Here's the conference call from reposter Doug. [Part I}
To all those on the SI Ramtron thread:
The following is a direct transcription of the Ramtron conference call held on 2/17/98, to announce 1997 4th qtr. and year-end financial results. Enjoy.
Doug (one of Lou's re-posters)
Many thanks to Mark Willis who first reported the Conference call phone number on the thread.
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Good afternoon. Thank you for joining us today for our 4th quarter year end 1997 teleconference. Joining me today is L. David Sikes, Chairman & CEO who will lead off with an overview of recent events and Rich Mohr, Ex. VP & CFO who will present the 4th quarter and year end financial details. David will then provide the 1998 outlook provided by a Q&A period opened up by the teleconference operator. Now I would like to introduce David Sikes.
Thanks Lee. Good afternoon everyone and welcome to our teleconference. We are pleased to be speaking with you today sharing our financial results for 1997 and what we see in store for 1998.
First lets review the overall financial results. For the 4th quarter Ramtron posted revenue of $5.5 million compared with $9.2 million in 4th quarter 1996. 4th quarter net loss totaled $1.8 million, or a nickel a share compared with income of $857,000 or a 2 cent per share for 4th quarter 1996. Remember that in the 4th quarter of 1996 we received $5.5 million in license fees from Samsung and other partners whereas in 4th quarter 1997 our partnership fees totaled only $2,000,000. Revenues for 1997 were $20.5 million compared with $31.4 million for 1996. Ramtron's net loss for the year was $8.9 million or 24 cents per share compared with a loss of $5.7 million or 16 cents per share for 1996. Lower license fees during the year accounted for more than 100% of the variance in our P&L results in a year over year comparison.
Now turning to our product revenue performance. 4th quarter FRAM revenue was $525,000 compared with $435,000 during 4th quarter 1996 and our backlog for FRAM products was approximately $1.7 million at year end. As expected sales of FRAM memory products during 1997 remained relatively flat at $1.6 million compared with $1.9 million for 1996.
For EDRAM, revenue for the 4th quarter was $2.9 million compared with $3.2 million in 4th quarter 1996. EDRAM average selling prices for 4th quarter held steady at approximately $11.00 per unit. 1997 EDRAM sales were $13,000,000 compared with $16,000,000 for 1996. Despite lower product revenue for the year EDRAM unit sales and gross profit margins increased year over year. This allowed our EDRAM business unit to post a modest first ever annual profit.
Before we discuss our detailed 1997 financials and our outlook for 1998 I would like to provide an up-date on the top 10 objectives we set and met last year. We view this as our report card for the year and have turned in a nice recap of the past years successes and challenges. In general as the year closes we are pleased with our performance on the top 10. The following summarizes our stated objectives and the status as of year end:
1. RECEIVE 16 KILOBIT FRAM SAMPLES FROM ROHM: In September Ramtron received and shipped its first sample quantities of 16K FRAM memory devices produced in Rohm. Further we began receiving production wafers this month from the Rohm product line.
2. RECEIVE 256 KILOBIT FRAM PRODUCT SAMPLES FROM HITACHI: We received our first few samples this last week but Hitachi is continuing to work on new improvements before significant sample quantities will be available however, Hitachi has provided us with a few working examples for us to begin our characterization study.
3. SMARTCARD WIN FOR FRAM MEMORY AND AUTOMATIC FARE COLLECTION: In August Cubic Corp. selected Ramtron's FRAM memory technology for use in a new generation of mass transit fare collection smart cards. To date Ramtron has shipped more than 20,000 custom cubic chips for use in the Washington, DC public transportation system.
4. NEW FRAM PARTNERS: In December Asahi Chemical of Japan signed with Ramtron as a new FRAM technology partner. We are cooperating on a prototype embedded FRAM device under the first phase of the agreement and we received a $2,000,000 program initiation fee from Asahi in late December.
