HAUPPAUGE, NEW YORK - December 15, 2003 -
- Achieves Third Quarter Net Income of $14.8 Million
- Raises Fiscal Year Earnings Expectations
Standard Microsystems Corporation (Nasdaq: SMSC) today announced that revenues for the third quarter ended November 30, 2003 were $72.7 million, including a $20 million intellectual property payment from Intel Corporation (IP payment), compared to $40.6 million in the third quarter of fiscal 2003. Product revenues increased by approximately 30% from the quarter ended November 30, 2002 and exceeded prior company expectations by approximately $2.7 million, or 5.5%. This represents the seventh consecutive quarter of sequential revenue increases.
Gross profit percentage for the third quarter of fiscal 2004 was 58.3%, or 42.5% excluding the IP payment, compared to 44.2% in the previous year’s third quarter. The current year third quarter product margins were impacted by mix. Product gross margins are expected to return to more than 45% in the fourth quarter and for the fiscal year as a whole.
Research and development expenses for the quarter were $10.2 million, compared to $8.0 million in the year-ago quarter, and selling, general and administrative expenses were $11.6 million, compared to $9.5 million in last year’s third quarter. The year-over-year increases in operating expenses primarily reflect investments in engineering and marketing personnel, tooling costs for new product developments and generally higher expenses associated with increasing revenues, as well as some non-recurring expenses associated with the IP payment.
Operating income in the third quarter of fiscal 2004 was $20.3 million, or $1.1 million excluding the IP payment and its associated expenses, versus breakeven in the year-ago period.
During the third quarter of fiscal 2003, SMSC recorded non-cash charges of $16.3 million for declines in value, considered to be "other than temporary" in accordance with GAAP, of its investments in SMC Networks, Inc. and Chartered Semiconductor Manufacturing Ltd.
The effective income tax rate in the third quarter of fiscal 2004 was 28.5%, reflecting better than expected settlement of open tax audits, resulting in benefits of $0.8 million, as well as an increase in estimated tax credits for the current year.
Third quarter income from continuing operations was $14.8 million, or $0.77 per share, which included $0.68 per share from the IP payment and the aforementioned settlement of open tax audits. Weighted average shares outstanding of 19.2 million in the third quarter of fiscal 2004 were higher than anticipated due to an increase in the market value of the Company’s common stock since the end of the previous fiscal quarter.
Cash and short-term investments at the end of the third quarter of fiscal 2004 were $161.9 million, up $39.3 million from $122.6 million at August 31, 2003. Inventories at the end of the third quarter totaled $21.6 million and remain appropriate relative to expected demand. The Company has no bank debt, and book value per share as of November 30, 2003 increased to $13.57.
“We are pleased to report that SMSC posted its seventh consecutive quarter of revenue growth and achieved record third quarter semiconductor revenues,” said Steven J. Bilodeau, Chairman and Chief Executive Officer. “SMSC’s revenue growth during this period demonstrates the leverage of our leading market share position in an improving PC market as well as our focus on products addressing rapidly growing demand for diverse connectivity applications outside of the PC. Bookings during the quarter were also very strong, particularly in USB and mobile products.”
Mr. Bilodeau added, “As demand increases across a broad range of markets, we look forward to expanding the diversity of our revenue base and to continued earnings leverage as our revenues grow. We have seen particular strength in sales of USB connectivity products designed to read flash media, particularly as digital cameras become increasingly popular and memory expansion in devices such as camcorders, cell phones and MP3 players becomes ubiquitous. In addition, third quarter revenues for our networking products achieved an all-time high and overall sales of non-PC I/O products contributed 35% of total product revenues. This represents an increase of 50% sequentially and more than 65% over the third quarter of last year.”
Business Outlook for SMSC:
For the fourth quarter of fiscal 2004, SMSC expects revenues to be between $50 million and $54 million, including intellectual property revenues, reflecting a year-over-year increase of 22% at the midpoint of that range. Gross profit percentage is expected to be between 48% and 49%. Research and development expenses are expected to be between $10.0 million and $10.5 million, and selling, general and administrative expenses are expected to be between $11.0 million and $11.5 million. Amortization of acquired intangibles is expected to be $317 thousand. The effective tax rate is estimated to be approximately 15% in the fourth quarter, and the Company expects fourth quarter income from continuing operations to be between $0.15 and $0.19 per share, based on estimated weighted average shares of approximately 20.2 million for the quarter.
