Applied Micro (AMCC) Q2 Loss Narrows, Revenues Decline

Semiconductor manufacturer Applied Micro Circuits Corporation AMCC reported modest second-quarter fiscal 2016 results, as adjusted net loss (including stock-based compensation but excluding other one-time items) of 10 cents for the quarter was narrower than the Zacks Consensus Estimate of a loss of 11 cents.

GAAP net loss for the reported quarter was $8.1 million or loss of 10 cents per share compared with loss of $11.7 million or loss of 15 cents per share in the year-earlier quarter. The improvement in year-over-year performance despite lower revenues was primarily driven by significantly lower operating expenses.

Quarter Details

Net revenues for the quarter came in at $39.7 million versus $40.9 million in the year-ago quarter, and exceeded the Zacks Consensus Estimate of $39 million.

Revenues from the computing business grossed $16.4 million in the quarter, while the connectivity business generated $23.3 million. Geographically, sales to North America accounted for approximately 52% of total revenue, followed by Asia (36%) and Europe (12%).

GAAP operating expenses for second-quarter fiscal 2016 decreased to $30.8 million from $32.6 million in the year-ago period. Non-GAAP operating expenses for the reported quarter declined to $25.0 million from $28.5 million in the year-ago quarter. Non-GAAP gross margin of 55.6% was above the midpoint of the guidance range in the reported quarter, primarily due to product mix. However, non-GAAP gross margin was fairly less than 57.0% in the year-ago quarter.

Balance Sheet

At quarter end, Applied Micro had cash, cash equivalents and short-term investments of $75.5 million. Net cash utilized in operating activities was $1.5 million compared to cash utilization of $7.5 million in the prior-year period.

Channel inventory, excluding certain non-cancellable non-returnable orders, was 29 days – the lowest since 2009 and down significantly from the prior quarter, due to the company’s sustained efforts to maintain a lean supply chain and enhance its visibility to end customer demand. The book-to-bill ratio was above 1 for the third consecutive quarter, driven by a healthy demand due to design wins and engagements across all areas of the business.

Outlook

Applied Micro expects to generate decent revenues in the coming quarter with new product introductions, lean channel inventory levels, a book-to-bill ratio above 1 and strong backlog coverage of over 95%. The company expects embedded computer products to generate healthy revenue growth in the forthcoming quarters driven by X-Gene based embedded products.

For third-quarter fiscal 2016, total revenue is expected in the range of $40.5 million plus or minus $2 million. Non-GAAP operating expenses are expected to be about $24.5 million plus or minus $1 million, while non-GAAP gross margin is expected in the range of 55% plus or minus 2%. Non-GAAP loss is anticipated to be 3 cents per share plus or minus 2 cents.

The company’s base business has stabilized and its cost-out actions have greatly reduced its operating expenses. Additionally, the company is seeing accelerating end-customer adoption of its products X-Gene, X-Weave and HeliX. These factors are pushing the company closer to a breakeven, even as it continues to invest in its key R&D and market enablement programs.

Applied Micro currently has a Zacks Rank #3 (Hold). Stocks that look promising and are worth a look in the industry include AXT Inc. AXTI, Cirrus Logic Inc. CRUS and Ambarella, Inc. AMBA, each carrying a Zacks Rank #2 (Buy).

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