5. FIRST RESULTS OF 1 MEG FRAM DESIGNS BY FUJITSU AND/OR TOSHIBA: 1 megabit FRAM prototype has been completed at Fujitsu and initial testing has begun. Fujitsu will formally discuss technical details of the project at the up-coming VLSI Symposium in May of this year. Further Toshiba expects first 1 Meg silicon in late April.
6. ISSUANCE OF FUNDAMENTAL EDRAM PATENT: In December Ramtron was awarded fundamental patent rights to the EDRAM architecture. We believe that the issuance of these patents will broaden sourcing and partnership opportunities so we can expand the use of EDRAM memory products in the future.
7. 16 MEG ESDRAM SAMPLING: Changes in the production location for the ESDRAM triggered design modifications that has delayed the shipment of the design to IBM. As a result the ESDRAM is expected
to sample during very early second quarter 1998.
8. CHIPSET AND STANDARDS ACCEPTANCE OF 16 MEG ESDRAM SPECIFICATION: In August, VSLI Technology and Digital Semiconductor announced that the ESDRAM was selected as the high performance memory option for Alpha PC based Windows NT workstations and servers. We also presented the ESDRAM as the superset standard to the JEDEC Committee. Remember, our 16 meg ESDRAM is pin for pin compatible with standard sync DRAM's and even our slowest speed grade is PC-100 compliant. By the way, we anticipate that our fast parts will work at Bus speeds of 166 Mhz.
9. ESTABLISH NEW EDRAM PARTNERS: The company continues very active discussions with potential partners for the EDRAM business. Our goal in this endeavor is to expand the EDRAM's presence in the marketplace to additional foundry and product co-development support.
10. ADDITIONAL RESEARCH COVERAGE: We continuously meet with representatives of the financial analyst community to encourage a broadened base of research for our investors. We believe that as the company completes its transition to full scale production, opportunities in this area will increase. We're still on track to receive additional coverage, possibly from two sources during the first half of 1998.
Now, I'd like to turn it over to Richard Mohr, our CFO, for a more detailed look at our 1997 results.
Thank you David, good afternoon and thank you for joining us today.
I'll begin by reviewing the results of operations for the 4th qtr. of 1997 and then for the year.
As Mr. Sikes said earlier, total revenues for the qtr. were $5.5 million, compared to $5.4 million in the 3rd qtr. of 1997, and $9.2 million in the year ago qtr. of 1996. The 4th qtr. of this year showed a 4% decrease in product revenue from the 3rd qtr. with EDRAM revenue decreasing by approx. $300,000, and good news, FRAM revenue increasing by approx. $170,000. Licensing and development revenue in the 4th qtr. was up slightly over the 3rd qtr., resulting from a development agreement with Asahi Chemical. Going into the qtr. we had planned on a lower level of both EDRAM and FRAM revenues than actually occurred, so we were very happy with the results of the quarter. We continued to see strength in 4 meg EDRAM sales with ASP's for such products staying relatively flat during the quarter over the previous quarter. FRAM product revenues remained in the $300,000 to $500,000 range, where we historically managed sales revenues due to our limited internal production. These numbers are expected to increase substantially later in 1998, as the supply of product from Rohm and other alliance partners increase during the year.
On a year over year quarterly basis, the decrease in total revenues in the 4th qtr. resulted directly from the decrease in license revenue. The majority of the license revenue recorded in the 4th qtr. of 1996 was from a Ferro license with Samsung, which was a license only agreement with no corresponding technical support requirements and all revenues therefore recognized up front, which was unlike the Asahi Chemical agreement in the 4th qtr. of 1997, which was a complete Ferroelectric development program with total revenues to be recognized under the program over time. Product gross margins improved on a quarterly year over year basis for the 4th qtr. from 16% in 1996 to 30.3% in the 4th qtr. of 1997. On a sequential quarterly basis, product gross margins improved from 26% to 33% during the 4th quarter. These improvements resulted from lower manufacturing costs associated with the company's EDRAM products and maintained its average selling prices. And, for product gross margins in total for the year, an increase from 22% to 26% was recognized. In dollars, gross margins in 1997 were almost identical than to 1996, and that was roughly $3,000,000 less product revenue recorded in 1997 than was recorded in 1996.
