Vitesse Q4 and ye conf call, Oct 21 2002
Gene Hovanic, CFO
revs q4- 38.1mm, 2% increase over 2001, 11% sequential decrease
Qtr proforma net loss .09/share vs last qtr .10 loss/share
One time charges: 3mm charge RIF, 5mm investment loss, 30mm debt repurchase gain $140mm cash
.02 income /share incl share buyback
50.1 GM up from 46.5 last q
these improvements are a result of cost reductions
tax rate 33%
200mm shares o/s
312mm cash on balance sheet
24mm cash burn rate/qtr
68mm more debt repurchased subsequent to qtr
15mm next qtr burn rate
Lou: business highlights
38.1mm revenue/qtr, market diversification strategy is taking hold
LH transport: 18% rev 7mm down from 12mm last qtr... used to be LH represented 70% of total
revenue in 2000.
Storage: 17.3mm, up from 15mm in prior qtr, in peak 2000 qtr storage was 20%
Metro: (optical) 5.1mm,
Enterprise: ethernet/lans: 8mm, flat from prior qtr, 4mm in year ago qtr.
82% revenue came from NON long haul transport apps. Diversification strategy making big strides.
3 areas (not LH transport) growing 10% qtr/qtr. LH transport is still declining.
Storage is ramping- witch from 1gbit/sec to 2 gbit/sec storage, major design wins at EMC and
majors.
Serial ATA sampling new products moves us to a higher volume mkt.
Metro and Enterprise all new businesses: Tier 1 OC48 and OC 192 metro apps this qtr- RBOCs.
Enterprise LAN, one and 2 gbit network processors+ 1 gbit ethernet switches. These 2 mkts are
acquisitions and internal devt- these are expected to grow most rapidly for Vitesse going forward.
Geog split:
Strong design in NA, outside of LH transport, new growth and products going into production/
Europe weak except for 2
Japan weak across the board
China very strong- the best mkt at this stage.
Expenses:
Dec qtr is first qtr we'll see full impact of last qtr changes. R&D will decline to 24.5 next qtr
SG&A from 15.4-14.5 next qtr reduction.
After dec qtr, R&D will decline 1.5-2mm per qtr for the next 2 qtrs.
Cash break even at 53mm from an operating standpoint
P&L break even 58mm
CMOS accted for 81% of total revenue transition
Colorado springs fab will be phased out by the end of the year.
Fabless business model by 2003
B2B for qtr was .9
GMs expected at 50-51%
-.06 proforma next qtr exp earnings
Forecast revenue
38mm-40mm range
Storage grow 10% to 19mm
Metro stay flat to 5mm
Enterprise to 9mm
Braodbase fabless CMOS model taking hold, more immediate growth
Profitability in FY 2003 based on no growth in LH transport, continued growth in
storage metro and enterprise.
Q&A
M Nasse?
Linearity of orders in last q, was August weak?
Lou: No big change in order pattern. Storage comes in 2nd and 3rd mnth of
qtr in storage, typical.
Long term margins:
Lou: margins will improve when revs go up. Fixed costs going down as fabless model takes
hold. 3/4mm will be removed once the fab goes away. At that point GMs in mid-60s in 2004.
Lou: ASPs in storage substantially lower than LH transport. Vitesse is well connected and
products are 1-2 generations ahead. Keep cramming in more and more features into same
amt of area to keep up margins.
Nathaniel Kahn
Headcount, what has changed- cost cutting seems more agressive with R&D declining
another few million in next 2 qtrs.
Lou:HC is a little over 900, probably going to 850 range. Used to be 1400 a year ago.
Fab strategy, are you looking to sell?
Lou:Colorado springs fab is being used at 10% capacity. Want to partner with a company that
wants a gallium arsenide product strategy. Nothing solidified as of yet.
Are you still doing indian phosphide?
Lou: yes we are developing it and it is paying for itself in the optical area. On the electronic
side mkt is not ready for it yet.
Storage- completely 2 gbit/sec products now?
Lou: mostly 2 gbit/sec now some have simple switches etc. Not processors.
Lou: We see very low inventory levels in storage. No inventory buildup in 2 gbit products.
