PMC-Sierra's CEO Discusses Q1 2012 Results - Earnings Call Transcript

PMC-Sierra (PMCS)

Q1 2012 Earnings Call

April 30, 2012 4:30 pm ET

Executives

Jennifer Gianola -

Gregory S. Lang - Chief Executive Officer, President and Director

Michael W. Zellner - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

Analysts

James Schneider - Goldman Sachs Group Inc., Research Division

Ruben Roy - Mizuho Securities USA Inc., Research Division

Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Harlan Sur - JP Morgan Chase & Co, Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

David Wu

Sundeep Bajikar - Jefferies & Company, Inc., Research Division

William S. Harrison - Wunderlich Securities Inc., Research Division

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Presentation

Operator

Welcome to the PMC-Sierra First Quarter 2012 Earnings Conference Call. My name is Christine, and I will be your operator for today's conference. [Operator Instructions] Please note, today's conference is being recorded. I will now turn the call over to Director of Investor Relations, Jennifer Gianola. You may begin.

Jennifer Gianola

Thank you, operator. Good afternoon, everyone, and thank you for joining the call. With me today are Greg Lang, President and CEO; and Mike Zellner, Vice President and CFO. Greg will begin the call with a discussion of the business and key highlights from the first quarter 2012, and Mike will then discuss the financial results for the first quarter 2012 and the business outlook for the second quarter of 2012.

Please note that our first quarter 2012 earnings release was disseminated today via BusinessWire after market close, and a copy of the release can be downloaded from our website.

Before we begin, I would like to point out that during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, PMC's limited revenue visibility due to variable customer demand, market segment growth or decline, customer concentration, bookings rate, changes in inventory, supply constraints, foreign exchange rates and volatility in global financial markets, and other risk factors that are detailed in the company's SEC filings. Actual results may differ materially from the company's projection. For further information about these risks and uncertainties, please read the company's SEC filings, including our Forms 10-K and 10-Q.

Note that PMC undertakes no obligation to update any forward-looking statements. Please note that for each of the historical non-GAAP financial measures mentioned on this call, a full reconciliation to the most comparable GAAP financial measures is included on our press release issued today. In addition, a GAAP to non-GAAP reconciliation of financial measures noted in our outlook will be posted on our website under the Financial Reports section of the Investor Relations tab. [Operator Instructions].

Thank you, and I will now turn the call over to Greg Lang.

Gregory S. Lang

Thank you, and welcome to our first quarter earnings call. During the quarter, we continued to see evidence that orders are moving in the right direction. For the full quarter, bookings were up approximately 25% over Q4 levels and we finished with a book-to-bill over 1.1, and anticipate solid growth in Q2. Our storage and server business continues at a healthy clip with strong server sales coincident with the Romley ramp. With much of the inventory cleanup behind us, we expect the balance of the year to continue to strengthen. Despite positive macro signs, there are still areas of weakness in the markets we serve. As you've heard from most of our peers serving the carrier equipment market, a solid recovery is not yet upon us. In conversations with our customers and a few other carriers themselves, most are upbeat about a second half spending, but don't -- we don't yet see it on our bookings. Two of the 3 China carriers are forecasting strong growth while China Mobile, and the established North America carriers, are protecting more modest single-digit growth.

Given the slow start to 2012, this could lead to a strong second half. So this general backdrop, I'd like to get into the details of Q1. The first quarter was a challenging time for the industry of what appears to be at the bottom of the cycle. For PMC, we reported net revenues of $132 million and $0.06 non-GAAP EPS. While revenue was near the midpoint of our range, the mix was a bit different than we expected. Storage came in stronger than our initial expectations while our Optical business was off more than expected with continued weakness in that market segment. At the top level, the Storage Network segment was 66% of total revenue, up from 64% in Q4. Optical revenue came in at 20% of the total, down from 23%, and mobile revenue came in at 14% of the total, up from 13% last quarter.

For those of you tracking the legacy portion of our revenue, it dropped 8% of total revenue in Q1.

Now some more detail on the storage and market segments. Our storage business in Q1 was down approximately 11% versus last quarter, which is several million dollars better than we had anticipated, mostly due to stronger demand and servers given the Romley ramp. Drive shortages didn't seem to impact our large server or storage OEMs as much as it did impact the channel which was down more than seasonally. Overall, this 11% decline is more in line with the normal 6% to 10% seasonality that we would normally expect in the Q1. With the big inventory consumption and the slow seasonal quarter behind us, we expect to see solid growth potential for the balance of the year.

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