Fourth quarter R&D expenses increased on a sequential basis by 31%, resulting primarily from costs incurred in the design and development of the company's 16 meg ESDRAM and from process development activities for FRAM. On a quarterly 1996 to 1997 basis for the 4th qtr., R&D increased by 14% due primarily to increases in costs associated with the design and development of the company's 16 meg ESDRAM. On an annual basis R&D decreased by 16%.
SG&A expenses decreased on a sequential basis by 10% which resulted primarily from a decrease in withholding taxes on license and development revenue. On a quarterly year over year basis, SG&A expense decreased by 15% resulting primarily from costs incurred during the 4th qtr. of 1996 related to the company's incentive plan for which there were no similar costs during the 4th qtr. of 1997. On an annual basis, SG&A expenses decreased by 15%.
Bottom line results for the 4th qtr. of 1997, which showed a loss of $1.8 million, were very similar to the loss recorded in the 2nd and 3rd qtrs. of 1997 which were both right at $1.6 million. The loss recorded for the 1997 year totaled roughly $8.9 million compared to the loss of $5.7 million in 1996. 1996 also had $7.5 million in license fees than did 1997 as David said earlier. On an apples to apples basis, 1996 would have shown a loss of about $12.4 million without the additional license fees recorded in that year verses the 1997 recorded loss of $8.9 million.
This shows that the company made significant improvement during 1997 in lowering production costs and cutting overall operating expenses by approx. $3.5 million.
Now lets turn to the balance sheet. Cash at the end of the year was $6.2 million which is almost double the cash balance at the end of 1996. On a quarterly sequential basis, cash increased by $2.7 million. The increased cash balance at the end of the year resulted from the company completing a common stock private placement in December of approx. $4 million and receiving approx. $2 million in license and development fees at the end of December from Asahi Chemical. The company also received an additional $2 million dollars at the end of January of this year associated with our 1996 license agreement with Samsung, which we were concerned about receiving due to the financial crisis in Korea.
The company completed a private placement of common stock on December 23rd 1997. The private placement provided the company with approx. $4 million dollars prior to any costs incurred under the transaction, in exchange for 800,000 shares of the company's common stock. The stock was placed with a single institutional investment entity that was an existing investor in Ramtron stock.
The investor is considered to be a long term holder. The company is continuing to seek additional sources of capital to fund its future working capital and operating requirements as has presently been provided in all our SEC documents.
Receivables at the end of 1997 were down from the end of 1996 but the receivables balance at the end of 1996 included a $3 million dollar receivable from Samsung which was received during the first week of January in 1997. If one were to exclude the $3 million Samsung receivable, total receivables would have increased at the end of 1997 versus 1996 from $3.8 million to $4.8 million due primarily to strong EDRAM sales during the month of December.
Inventories at the end of 1997 remained relatively flat with inventories at the end of 1996.
Current liabilities increased at the end of 1997 when compared to the end of 1996 by $7.7 million. $6.5 million of the increase was from increases in borrowing under the National Electrical Benefit Fund's line of credit during the year of $2.9 million and the reclassification of such line of credit from a long term liability to short term. The line of credit comes due at the end of June of this year. The company is currently speaking with the Fund to roll the debt over for an extended period of time, but no final decision has occurred at this time and there can be no assurance that the fund will not call the note at its due date. The remaining increase in current liabilities comes from expenses owed to our (?????) for our EDRAM suppliers for 4 meg EDRAM production.
And finally total stockholders equity at the end of 1997 was $17.5 million versus $22.3 million at the end of 1996.
So in summary for 1997, we were able to decrease our R&D expenses by 16%, we decreased our SG&A expenses by 15%, we increased our product gross margin by 4 percentage points which represents an 18% improvement, and finally we increased our year end cash position by $3 million dollars.
And covers the financial update for the quarter and end year, and now I will turn the call back over to Mr. Sikes for further comments. David.
