News

Semtech Announces Q3 Results and Impact of Xemics Acquisition

December 04, 2005 by Jeff Shepard

Semtech Corp. announced net sales for the third quarter of fiscal year 2006 were $60.9 million, up 5 percent from $58.0 million in the second quarter of fiscal year 2006 and down 6 percent from $65.0 million in the third quarter of fiscal year 2005. The third quarter of fiscal year 2005 consisted of fourteen weeks as compared to thirteen weeks for all other quarters presented.

Net income for the third quarter of fiscal year 2006 was $11.5 million or 15 cents per diluted share. Net income was $14.6 million or 19 cents per diluted share in the third quarter of fiscal year 2005. Gross margin was 56.3 percent in the third quarter of fiscal year 2006, up from 55.4 percent in the second quarter.

Semtech generated $21.6 million of operating cash flow in the third quarter of fiscal year 2006. The Company spent $14.6 million on stock repurchases during the third quarter to buy back 924,700 shares of common stock.

New orders in the third quarter of fiscal year 2006 were up 16 percent compared to the second quarter, resulting in a book-to-bill ratio above one. Backlog entering the fourth quarter of fiscal year 2006 was up 25 percent compared to the third quarter. The strength was led by the third consecutive quarter of record orders and shipments for Protection Products, which are sold into a broad range of portable and networking applications. Semtech's Wireless and Sensing Products, which came by way of the June 2005 acquisition of Xemics, represented 12 percent of total orders for the quarter.

Demand by end-markets in the third quarter reflected some seasonal strength in the consumer driven markets, including sales of products used in notebook computers that were up 9 percent sequentially. Telecommunications and broadband applications also showed strength. Design-win activity in the third quarter suggests growing diversity in the end-markets served, including in medical, industrial and high-end consumer applications.

John D. "Jack" Poe, Semtech's Chairman and acting Chief Executive Officer, commented on the third quarter, "The healthy growth in orders and fourth quarter beginning backlog reflect the strength of several product lines, most notably Protection Products, and better visibility from our customer base. Equally encouraging was a decline in channel inventories and internal Company inventories."

"Several internal initiatives have been undertaken to improve execution and streamline new product introductions. The focus of these initiatives is on the better clarification of product road maps, the shortening of IC design cycles, an improvement in customer communications and the elimination of duplicate engineering functions. In addition, we are vigorously pursuing cost reductions on the manufacturing side needed to gain share in the highly competitive vertical end-markets," Mr. Poe added.

Consistent with purchase accounting treatment, the third quarter of fiscal year 2006 includes a pre-tax expense of $409,000 for the amortization of intangibles related to the June 2005 acquisition of Xemics. The third quarter also includes $502,000 of pre-tax legal costs related to Semtech's litigation against its insurance company. The tax provision for the third quarter was lower than forecasted due to a favorable tax provision item related to a foreign tax jurisdiction. The combined effect of these three items did not change earnings per diluted share in the third quarter.

Net income for the first nine months of fiscal year 2006 was $29.7 million or 39 cents per diluted share, which is net of 4 cents per share of after-tax expense for the amortization of acquisition-related intangibles, after-tax legal costs and settlements related to Semtech's litigation against its insurance companies and a favorable tax provision item related to a foreign tax jurisdiction. Net income for the first nine months of fiscal year 2005 was $46.8 million or 59 cents per diluted share.

Semtech estimates that net sales for the fourth quarter that ends January 29, 2006 will increase in a range of 4 to 6 percent compared to the third quarter. Turns orders (orders received and shipped in the same quarter) of approximately 37 percent are required to achieve this forecast. Earnings in the fourth quarter are forecasted to be 16 cents per diluted share, which includes an estimated 1 cent per share after-tax expense for the amortization of acquisition-related intangibles and legal costs related to Semtech's litigation against its insurance company.