SMSC Reports Third Quarter Fiscal 2009 Financial Results

HAUPPAUGE, N.Y.—(BUSINESS WIRE)—January 6, 2009— SMSC (NASDAQ: SMSC) today announced financial results for its fiscal third quarter ended November 30, 2008. Sales and revenues for the quarter were $84.3 million, a decrease of 13.3 percent sequentially and 19.5 percent when compared to the prior year. Despite the fact that the fiscal third quarter is typically a seasonally strong period, revenue was down due to the prolonged troubles in the global economy and to a major inventory correction in the PC market.

Operating margin was 6.9 percent in the third quarter fiscal 2009, compared to 10.3 percent in the previous quarter and 13.6 percent for the third quarter fiscal 2008. The primary drivers behind the decline in operating margin were reduced revenue as well as executive transition expenses of $1.8 million, offset somewhat by a significant reduction in stock-based compensation expense. On a non-GAAP basis, operating margin for the third quarter fiscal 2009 was 6.3 percent, compared to 13.0 percent in the previous quarter and 19.7 percent in the prior year. The unaudited non-GAAP financial measures in this release exclude charges and credits for stock appreciation rights (SARs) and stock options associated with the accounting pursuant to SFAS 123R and the amortization of acquired intangible assets.

Net income for third quarter of fiscal 2009 was $9.1 million, or $0.41 per diluted share compared to net income of $8.7 million or $0.36 per diluted share for the prior year. This EPS improvement was primarily due to the benefit of favorable foreign exchange rates during the quarter and $1.5 million in tax credits from Congress’s recent extension of income tax credits related to qualified domestic research and development expenditures. Non-GAAP net income for third quarter fiscal 2009 was $8.7 million or $0.39 per diluted share, compared to $12.8 million or $0.53 per diluted share in the third quarter fiscal 2008.

“Despite the fact that we were able to meet our revised revenue and earnings objectives, business conditions continue to deteriorate, particularly in the PC and automotive markets,” said Christine King, President and Chief Executive Officer. “The broad based malaise in our industry driven by unprecedented economic conditions is causing weak end-customer demand in all geographies. In response to these difficult times we intend to focus on maintaining our strong balance sheet and take appropriate actions to right size our business for the expected lower revenue levels while continuing our focus on new design wins.”

Sales and revenues for the first nine months of fiscal 2009 were $274.3 million, a decrease of 3.3 percent compared to the first nine months of fiscal 2008. Net income for the first nine months of fiscal 2009 was $22.2 million, or $0.99 per diluted share, as compared to net income of $21.2 million, or $0.89 per diluted share, for the same period of fiscal 2008. Non-GAAP net income for the first nine months of fiscal 2009 was $28.1 million, or $1.25 per diluted share, compared to non-GAAP net income of $33.9 million or $1.43 per diluted share in the first nine months of fiscal 2008.

The Company generated operating cash flow during the quarter of $21.3 million. The sum of cash and long-term investments decreased in the third quarter of fiscal year 2009 from $179.0 million at August 31, 2008 to $176.6 million, after repurchasing $11.4 million of SMSC stock during the quarter and taking a $4.5 million temporary impairment on auction rate securities. SMSC has no bank debt, and the book value per share as of November 30, 2008 was $19.13 as compared with $19.49 as of August 31, 2008.

Business Outlook

The recent and ongoing difficult economic conditions and sharp decline in visibility continue to hinder the Company’s ability to provide guidance. As a result, management cautions that it is important to consider the following guidance together with the caveats, assumptions and discussion that will be presented during a conference call and webcast as outlined below. Looking ahead to the fourth quarter of fiscal 2009, the Company expects:

  • Sales and Revenues to be $45 to $51 million,
  • Cost of goods sold as a percentage of revenue to be up approximately 400 to 600 bps,
  • Operating expenses to be roughly flat sequentially,
  • Non-GAAP loss per diluted share to be in the range of $0.40 to $0.55, excluding amortization of acquisition related intangibles, and stock-based compensation expense,
  • Cash and investment balances to be slightly down.

This outlook assumes stable foreign exchange rates, interest rates and commodity prices and it excludes any nonrecurring charges. Guidance is presented on a non-GAAP basis only, given that the GAAP basis charges for equity-based compensation related to SARs cannot be projected reasonably.

Conference Call and Webcast Information

Christine King, President and Chief Executive Officer of SMSC, will host a conference call and web simulcast on January 6, 2009 at 5 p.m. ET, to discuss the Company’s fiscal third quarter financial results and its updated business outlook. The teleconference may be accessed by dialing 1-888-819-8015 in the U.S. or 913-312-1378 from outside of the U.S. A replay of the call may be accessed by 1-888-203-1112 in the U.S. or 719-457-0820 from outside of the U.S. The live and replay teleconference confirmation code is 1846222. A web simulcast and replay will be available under the investor relations section of the Company’s web site at www.smsc.com .

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