Thanks Rich. Now that we covered how we did last year, I'd like to address our 1998 outlook for the key areas of our business.
Lets first talk FRAM licensing. For 1998 we will begin to shift our focus away from new licensing arrangements. Quite frankly, we are keeping very busy with the current stable of partners and want to focus on making them successful. We still expect payments sugared by production and development milestones from existing partners, and believe that there are perhaps one or two partnerships that still make sense from a strategic development prospective. One of the strategic partnerships that is creating a bit of anticipation is SGS-Thomson. As you will recall about one year ago, we entered into phase one of an MOU with ST. That phase is now coming to a close and we are into discussions with ST to determine what our cooperation will involve going forward. Our cooperation to date has been outstanding and we believe that our continuing work together is wise for both companies. ST is a major player in the contactless smartcard silicon business and with FRAM emerging as the best technology for that application, we believe that ST will choose to move forward. One or two options may emerge. If we agree to go forward, we could receive an investment for our Fab and share production, or we may decide to put the Ferro
technology into an ST Fab. Either way, we believe that this is an important objective for us and we look forward to developing a highly synergistic relationship with ST.
With regard to FRAM production status, Rohm is in production. They are currently building 16K serial FRAM memories for which we have a ready market. To expand production even further, we have designed additional 4K and 16K density products for Rohm to build. We expect to begin receiving these additional parts from Rohm before mid year. Rohm is also planning to have a shrunk 16K serial ready for us by the 4th qtr. which will effectively double the die per wafer thereby lowering production costs. Needless to say, we are extremely pleased to finally have Rohm in production. In light of broadened supply, we anticipate to new growth in our FRAM product revenue this year.
Unfortunately, Hitachi has not yet reached the goal line. Hitachi's interest in the FRAM program remains very high as evidenced by the recently announced RF/ID deal with Racom and Ramtron. Basically, Hitachi is having manufacturing issues with their Applied Materials deposition system. Their plan is to make modifications to the dep. system to improve yield. These issues need to be resolved before volume sampling and production can begin. They told me personally last week while I was in Japan that they will build 256K FRAM products for us this year with customer samples available in Q2. They did provide me with a half a dozen pieces to start device characterization studies.
Fujitsu remains our most aggressive development partner. In addition to recent successes with the 1 Meg FRAM, Fujitsu has expressed interest in building additional low and high density FRAM products for Ramtron. We're designing a 64K to run on Fujitsu's line, and are talking about a 256K. In light of this, we expect to begin receiving additional production from Fujitsu this year. Fujitsu is now concentrating work on FRAM based microcontroller development.
As you can see, tremendous momentum is building up at our partners.
Although we have experienced delays, we believe that the payoff will be well worth the wait. During the next exciting of Ramtron's development, we look forward to finally proving that the market for FRAM not only exists, but is of significant size.
Now lets turn to EDRAM products. We think there are great things in store for the business this year. EDRAM technology is finally getting the attention it deserves. In 1992 we were the first memory company to introduce a specialty DRAM product. Quite honestly, it was before its time. Now six years later with more than $51 million in sales, and 3.7 million units in the field, the EDRAM is about to hit its stride. Our confidence is being bolstered by continued demand for our 4 Meg, extremely high average selling prices, new products on the way, fundamental patents and increasing interest from major DRAM partners. We expect the 4 meg EDRAM to continue to sell at a steady pace throughout the year, we expect to maintain ASP's at $9.00 or above over the next twelve months, and grow margins to be consistently above 40%. We view the continued strength of the EDRAM and the fact that it is probably the only DRAM technology that actually made money last year, as quite an accomplishment. We also view it as a convincing testimony to the strength of the EDRAM's market position.
The 16 Meg ESDRAM design is complete and we expect samples by very early Q2. Interest in the 16 Meg continues to increase. Currently we have more than 20 design wins for the product, including chipsets, controllers, and communications systems. Given the current indicators, we expect a nice ramp of 16 Meg sales during the second half of the year to compliment the 4 Meg revenue base.
