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Smart Modular Technologies: Fiscal 2Q10 Financial Results

Storage (SSD) represents 4% of revenues.

(in US$ millions) 2Q09 2Q10  6 mo. 09
  6 mo. 10
 Revenues 109.1 160.1 249.9  283.2
 Growth   +47%   +13%
 Net income (loss) (1.9) 16.1 (8.7) 20.7


SMART Modular Technologies, Inc.
reported financial results for the second quarter of fiscal 2010 ended February 26, 2010.

Second Quarter Fiscal 2010 Highlights:

  • Net sales of $160.1 million
  • Gross profit of $42.0 million
  • GAAP diluted EPS of $0.25
  • Non-GAAP diluted EPS of $0.23
  • Adjusted EBITDA of $28.4 million

Net sales for the second quarter of fiscal 2010 were $160.1 million, compared to $123.1 million for the first quarter of fiscal 2010, and $109.1 million for the second quarter of fiscal 2009.

Gross profit for the second quarter of fiscal 2010 was $42.0 million, compared to $28.8 million for the first quarter of fiscal 2010, and $24.1 million for the second quarter of fiscal 2009.

On a GAAP basis, net income for the second quarter of fiscal 2010 was $16.1 million, or $0.25 per diluted share, compared to net income of $4.6 million, or $0.07 per diluted share for the first quarter of fiscal 2010, and a net loss of $1.9 million, or a net loss of $0.03 per share for the second quarter of fiscal 2009.

On a non-GAAP basis, net income
was $14.9 million or $0.23 per diluted share for the second quarter of fiscal 2010, compared to net income of $5.4 million, or $0.08 per diluted share for the first quarter of fiscal 2010, and net income of $4.1 million, or $0.06 per diluted share for the second quarter of fiscal 2009.

Adjusted EBITDA for the second quarter of fiscal 2010 was $28.4 million, compared to $15.0 million for the first quarter of fiscal 2010, and $10.2 million for the second quarter of fiscal 2009.

"In the second quarter of fiscal 2010 we saw robust demand for our products and services, driven by improvement in the overall economy and an improved DRAM pricing environment," commented Iain MacKenzie, President and CEO of SMART. "This increased demand, coupled with our operating leverage and efficient cost structure, is driving better financial performance. In the future we expect to benefit from the progress we are making in the expansion of our capacity in Brazil and Malaysia, and from our investment in Flash packaging in Brazil, which is targeted for launch in the early part of our fiscal 2011. In addition, we are ramping up our investment in our growing enterprise solid state storage business."

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 third quarter of fiscal 2010, SMART estimates net sales will be in the range of $175 million to $185 million, gross profit in the range of $38 million to $42 million, and net income per diluted share in the range of $0.15 to $0.19 on a GAAP basis. On a non-GAAP basis, SMART estimates net income per diluted share will be in the range of $0.18 to $0.22. The guidance for the third quarter of fiscal 2010 includes an income tax provision estimated in the range of $7.8 million to $8.4 million.

Comments

Abstracts of the earnings call transcript


Iain MacKenzie, President and CEO:

"We are investing to address the growing enterprise Solid State storage market to increase module capacity and to launch Flash packaging in Brazil. We expect to see meaningful traction from these initiatives later this calendar year.

"Last quarter, we indicated that several defense customers were evaluating our Xcel-10 SATA 2.6 iTemp drive. We have recently been awarded a meaningful contract for this product. Our customer indicated that SMART solution was chosen over other competitors primarily due to its performance and rugged design. We expect to commence shipments this fiscal third quarter. We are starting to see more testing of these SSDs in ground-based military applications, many of which tend to drive significantly greater volumes than sea and air-based applications.


"On January 5, we announced our XceedIOPS SATA SSD based on MEMLC technology. This further demonstrates our belief that MLC for Enterprise is a game-changer that will allow wider acceptance and growth of SSD solutions. We believe this to be the case, because MLC is just over half the cost of SLC, doubles the overall SSD capacity, and still meets the required enterprise specifications of greater than five years of life under worst-case conditions.


"As you may recall, last quarter, we mentioned that we received our first evaluation order for this product from a major OEM, and we remain on track to begin shipping against that order during this fiscal third quarter. This customer has since awarded a second evaluation order. We continue to expect that we will ultimately achieve production release status for this SATA drive in the next few months. In addition, we are now engaged at several major OEMs with this product.
"

Barry Zwarenstein, Senior VP, Finance and CFO
:

"Second quarter sales of $160.1 million were broken down by geography as follows: PC, 42%; network and telecom, 23%; service, 20%; logistics, 6%; industrial, 4%; storage, 4%; printers, 1%."

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