For fiscal 2004, SMSC expects to achieve record annual semiconductor revenues, even after excluding the IP payments. Revenues are expected to be approximately $215 million, including $22.5 million of IP payments, achieving a 38% increase over the prior year, or 24% on a product revenue basis. Gross profit percentage, including the IP payments, is expected to be approximately 51%. Research and development expenses are expected to be between $38.0 million and $39.0 million, and selling, general and administrative expenses are expected to be between $42.0 million and $43.0 million. Amortization of acquired intangibles is expected to be approximately $1.3 million. The effective tax rate for fiscal 2004 is expected to be between 27% and 28%. Income from continuing operations for fiscal 2004 is expected to exceed previous guidance and be between $1.15 and $1.18 per share, based on estimated average shares of approximately 18.7 million for the full year.
SMSC provides Real World Connectivity™ solutions for high-speed communication and computing applications. Leveraging a broad intellectual property portfolio, the Company thrives at the intersection of software, silicon and customized OEM applications. Through the integration of its leading-edge digital, mixed-signal and analog functionality and software expertise, SMSC delivers complete solutions that monitor and manage computing systems and connect peripherals to computers and to one another.
The Company is the world’s leading provider of Advanced Input/Output (I/O) hardware and software solutions ranging from legacy PC I/O to leading-edge system management functionality. Through high-speed serial interfaces, including USB 2.0 and embedded Ethernet, SMSC delivers faster and higher-bandwidth peripheral connections for a wide range of products such as memory card readers, mass storage devices, digital cameras and keyboards and enables innovative high-speed networking functionality for consumer electronics, set-top boxes, printers and copiers, wireless routers, gaming machines, security and surveillance systems, car navigation systems, and more.
SMSC, a fabless semiconductor supplier, is based in Hauppauge, New York and maintains offices worldwide, including locations in North America, Taiwan, Japan, Korea, China and Europe. SMSC operates engineering design centers in Phoenix, AZ, Tucson, AZ, Hauppauge, NY and Austin, TX. More information about the Company is available on the World Wide Web at http://www.smsc.com.
Forward Looking Statements:
Except for historical information contained herein, the matters discussed in this announcement are forward-looking statements about expected future events and financial and operating results that involve risks and uncertainties. These include the timely development and market acceptance of new products; the impact of competitive products and pricing; the effect of changing economic conditions in domestic and international markets; changes in customer order patterns, including loss of key customers, order cancellations or reduced bookings; and excess or obsolete inventory and variations in inventory valuation, among others. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations and may not reflect the potential impact of any future acquisitions, mergers or divestitures.
SMSC competes in the semiconductor industry, which has historically been characterized by intense competition, rapid technological change, cyclical market patterns, price erosion and periods of mismatched supply and demand. In addition, sales of many of the Company’s products depend largely on sales of personal computers and peripheral devices, and reductions in the rate of growth of the PC and Embedded markets could adversely affect its operating results. SMSC conducts business outside the United States and is subject to tariff and import regulations and currency fluctuations, which may have an effect on its business. All forward-looking statements speak only as of the date hereof and are based upon the information available to SMSC at this time. Such information is subject to change, and we will not necessarily inform you of such changes, except as required by law. These and other risks and uncertainties, including potential liability resulting from pending or future litigation, are detailed from time to time in the Company's reports filed with the SEC. Investors are advised to read the Company's Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, particularly those sections entitled “Other Factors That May Affect Future Operating Results” for a more complete discussion of these and other risks and uncertainties.
Standard Microsystems and SMSC are registered trademarks, and Real World Connectivity is a trademark, of Standard Microsystems Corporation. Product names and company names are trademarks of their respective holders.
The attached Financial Tables are available only in Adobe® Acrobat® PDF Format. Consolidated Statements of Income(file size=10k)Consolidated Balance Sheets(file size=7k)