By 1999, the ESDRAM will be the dominant revenue contributor especially as we begin to add more products to the portfolio. We are planning to have densities from 1MB to 256MB as well as embedded applications for the technologies.
Regarding the JEDEC standardization process, we expect our proposal to JEDEC to be balloted at the next meeting in early March. We maintain high confidence that we will be approved at the meeting which will enhance our campaign to broaden the EDRAM's awareness with major DRAM players.
Lets talk about EDRAM partnerships. Now that we have secured the fundamental patent for EDRAM, we are exploring foundry and partnership opportunities for the business. Our immediate goals are to secure additional high quality DRAM manufacturing support to compliment our supply from IBM, and explore EDRAM licensing opportunities. Based on the level of interest we are seeing, we believe these goals are well within our reach. Additionally, we are in the process of identifying key prospects for a strategic partnership that will join with us to develop our next wave of EDRAM products. Our goal here will be to share resources with a DRAM manufacturer to catch up with the density curve as well as develop additional niche SRAM type replacement products.
And finally the Benton shares. Contrary to any rumors that you may have heard, none of the Benton shares are currently hitting the market. Remember that the Benton shares, although in the hands of the liquidating trustee, are subject to Rule 144 restrictions. We continue to discuss the disposition of the shares with the appropriate parties. In fact we have a meeting with the trustee later this week in New York. We are monitoring the situation very closely, and we will keep you informed of any tangible developments as they arise.
I conclusion, Ramtron expects 1998 to be a pivotal year in the evolution of the company and its markets. By the end of 1998, we firmly believe that a model for sustainable profitability will emerge. Growing our product sales through our expanded capacity at Rohm, IBM, and others soon to follow will fuel this model. Additionally, we expect continued success in our current licensing program, and we will work to establish new partnerships of strategic importance to our business. These exciting changes in the company's production and competitive environment will provide new opportunities and new challenges that we look forward to with great enthusiasm.
Now back to Lee Brown.
That concludes our formal remarks, now I would like to open it up for questioning.
Operator: Lets go first to Dan Scovill of Fahnstock.
Scovill: Are there any indications with regard to the Fujitsu integrated 64K as to when they might be doing something with that in production?
Brown: I was just over there last week, Dan, and certainly the first device that they put together was a prototype, but they are now changing the design and starting to go towards what they would consider a real product. They have built products to date by using a piece of production equipment in several different areas. They now have all of their equipment in place with hook-ups being made, and those should be completed by the end of February. Their goal is to have their process well established by the middle of the year and the design completed on the true product embedded with a goal of having product before the end of the year. In the mean time, we will be taking a 64K design that we will do to go on their line, and their going to use that as a product to drive their learning curve through initial volume levels. So, we're going to see product coming off their line we're hoping 3rd qtr. and then their own embedded product they're anticipating something before the end of the year.
Scovill: Is that a similar kind of time frame I would imagine then for the Hitachi 256K and also either Fujitsu or Toshiba on the 1 Meg?
Brown: I would think on the 1Meg that there will probably not be customer type product available this year either from Toshiba or Fujitsu. It's not high on the Fujitsu list, they're really anxious to get this embedded product going, and the 1Meg will probably take a little bit of a back seat, but will be going on in the background. With Toshiba having first 1Meg results in April, again, you know we're going to go through a couple of re-designs with that since this is their very, very first FRAM prototype. So, I would not expect we'll see 1Meg product until 1999. With regards to Hitachi, Hitachi's got their problems down to one specific machine and in my mind its a matter of just getting that problem solved. When that problem is solved they should very shortly then be able to go into producing some volume parts. So, I'm kinda feeling comfortable them giving us samples before mid-year and being in production sometime in second half. I think probably well before the end of the year.
Scovill: (Tape change ... first part of question missed)
.....can you talk about that a little bit, I mean obviously you want to sort of back away from it in terms of adding more partners, but at the same time you're probably going to be collecting some milestones. How does that play out this year because obviously the way the modeling looks, its really if you can collect license fees you're profitable, and if you don't, you're not.
