TXCC January Earnings CC:
Q4 numbers as guided.
2001 saw the worst down turn in many decades.
Reduced expenses, eliminate all cash bonus for 2001 and 2002, reduced salaries from 5 to 20 percent, reduced head count by 20 per.
VLSI opportunities will in acess and metro going forward. Seer transition from voiceoriented services to MPLS.
Early deployment will be in North Amer. and then go world wide quitely.
Investing close to 80 per. of R+D budget on data oriented products.
Focusing on Asia and European markete for existing product portfolio.
Driving expenses down.
Need to have products that will be in demand for upturn.
Customer are still increasing the number of TXCC prodcuts in their designs.
Number of design wins in Q4 greater than Q3.
[Harry: Not hard to do given the events of Sept 11 put al lot of business on hold]
Design wins at 39 customers for 24 of TXX prodcuts.
Design wins in all geographs.
Design wins in 2001 40 per. above 2000 levels.
Still seeing good demand for 1999/200 design wins. Wins have not been replaced.
Inventory levels at distributors have declined modestly.
Seeing some order activity at customers, but orders are uneven.
Q1 order levels will the same as Q4.
Meanful inventory reductions and normal order patterns should return by the middle of year.Short term visibility is still unclear.
Expect IP MPLS and ATM to be the dominant protocol. Expect a shift to data networks.
See a lot of growth opportunities in Asia and Europe.
Most of design wins in 1999/2000 still in placeand design win momentum in 2001 is still strong.
Financials:
Rev 4.5 mil flat to Q3, down from 51.1 mil Q4 last year
1/3 North Amer, 2/3 Intl.
3 customers made up 75 per. of sales : Samsung, Seimens, Walway.
GM 51 per., down fromQ3 due to product mix.
R+D 14.6 mil, up 3 mil from Q3 due to ONIEX Acq.
S+M 3.9 mil, down from 4.7 mil in Q3
G+A 2.5 mil ,up from 2 mil Q3 due to professional fees
losss of 18.7 mil vers 15.1 mil Q3 in EPS
14.5 mil write off for excess inventory
31.2 mil in re-structuring cost due to layoff and consolidation of 4 TXCC facilities
One time 1.1 mil noncash charge to indicate impairment of software tools
4.2 mil non-cash charge for deferred income taxes
Tax Rate 35 per.
3.3 mil in interst charges for convertible,
Cash and securities 436 mil
AR 3.5 mil flat with Q3
DSO 70 days due to heavy international shipments
Inventory 8.2 mil at end of Q accounting for write down
Inventory in Q3 20.7 mil
Operating cash burn 22.5 mil
Net cash 122.2 mil at end of Q
re-bought 146 mil in convertible bonds for the year
No purchases in Q4
B2B < 1.0
Q1 guidance:
Rev flat , will 2/3 back log 1/3 turns business
GM guidance at low end of range for last 3 Q's, effected by mix, and rev levels
Expenses will reflect full impact of re-structuring in Nov.
R+D down 1 to 1.5 mil from Q4 level
S+M down 200,00 to 300,000 from Q4
G+A down 2000,000 to 300,000 from Q4
Overall decrease in operating expenses of 1.5 to 2 mil over Q4
Q1 will see a loss of 17 to 17.5 mil
Interest expenses 2.1 to 2.4 mil
EPS Loss of 10 to 12 cent
tax rate 35 per
burn in Q will be 20 mil
Q: Break end point given current Op Ex?
A: 30 mil per Q. Down from 35 mil in Q4 20001.
Q: Gross Rev, break down of rev?
A: Most ATM and mostly access.
Q: Design win from 1999/2000. More color? Seeing more T1/E1 traction?
A: Across the board. Design wins are intact. TMAX 28 product introduced. Seeing significant interest. 10 design wins even though not in production. Onex products seeing traction. In next Q we will have something significant to announce. Mostly ATM and mostly in access space.
Q: 40 percent increase in design win Y-Y or Q-Q?
A: Y-Y/
Q: Traction in Aspen product?