Optical modules:
Lou: 2.5 mm revenue down from 5 mm last qtr. We're forecasting optical flat this qtr.
Why did liabilities jump:
Gene: its bldg closing, things like that.
Jim
Thanks for the debt repurchase.
Of the revs this qtr Gene, how much of it could be considered end of life sale.
Indian Phosphide side: how to rationalize it
Lou: It is self funding, so why not do it? Recovery is going to take at least a year.
Bambi Harrison
53mm break even, does this include the 1.5-2mm R&D cost reductions?
Lou: it is a snapshot taken today. R&D 24.5 and 14.5 respectively.
Intel getting into space, comment on fab vs fabless - is fabless a disadvantage compared to intc
Lou: the only reason to have a specialized fab is something you can't do with conventional
fab. Vtss had a gallium aresenide fab in the past, it helped with gigabit ethernet. But once
you can hit that performance spec in CMOS you must convert. Today everything is getting
designed in CMOS. Some legacy still runs in gallium arsenide so no point.
You can't afford the billion dollars every 3-4 years in your own fab.
Lou: 4mm total, these are the Camarillo products.
Hans ?
Which R&D projects are discontinued.
Lou: 10gbit network processors, 10Gbit network transport, 40Gbit electronics- there is no
market for it. Also upper layers in LH transport. The carriers are not buying.
Jeremy Bunting
Gene, can you reiterate how much debt repurchase
Gene: at eoy 254mm debt still outstanding and then down to 195mm afterthe first of October.
Comment on EMC seeing tight storage outlook
Lou: we are in 2Gbit/sec space, these are new and beginning to ramp. I'm not surprised 100mbits
and 1 Gbits are slow, but 2Gbit is ramping, nothing in the next few qtrs to change this.
Vtss non-LH core business growing better than 10% qtr/qtr
Mkt share in 2g, is it the same as you had in 1Gbit/sec
Lou: very high penetration in 2Gbit/sec space we are in almost every system out there. Products
are much more sophisticated.
??
Do you plan to completely remove debt eventually?
Gene: We aren't completely sure- if price came down again we'd look at retireing debt but
right now no plans.
What do you mean by enterprise products:
Lou: Enterprise is no sold to carriers. This is ethernet lans etc.
Steve Roston
Where is cash level going to go over time. What is going to happen in early 2003.
Gene: burn in current qtr 15mm, but with debt buyback our net cash will improve.
Over time, march qtr cash burn below 15mm.
Lou: Its hard to make forecast beyond current qtr. The trends are clear, non LH transport
growing 10% qtr/qtr, enterprise and metro space are new boxes subject to customer
purchasing patterns. Nothing in the macroeconomic picture, recovery coming from outside
of network into core. Target cash burn single digits by early 2003.
Lou: We have plenty of design wins at tier 1 customers. The enterprise space is quick, the
RBOCs take a year to get the product.
Cash break even what do you mean.
Gene: Both cogs and R&D and SG&A. cogs 19mm, R&D/SGA about 38. backout depreciation
we get 53mm break even.
Brashard
Cash tax liability from stock repurchases?
Gene: cash tax liability zero.
Who is your number one competitor
Lou: historically AMCC most overlap from LH core. Now we compete with almost all commIC
PMCS, Broadcom, AMCC
Who is your largest customer
Lou: EMC is our largest customer, no customers 10% or over. EMC and Cisco are both
close to 10%. Lucent has been big but not now.
Debt covenants
Lou and Gene: No
Bank Lines?
Lou and Gene- just a small one
Bruce Harp trimark funds
Clarify cash poistion
195mm convert outstanding. 245mm cash oh net cash 50mm is that right?
Gene: 2-3 days after qtr we went from net 48 to about 65. At the end of the
qtr 45-50mm cash on hand. 1st qtr 20mm cash burn so 40mm or so then.
No cash proceeds from shutdown.
The non-LH core, 33mm growing at 10% qtr- 44mm by q4 a year from now?
Lou: I don't want to go there, too simple model.
Break even in Q4 next year?
Lou: we are going to do all we have to do to break even by Q4.
Storage who are your competitors
Lou: TI and Agilent, no qlogic. Qlogic is upper layers in the stack. |