Brown: That is absolutely correct for 1998. But I think the thing that probably is of greater importance to it is get our partners to the point where they can be successful which will give us a sustainable profitable path going forward. You know, we still anticipate significant license income in 1998, but some of it very likely could come from EDRAM. Now with our patent positions well in place and additional patents coming, we are in discussions with several different companies and we feel that there's a good opportunity to recognize some revenue on EDRAM licenses. So, to the extent that we want to have more in license revenue than what we did last year, I think that certainly is our goal, maybe not quite to the level of what we saw in 1996 which I think was about $13.2 million dollars, but you know, somewhere between those two. Now, there is one other potential circumstance, and that is how do we end up treating what we do with SGS-Thomson. If that turns out to be something that we would put the technology into one of their front ends, then there probably is a significant license revenue.
If its the investment in the equipment, we're going to have to look very carefully from a P&L standpoint on how that gets recorded. Let me say this though, our goal, and the management commitment here, is to find a way to hit a breakeven year in 1998, and we're going to work very diligently in doing that. And, in time, by the end of the year have a methodology in place for making money off of our products so that we can show sustained profitability over the next several years.
Scovill: Finally, with regards to the 16Meg ESDRAM, it seems like you're kinda in the home stretch here with IBM. What are the risks at this point?, I mean it looks like you should be in production here in another month or two.
Brown: Well, the only risk is that first design success, and our experience to date has been that we have had at least a good enough design to get customer sampling underway with the ability to do a quick fix, say a one or two mask change to take care of any small problems. So, if thats the ah, would we encounter the same success, we would anticipate certainly having product in second qtr. to hit sampling with the ramp beginning very, very early third quarter. And if the product looks good enough, we'll probably take the risk of starting some production wafers at IBM even though we won't have qualification completed.
Scovill: Great, thank you very much.
Brown: OK Dan.
Operator: OK we'll go next to Carter Winterbottom with Emerald Capital Management.
Winterbottom: Good afternoon David. I'd like to pick up on where we left off on the ESDRAM and your relationship with IBM. I mean the way we understood this originally, they were going to manufacture this in France, then in Germany, and then they shifted it to Burlington (Vt.), we were originally looking for delivery in January, now it doesn't sound as though there will be product until the 3rd or 4th quarter, if you have a patent on this, and I know Texas Instruments was one of the people we were talking against some of the others, I mean is there any chance you can play this off of IBM to someone else to get this product out sooner?
Sikes: Well ah Carter, we're actually in the process of having some very healthy discussions about that. All I can tell you is just stay tuned. Can't give you anything beyond that, but certainly if for no other reason to have a second source we'd want additional sources besides IBM. And quite honestly, IBM is not the most friendly foundry type partner we've had in the past. We'd like to find someone who is a lot more friendly as a foundry supplier. So just keep your ears open.
Winterbottom: OK. And do you see any pluses or negatives from the fact that as far as your ESDRAM is concerned, the fact that Compaq has acquired Digital Equipment?
Sikes: We've been trying to assess that situation and quite honestly, its an unknown to us at this point in time. The thing where I think there will not be a significant impact one way or the other, is the fact that we're designed into the very high end of the business. And that piece of the business is probably gonna do whatever it was gonna do whether Digital was a part of Compaq or wasn't, whether Alpha got sold to Intel or didn't, so our at least surface view at this time is that probably isn't going to help us, nor is it going to hurt us.
Winterbottom: OK. And uh help me with a little of the modeling here. What should I look at for R&D for 1998? Should it start tailing off now?
Sikes: Probably '98 I think will be pretty flat for the following reason. We'll start to save some money probably on the FRAM side, but on the EDRAM side our probably R&D expenses will go up because of the fact we're going to want to be designing several new products, including moving as quick as we can to a 64 Meg product.
And again we'll have some more to say about that hopefully in the very near future. But I would think overall, pretty close to flat.
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