success of this business.

High density module volumes continue to track well along with the continued ramp of Intel and MDDDR3 enabled server platforms. We have seen more demand for our high density variable profile DDR3 CoolFlex modules which incorporate IP that we acquired or licensed several years ago and provide a very cost competitive solution for blade applications.

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