PMC-Sierra's CEO Presents At Bank Of America Merrill Lynch Technology Conference (Transcript)

PMC-Sierra Inc. (PMCS)

Bank of America Merrill Lynch Technology Conference Transcript

May 08, 2012 6:30 PM ET

Executives

Greg Lang – Chief Executive Officer

Analysts

Presentation

Unidentified Analyst

… afternoon session. Delighted to have Greg Lang, CEO of PMC-Sierra joined us for a fireside session. Again, with most of the presentations as we have done this morning like to keep it as interactive as possible, so please feel free to jump in, ask questions.

With that, Greg would you like to just jump into Q&A? Are there any opening comments anything or should we just?

Greg Lang

Yeah. Let’s go ahead and jump in the Q&A. We’ll cover in that.

Question-and-Answer Session

Unidentified Analyst

Okay. Thanks. So, maybe at a very high level, what we have seen from the earnings season so far is, people calling Q1 sort of the bottom of the cycle, Q2 is expected to be up for most of the semiconductor players. But then visibility in the second half, right, sort of mix, right, for some players, they are just not feeling confident about giving any second half visibility. How do you see it from your perspective as you look at your end markets, you look at your customer engagements?

Greg Lang

Yeah. I would say that some of those feelings and views of the outlook are very similar to our own. We clearly see Q1 as kind of the bottom of this particular cycle and what we view is kind of the correction after the over buying from the tsunami last year.

We see that just in the form of kind of big reduction from run rates from a couple of major customers that indicate that they were burning off some inventory, obviously, as well as some direct conversation there. So, for us Q2 outlook is improved. It’s actually solid…

Unidentified Analyst

Yeah.

Greg Lang

… progress we think on the storage of the equation. However, the carrier part of our business, if we kind of break it into storage, it serves more the data center part of the environment, and then the mobile and optical part of our business, which is more carrier focused.

That is still soft. We do expect to be up a bit on the mobile side this quarter. But, the signs are not as robust and not as strong as we like to see. And so, my opinion, that’s why you are seeing some hesitation in the second half guidances.

We really haven’t seen kind of the strength in the carrier side that we like to see and actually, if you go back and I think about when it first started to appear, we -- it’s almost a year now, by the time we get to the end of Q2.

Unidentified Analyst

Yeah.

Greg Lang

So, it’s been a very long and extended kind of period of weakness. I think we all like to see some more strength there, before we say, feel better about, how the business will improve in the second half.

Unidentified Analyst

Right. So, Greg, when I look at your business, so storage is almost two-thirds of the business and then you have optical and mobile, the other two focus areas for you. Why is it that, in general, telco spending has lagged when what we hear is bandwidth consumption has not really slowed and there is a move to these advanced smartphones and tablets? You think this telco spending pause, is it really a pause, is there something more that we need to worry about, or what are you hearing from your customers?

Greg Lang

Yeah. So, on the first part of your comment on the storage part, the storage of the business, and I realize this wasn’t the direct question, has been actually remarkably resilient…

Unidentified Analyst

Yeah.

Greg Lang

… throughout the, if you go back to late 2008, the financial market meltdown and the gyrations since then, there’s been a lot of good solid health in that part of the business. The carrier business on the other hand is had this, volatile kind of swings both good and bad.

My view today is that, what we are seeing is, is really a pause, because some of the fundamentals behind what needs to get done are still real, I mean, the smartphone penetration continues to grow, continues to attacks the network, most of the 2.5 and 3G base station backhaul solutions that are on out deployed in the field today are based on T1/E1 technology.

T1/E1, which is a 1.5 megabits per second, you can group those together and make a bigger pipe, but that is ancient technology relative to what we are capable of delivering today with the packet network. And so my view on the mobile side of the equation is that they absolutely will move to a packet based network coincide with LTE rollouts, some -- in some cases before, I don’t think its question if, yeah, that’s really a question number one.

On the Metro part of the business where I think the phenomena there is similar in the sense that they need to move from TDM type of technology to a packet technology and the packet technology being OTN or optical transport network.

I view the challenge there is really one of, this is a big transition, this is the biggest transition that they have gone through since adopting SONET back in the ’90, and I think basically we under estimate or we forget how long it takes to actually kind of go through a major technology transition like that.

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