A: Seeing good traction in Seimen and Samsung. Only talking about Seimen and Samsung as announced publically. Reducing the cost of Aspen. Working on Aspen 1G (DSLAM and more IP oreinted- 1G ethernet interface).
Q: Seeing more bundling on the customer board of TXCC products?
A: More bundling. Every timewe sell Aspen we are usually selling other products.
Q: Color on T1/E1 business?
A: Seeing traction in T1 area, but seeing more significant T3 traction. Seeing significant design wins with new Triple L3M product. No rev estimates but traction significant.
Q: Order patterns?
A: Mostly tier one, production runs and in Asia and Europe. Seeing some Tier 2 and 3 but not significant.
Q: Distributor inventories decline in absolute dollars?
A: Continue to decline inQ4 from Q3, modest, in low teens in dollar terms, Q2 peak inventory till now 40 percent decline.
Q: 3 customers accounted for 75 per of rev?
A: Seimens, Samsung and Walway(China).
Q: Inventory levels? Talk about T1, T3, etc ....
A: Inventory levels fairly same across the board. Reduction is modest. No product moving more than others.
Q: What about OEM inventories?
A: Working off on modest level also. Limited visibility.
Q: Any difference in T1/E1/T3 area?
A: In T1/T3/E1 area we still see it strong next year. It was strong in designs win this year.
Q: GM levels going forward? Volatile at this current rev level.
A: As we get to more long term rev level, expect GM in the 60's. Current modeling lower 60's.
Q: Which customers do you expect to contribute the most as we come out of the down turn?
A: Seimens and Samsung. Followed by TLAB, Nortel, LU and ERICY.
Q: How many of design wins are new platfrom wins in tier 1? How many in line cards?
A: 60 percent in new design wins in tier 1. Rest in tier 2 and tier 3. Most of win in acess and metro..Wins not only in line cards for DSL lines but in controlling the up link.
Geography of wins Asia, Europe then America.
Q: 2/3 of rev in Asia and Europe, waht is drive that? Decline in North Amer. or unexpected strength.
A: Increase in international is relative since there is a large decline in rev. Most strength we think will be in Asia and Europe and mostly in the access area (DSLAM and Multiservices)
Q: 3G base station wins? Any interest?
A: Yes, significant traction in next generation wireless based stations.
Q: ONEX products?
A: Switch element chips. Delivered to customer for prototpye. Testing of 60 per. of feature alright.
Only switch elelemt capable to of switching TDM, ATM, IP MPLS. Service processors will be the next products: TDM, MPLS, and multiservices.
Q: Competition to ONEX products?
A: Very little competition to date.
Q: Service Processor road map?
A: By middle of year will have 2 prototypes: multiservices and TDM. Mostly TDM processor seeing traction right now.
Q: Inventory write down? Color? End yet?
A: Across the board inventory write down. Expect rev to return in 2002. Expect to use the inventory remaining.
Q: First time Walyway was a customer.?
A: Not a new customer, but the reduced rev level made them a high percentage.
Q: Break out product mix?
A: SONET 30 per. Asyn 25 per. ATM 50 per., hard to see trends though as rev is low
Q: TLAB, LU,RBAK how will they contribute going forward?
A: TLAB coming back with older design wins. Will see them coming back quickly. Seeing some new design wins in TLAB platform. Seeing hopeful signs in NT. LU is behind NT in showing sign of recover.
Q: Color on products shipping now? Have any products have depleted inventory in channel? how many are new design wins?
A: ATM side most of rev came from Aspen and Cubic. 50 per of rev. In Asynch area all across the board, 1/4 of rev. In SONET area mostly the first series of product and L3M.
Q: In terms of customers, are they ordering because they have worked through inventory? New design wins
A; Most are older desgn wins. So re-rodering.
Q: Linearity?
A: Still very choppy. Hard to perdict.
Q: TLAB. Color?
A: Come back end of Q2 or Q3. Inventory levels still high ,but demand for their products are good.
Have design wins in their new products.
Q: Cost control?
A: Trying to balance cost without cutting too deep as to impair long term business. Now focusing on delivering new products. Do not expect to reduce expenses more.
