Smart Modular Technologies: Fiscal 4Q08 Financial Results

SMART Modular Technologies, Inc. reported financial results for the fourth quarter and fiscal year 2008 ended August 29, 2008.

Net sales for the fourth quarter of fiscal 2008 were $160.7 million, compared to $167.6 million for the third quarter of fiscal 2008, and $168.7 million for the fourth quarter of fiscal 2007. Net sales for the fiscal year were $670.2 million, compared to $844.6 million for fiscal year 2007.

Gross profit for the fourth quarter of fiscal 2008 was $24.9 million, compared to $27.8 million in the third quarter of fiscal 2008, and $32.2 million in the fourth quarter of fiscal 2007. Gross profit for fiscal year 2008 was $119.7 million, compared to $149.6 million in fiscal 2007.

GAAP net income for the fourth quarter of fiscal 2008 was ($3.5) million, or ($0.06) per share, compared to ($11.0) million, or ($0.18) per share in the third quarter of fiscal 2008, and $13.6 million, or $0.21 per diluted share in the fourth quarter of fiscal 2007. For fiscal year 2008, SMART reported GAAP net income of $9.0 million, or $0.14 per diluted share, compared to $57.7 million, or $0.91 per diluted share in fiscal 2007.

Non-GAAP net income was $3.4 million or $0.05 per diluted share for the fourth quarter of fiscal 2008, compared to $4.9 million, or $0.08 per diluted share in the third quarter of fiscal 2008, and $12.1 million, or $0.19 per diluted share in the fourth quarter of fiscal 2007. For fiscal year 2008, SMART reported non-GAAP net income of $35.2 million, or $0.55 per diluted share, compared to $58.5 million, or $0.92 per diluted share in fiscal 2007. Non-GAAP net income excludes charges related to restructuring, goodwill impairment, in-process research and development, and other infrequent or unusual items, as well as stock-based compensation. Please refer to the "Non-GAAP Information" below for further detail.

"Fiscal 2008 was a difficult period for the memory industry as a whole and challenging for SMART," commented Iain MacKenzie, President and CEO of SMART. "Despite facing pressure stemming from the unprecedented and prolonged decline in DRAM ASPs and the macroeconomic environment, not only were we able to achieve profitability in fiscal 2008 but we also were able to meet our diversification goal with non-DRAM revenues growing to 15% of our overall business for the full fiscal year. We remain optimistic about our prospects for growth and confident in our competitive position. However, in these difficult times we have conducted a comprehensive review to identify ways to best serve our customers while positioning the company for profitability going forward. We have therefore begun implementing a company-wide restructuring program that encompasses a workforce reduction as well a consolidation of certain operations in Asia and the Caribbean. In particular, we are exiting our China and India operations, and have announced the closure of our Dominican Republic facility. We expect to achieve approximately $11.8 million in annualized cash savings from this restructuring plan once it is fully implemented, which we expect to be in the second quarter of fiscal 2009, primarily due to reduced compensation-related expenses. Going forward we intend to focus our spending on the markets and products that we believe offer the best opportunity for sustainable and profitable growth."

"Throughout fiscal 2008 our sales performance in Brazil was strong, reflecting the investments that we have made and the strength of the Brazilian economy. We are also making solid progress in the SSD market with several design wins to date. Our acquisition of Adtron in March has strengthened our SSD product offering and complements our existing product roadmap. In August we announced a group of six new industrial grade SSD products which is our second generation of both the Ultra and the Lite SATA SSDs. These products are targeted at embedded, industrial, defense and server applications and expand our presence in these new and demanding storage markets. We also continue to make solid progress with our Display and Embedded products as demonstrated by recent key design wins in Europe. While we expect continued challenges in the near-term for the DRAM market, we believe we are well-positioned for the long-term given our size, worldwide sales and customer service, global manufacturing footprint, and technology expertise," concluded Mr. MacKenzie.

Restructuring Plan
On September 10, 2008, the Company announced a restructuring plan to better serve its customers and improve its operating performance. The restructuring will result in the elimination of approximately 320 positions, or about 19 percent of the Company’s global workforce and the consolidation of certain operations in Asia and the Caribbean. The majority of the workforce reduction is expected to be completed by the end of the next fiscal quarter.

Under this restructuring plan, the Company estimates cash savings of approximately $11.8 million annually, principally due to reduced compensation-related expenses.

The Company estimates that it will incur approximately $2.3 million in cash expenditures and recognize approximately $1.0 million in non-cash charges related to the restructuring. Of the total $3.3 million, the Company recorded approximately $1.9 million ($1.8 million, net of tax) in the fourth quarter of fiscal 2008, and is expected to record the remainder in fiscal 2009.


Business Outlook
The following statements are based upon management’s current expectations. These statements are forward-looking, and actual results may differ materially. The Company undertakes no obligation to update these statements.

For the first quarter of fiscal 2009, SMART estimates net sales will be in the range of $157 million to $167 million, gross profit in the range of $24 million to $26 million, and net income per share will be in the range of ($0.04) to ($0.03) on a GAAP basis. On a non-GAAP basis, excluding charges related to stock-based compensation, restructuring, amortization of intangible assets, in-process research and development and other non-recurring items, if any, the Company expects net income per diluted share will be in the range of $0.01 to $0.02. The guidance for the first quarter includes an income tax provision estimated in the range of $0.02 to $0.03 and a foreign currency loss related to Brazil estimated at $0.02 per share.