IDT Announces Results of First Quarter of Fiscal Year 1999; Announces
Plans to Improve Financial Results
Business Wire - July 22, 1998 16:47
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SANTA CLARA, Calif.--(BUSINESS WIRE)--July 22, 1998--IDT (Nasdaq: IDTI) today announced results for the first
quarter ended June 28, 1998. First-quarter revenues were $134.5 million, a 10.5 percent decrease from the immediately prior
quarter, and a 9.7 percent decrease from $148.8 million in the year-ago quarter. First-quarter net loss was $50.0 million
(including a non-recurring after tax charge of $31.1 million) or $.61 per share net. Loss from operations was $.23 per share.
Earnings were $.02 per share in both the immediately prior quarter and year-ago quarter.
Reflecting the semiconductor industry slowdown and product mix changes, the Company's average selling price (ASP) and
units shipped were down compared to the immediately prior quarter. During Q1, operating costs increased as a result of
manufacturing, sales and marketing programs initiated several quarters ago, primarily associated with anticipated expansion of
IDT's WinChip(tm) microprocessor business. These factors, together with the non-recurring charge, resulted in the Company's
net loss for the quarter. Due to the reduced business outlook for the balance of fiscal 1999, IDT reduced its effective tax rate
for the year from 28 to 10 percent.
"Like many of the companies in our industry, our first quarter operating performance was disappointing," said Len Perham,
president and chief executive officer. "The global slowdown in the semiconductor industry, the continuing economic crisis in
Asia, and continued oversupply conditions, have created a very difficult market environment. The proliferation of Far Eastern
foundries, coupled with the 'hidden capacity' increases associated with the rapid move from .6- to .5- to .2-micron
manufacturing processes, has resulted in capacity increases far in excess of what the industry can absorb in the near term."
Revenues from the Company's WinChip x86 microprocessors have not ramped sufficiently to offset the decline in SRAM
revenue. This is largely due to a faster-than-expected shift in demand within the sub-$1000 desktop PC market, from
200-MHz to 266-MHz processor speeds and the slow transition of the WinChip product line to higher clock speeds.
Q1 Fiscal 99 Non-Recurring Charge
As anticipated in IDT's press release dated June 2, 1998, first-quarter fiscal 1999 results include a non-recurring charge which
amounted to $34.6 million on a pre-tax basis ($31.1 after tax), relating primarily to excess SRAM manufacturing equipment
and technology licensing matters. The charge was recorded in the statement of operations as follows: $28.9 million specifically
identified as cost of sales, $5.5 million recorded as research and development; $0.2 million recorded as general and
administration.
The Q1 non-recurring charge included the following:
-- Provision for excess manufacturing equipment: Reflecting current economic conditions in the SRAM marketplace, which
continues to experience declines in both demand and price, the Company identified specific items of manufacturing equipment,
which are excess to its needs. The excess equipment was either written off or its carrying value reduced to its estimated fair
market value, as provided by accounting rules.
-- Provision for narrowing business development: The Company is narrowing the focus of business development activities to
those initiatives where results are likely to produce the most favorable financial returns. As a result, the Company is
discontinuing certain development efforts and has provided for remaining payments required under technology license
agreements and recognized other related exit costs.
-- Provision for other intellectual property-related matters.
The majority of the costs recognized in the Q1 non-recurring charge are non-cash in nature, and payment associated with
some of the technology and intellectual property matters will likely be made over an extended period of time.
Plans to Improve Financial Results
In the fourth quarter of last fiscal year IDT's forecast for fiscal 1999 anticipated a stronger semiconductor industry with higher
sales volumes, better utilization of manufacturing capacity and improved profitability. Anticipated higher revenues and volumes
did not materialize during fiscal Q1 due to changed overall market conditions, including lower demand and reduced prices for
SRAM and x86 microprocessors, as well as continued decline in business in the Asia Pacific region. In an effort to return to
profitability, the Company will implement the following actions with a goal of generating annualized savings of more than $45
million:
-- Consolidation of manufacturing operations within the Company, including closing IDT's wafer fabrication facility located in
San Jose, California. This decision reflects current industry oversupply conditions. IDT will replace manufacturing volumes
from the San Jose facility by ramping production at its Hillsboro, Oregon and Salinas, California facilities.
