Spansion (CODE) Q4 2011 Earnings Call January 26, 2012 4:30 pm ET Executives Randy W. Furr - Chief Financial Officer, Principal Accounting Officer and Executive Vice President John H. Kispert - Chief Executive Officer, President and Director Ajay Bhatia - Analysts Daniel A. Berenbaum - MKM Partners LLC, Research Division David Silverman Atif Malik - Morgan Stanley, Research Division Monika Garg Presentation Operator
Before we begin, please note the Safe Harbor Statement on Slide 2 of today's materials. During the course of this meeting, we may make forward-looking statements regarding future events or the financial performance of the company. Such statements are based on assumptions as of the current date, and you are cautioned that these forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those statements. We urge you to review in detail the risks and uncertainties discussed in our Securities and Exchange Commission filings, including our annual report on Form 10-K for the fiscal year 2010 and the Forms 10-Q for the first, second and third quarters of 2011. The company disclaims any duty to update forward-looking statements.Our agenda for the call today is as follows: John Kispert will discuss key highlights from the quarter and fiscal year, then Randy Furr will review the quarter from a financial perspective and provide the forward-looking guidance. Our Q&A session will follow and John will close the call with some remarks. An audio replay of this call will be available for one month by accessing the Investor Relations page at spansion.com or by dialing (188) 286-8010 and using the passcode 45968394. Now I would like to introduce John Kispert, CEO of Spansion. John H. Kispert Thank you, Ajay. Good afternoon, and welcome to our Fourth Quarter and Full Year 2011 Earnings Conference Call. Against the backdrop of a difficult macroeconomic environment, 2011 was a challenging but transitional year for Spansion. Intense product development and design win growth of 70% over 2010 levels were some of the milestones we achieved. We believe the fourth quarter marked an important turning point for the company. For the fourth quarter, we achieved solid financial results at the midpoint of our guidance, and we are well-positioned for the future as the restructuring that we announced last quarter is proceeding as planned, and our 2012 new products are on schedule. My comments today will be organized as follows: first we will recap our financial results; next I will outline the status of our restructuring program; then I will update you on what we have seen in the market and the latest developments across our various businesses; and finally, I will review our design win progress. Then, of course, Randy will give you the fourth quarter financial details and the outlook for the first quarter. After which, we'll field your questions.
So for the fourth quarter, we achieved revenues of $220 million at the midpoint of our guidance. Non-GAAP gross margin was 24.2% and non-GAAP adjusted operating income was $3 million or 1.5%, and non-GAAP adjusted EBITDA was $25 million. Randy will go into more detail in the financials, but on a high level, we achieved solid financial results in Q4. With our wireless business exit largely behind us and with our product roadmap execution and strong customer engagements, we are well-positioned to capture growth in the future. Capitalizing on our leadership position in the embedded Flash memory market.And I'd like to give you an update on the progress we are making with our restructuring program. The closure of our Kuala Lumpur assembly and test facility remains on track, and we expect to complete the production transition by the end of March. With the majority of this transition behind us now, we are beginning to realize the financial benefits from these actions during the first quarter of 2012. We expect annual cost savings of approximately $30 million. Randy will review the financials around this in more detail later in the call. As for the market and business update across our various markets, first, the wireless handset market, which continue to face challenges and as we expected, we saw declines in our wireless business. It's important to note that we remain committed to supporting our wireless customers with our future products. However, we are reducing new development activities at our older MCP business and the financial impact of this segment will soon be insignificant as we integrate wireless into our consumer segment. Our focus on the embedded market is yielding positive results. During the fourth quarter, we maintained our leadership position in this market. We continued momentum across all of our businesses. We anticipate that over time with a greater emphasis on embedded markets, our business should become more stable and predictable given the longer product life cycles inherent in this business, combined with our diversified customer base. We saw particular strength in Japan in the gaming segment, where customers are relying on our high-density products, such as our 4 gigabit NOR device, which went into production in Q4. We continue to lead in the automotive market, and I will share some of our design wins in all of our segments shortly. With widespread adoption of connected feature-rich embedded devices on the rise, we are working closely with existing and new customers to design and deliver high-density, non-volatile memory products that enable faster, interactive and high performance electronics. We're continuing to make steady progress in executing our strategy for the embedded business. We can achieve a higher return on investment, focus on cash generation and expect to improve profitability throughout this year. We will do this by maintaining leadership in Parallel NOR, growing Serial NOR, delivering NAND, expanding licensing and developing and introducing a new category of products to embed MirrorBit and logic for memory-intensive processing applications. I will now cover each one of these strategic areas. Read the rest of this transcript for free on seekingalpha.com