Q: When will we got to that break even point?
A: Don't know. Starting Q3 will start to see more normal order patterns we expect. Convertibles not due to 2005. Have plenty of cash on hand.
Q: Consolidation of facilites?
A: Focusing on MPLS products. Eliminated ATM products. Reduced head count by 100. Now in one building. Closed Montreal office. Moving them to Boston.
Q: Aspen and other products that going into DSLAM, Seimens and Samsung. What indication ar they giving you of re-orders?
A: Seimens and Samsung ordering now. Seeing strength and expect this to pick up. Other customers have still not ordered yet. Seimens and Samsung orders not significants as there is still inventory.
Q: DSL product wins?
A: Seimens and LU. NT left business. TLAB platform on hold. In all have 50 design wins. Not all in DSLAM.
Q: LU, Stinger platfrom.? All Stingers or only one.
A: One. A significant one.
Q: ONEX win. FPGA or silicon?
A: Silicon from IBM fab. July time frame for TDM and MPLS prototype silicon.
Q: Walways customer. Application? Pricing?
A: Access and metro platform. Pricing sames as N. Amer and Asia. We know them for a long time. Have shown advantage of product. They are tough negotiators, but we add value. They can start selling right away, it is more than just siliocn.. Mostly ATM and SONET SDH.
Q: With 3 customers 75 per of sales and high inventories in channel. What per. of sales were to distributors? When wil they recover?
A: Amount of sales to distrbution was very modest. Amount of inventory moved out of distribution channel modest. Expect more normal ordering patterns this summer.Other than Seimens and Samsang we don't have much visibility though.
Q: Recovery time frame?
A: Expect order pattern to return to normal in summer. No idea who will recover first. Expect Seimens and Samsung to recover first.
Q: If Seimen Samsung expected tp come back in Q3, is NT andLU furhter out for a recovery?
A: Hard to say. That is our current assumption though. We are in aheavily in ADCT DSL platform win. Expect ADCT to come back in Q3.
Q: R+D down $1.0 mil to $1.5 mil. Where are cuts coming?
A: Cancelled legacy programs. Most of legacy services will be absorbed by MPLS. Have software expertise from ONEX acq. Cut in manufacturing. R+D retained all the skills we needs in ATM, IP and MPLS.
Q: Inventory charges? Amount for obsolete vers nonsalable?
A: Charge for excess inventory, not nonsaleable.
Q: Any area specific, as inventory up 2 mil. in Q?
A: No specific area. Pushed out delivery on some products from FABS during 2001 due to contract terms. Could not push out any more so took delivery.
Q: Reversed Deferred tax assests?
A: Took a valuation allowance. Expect to use the rest of NOL on balance sheet as we go profitable.
Q: Liabilities on balance sheet.
A: AR 4 mil
Acuured Expense 9 mil
Benefits 3 mil
Returned Sales and discounts 2 mil
Accurred Interest 4 mil
Re-structuring charge 3 mil.
Total 25 mil.
Expect to see growth in access and metro. Already strong in access. ONEX acq. gives us strength in Metro. See opportunities in Asia and Europe and focusing resources there.
[Harry: Call suggest they are seeing steady but weak demand in T1/T3/E3 lines. Inventory levels are at 9 months as suggested by AMCC last Q. The drop in revenues is tremendous, indicating how weak demand is and how much inventory is in the channel. LU looks weaker than NT in getting its inventory and demand issues under control and perhaps new designs on track. Interesting that NT is out of the access area but TXCC expects them to come back as a significant customers. It must be in the next generation products like MPLS as opposed to T1/T3/E3 products. Asia and Europe remain the areas of strenght as indicated by the RSTN call. That does not help TLAB whose rev. comes mostly from Noth Amer. TXCC is seeing lot of design wins as we have seen most companies continue to invest in R+D in order to maintain market positioning during the down turn. Till we see actual production though TXCC will continue to lose money. From a practical perspective T1/T3/E1 needs to recover before we see any kind of traction in the core and long haul.] |