-- Reduction in IDT's employee base by approximately 400 individuals during the next six months.
-- Consolidation of all operating activities of the Company, including manufacturing and product lines, under the direction of
Executive Vice President, Jerry Taylor to improve the Company's ability to more efficiently allocate IDT's resources and to
eliminate duplication of effort within individual business units.
IDT anticipates that Q2 fiscal 1999 results will include an additional restructuring charge of between $50 and $60 million on a
pre-tax basis associated with these initiatives. Approximately $15 to $20 million of the restructuring charges represent
anticipated cash payments associated with deinstallation of equipment, facility decommissioning and restoration and employee
severance costs.
"IDT will work to reduce the impact of these changes on our employees," stated Perham. "However, the Company must
adjust its production capability and operating costs to the reality of the markets we serve in light of industry-wide business
conditions. IDT plans to implement these changes to improve financial performance and to allow for essential investments as
new product opportunities emerge."
New Product Highlights
"During the first fiscal quarter, the Company's communications products, high-performance logic and RISC microprocessor
divisions appear on track to achieve their business objectives," said Dave Cote, vice president of marketing. "Product sales to
IDT's communications customers represent more than 60 percent of the Company's revenues. We continue to win significant
designs in the systems of our leading communications customers, which will fuel IDT's longer term growth."
Highlights of the past quarter include the following:
-- Continuing its industry leadership in higher margin communications products, IDT introduced a new PCI-compliant family of
single-chip ATM SARs targeted for telecom, datacom and xDSL applications and expanded its family of industry-leading
multi-port SRAMs with new high-speed and low-voltage products.
-- The Company announced new products and faster speeds of its popular RISController(tm) embedded processor family,
including the new 250-MHz RC5000, the fastest 64-bit processor for embedded control and 200-MHz versions of its
RC4640/RC4650 processors. Additionally, IDT introduced a new class of 32-bit processor, the RC32364, which breaks the
$.10/MIP price barrier and implements architectural features previously found only in 64-bit microprocessors.
-- IDT WinChip products continued to gain acceptance in the marketplace. WinChip unit sales through distribution grew more
than 60 percent from the prior quarter. The Company began production shipments of a 240-MHz speed grade of the
WinChip microprocessor and sampling of the WinChip 2 3D processors with AMD 3DNow!(tm) extensions.
"Looking forward, we believe our fundamental strategy, that is, bringing to market products with features, benefits, and
performance characteristics not widely available from the competition, will position us well to resume growth in the quarters
ahead," Cote continued.
About IDT
IDT enables a digitally connected world by providing innovative semiconductor solutions to leading-edge system designers in
communications and computing. IDT's broad product mix consists of communications memories, networking devices, both
RISC and x86 microprocessors, high-speed SRAMs and high-performance logic. The Company's innovative technologies
and products take aim at markets expected to exceed a total of $20 billion in 1998.
Headquartered in Santa Clara, Calif., the Company employs approximately 5,000 people worldwide and has manufacturing
facilities in California, Oregon, the Philippines and Malaysia. IDT stock is traded on the Nasdaq stock market under the
symbol "IDTI." Additional information about IDT is easily accessible through the World Wide Web (http://www.idt.com),
CD-ROM by calling 800/345-7015, or via fax-on-demand at 800/9-IDT-FAX. The investor hotline is 408/654-6420.
Forward-looking statements in this release involve a number of risks and uncertainties including, but not limited to, product
demand, manufacturing, capacity and costs, competition, pricing, patent and other intellectual property rights of third parties,
timely development and supply of new products and manufacturing processes, availability of capital, cash flow, and other risk
factors detailed in the Company's Securities and Exchange Commission Filings. Actual results may differ materially from the
Company's projections.
IDT WinChip, Winchip 2, WinChip 2 3D and RISController are trademarks of Integrated Device Technology, Inc. |
