Vitesse Reports Fourth Quarter and Fiscal Year 2011 Results

CAMARILLO, Calif. — (BUSINESS WIRE) — December 6, 2011 — Vitesse Semiconductor Corporation (NASDAQ: VTSS), a leading provider of advanced IC solutions for Carrier and Enterprise networks, today reported its financial results for the fourth quarter and audited fiscal year ended September 30, 2011.

Fiscal Year 2011 Highlights

  • Net revenues of $141.0 million compared with $166.0 million in fiscal year 2010.
  • Product margins increased to 59.6% from 56.8% in the prior year.
  • Introduced over 20 new products to market, bringing total new product launches to over 50 in the past two years.
  • Achieved a record number of design wins, with over 300 new wins at over 100 customers and more than double the design wins of 2010.

CEO Commentary

“The industry wide slowdown and weak global demand, especially in the Asia Pacific region, impacted our business in the second half of the year. As a result, our fiscal year 2011 results were not as strong as we had anticipated,” said Chris Gardner, CEO of Vitesse. “However, despite the lackluster demand environment, we made substantial progress in preparing for our new product cycle and positioning Vitesse for growth in 2012 and beyond.”

“In 2011, we delivered more than 20 new products to market, bringing our two year total to over 50. This R&D effort has transformed our entire product portfolio with a new focus on the fast-growing Mobile Access market. As a result, our product marketing and sales teams achieved a record number of design wins in 2011, capturing over 300 new wins at over 100 customers. Nearly two-thirds of these wins came from our largest Tier 1 and Tier 2 customers.”

“We continued to manage our business carefully in 2011,” Mr. Gardner continued. “Entering 2012, operating breakeven is near $34 million in revenue per quarter, a reduction of 20% from 2011. By the end of the second fiscal quarter of 2012, breakeven is anticipated to be closer to $32 million. Our balance sheet is healthy, and we have no short-term debt and no debt maturities until 2014.”

“For Vitesse, 2011 was about creating market traction and capturing market share. In 2012, we will focus on converting market share into revenue growth to drive profitability. The growing demand for new 3G and 4G/LTE service will drive new technologies into the IP edge and backhaul equipment market over the next five years. Vitesse is well positioned to exploit these disruptions in our marketplace to deliver profitable growth in the years ahead.”

Fiscal Year 2011 Financial Results Summary

Net revenues for fiscal year 2011 were $141.0 million, a decrease of 15.1% compared with $166.0 million reported for fiscal year 2010. Net product revenues were $132.7 million, a 19.9% decline from $165.6 million in fiscal year 2010. Intellectual property revenues were $8.2 million, compared to $0.4 million in fiscal year 2010.

Carrier networking product revenues were $61.7 million, or 46.5% of product revenues, compared with $72.4 million, or 43.7% in fiscal year 2010. Enterprise networking product revenues were $64.8 million, or 48.8% of product revenues, compared with $76.0 million, or 45.9%, in fiscal year 2010.

Core Carrier and Enterprise networking product revenues were $126.4 million, or 95.3% of product revenue. Non-core product revenues were $6.3 million, or 4.7% of product revenues.

Cost of revenues decreased $17.9 million to $53.7 million in fiscal year 2011, compared with $71.6 million in the prior year. Product margins increased to 59.6% in fiscal year 2011, from 56.8% in the prior year. Product margins are product revenues less cost of revenues, as a percentage of product revenues.

R&D expenses were $53.1 million in fiscal year 2011, compared with $51.1 million a year ago, an increase of $2.0 million, or 4.0%. Selling, general and administrative expenses increased to $41.2 million, or 29.2% of net revenues, compared with $37.6 million, or 22.7% of net revenues a year ago. Included in SG&A is a $2.2 million allowance for specific accounts receivable the Company assessed as potentially uncollectible during the fourth quarter. Without the allowance, SG&A would have been $39.0 million or 27.7% of net revenues.

The Company’s loss from operations was $11.1 million compared with an income from operations of $4.0 million in fiscal year 2010. Non-GAAP loss from operations was $3.9 million compared with an income of $8.0 million in fiscal year 2010.

The Company’s net loss was $14.8 million, or $0.61 per share in fiscal year 2011, compared with a net loss of $20.1 million, or $0.95 per share in fiscal year 2010. Included in the fiscal year 2011 net loss is a $3.9 million loss on debt extinguishment, a $3.7 million expense related to restructuring and impairment, and a $7.7 million gain from the fair value adjustment of the 2014 compound embedded derivative. Fiscal year 2010 results included a $21.3 million loss on debt extinguishment and a $7.9 million gain from the fair value adjustment of the 2024 and 2014 compound embedded derivatives.

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