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| CAMD > SEC Filings for CAMD > Form 10-K on 15-Jun-2009 | All Recent SEC Filings |
15-Jun-2009
Annual Report
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and are based on current expectations, estimates, and projections about our industry; our beliefs and assumptions; and our goals and objectives. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," and "estimates," and variations of these words and similar expressions are intended to identify forward-looking statements. Examples of the kinds of forward-looking statements in this report include statements regarding the following: (1) our expectation that our ASP ("Average Selling Prices") for similar products, based on a constant mix of products, will decline at the rate of 12% to 15% per year; (2) our having a target gross margin of 38% to 40%; (3) our expectation that our future environmental compliance costs will be minimal; (4) our anticipation that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs over the next 12 months; (5) our having a long term target for research and development expenses of 9% to 10% of sales but expecting to exceed this target especially in the first half of fiscal 2010 driven by continuing development efforts for our products until sales increase substantially; (6) our having a long term target for selling, general and administrative expenses of 15% to 16% of sales but expecting to exceed this target until our sales increase substantially especially in the first half of fiscal 2010; (7) our expectation of future interest income to continue to be at a reduced level or even decline unless interest rates increase materially or we change the instruments in which we invest; (8) the size forecast by iSuppli Corporation for 2011 of the three markets we focus on; (9) our objective to be a leading supplier of protection devices for the mobile handset, digital consumer electronics and personal computer as well as high brightness light emitting diodes (HBLED) markets and of serial interface display electronics for the mobile handset market and our strategy to accomplish that objective; (10) our belief that the fiscal 2010 demand picture is beginning to improve as we believe revenue has bottomed and is likely to begin growing again in the second quarter of fiscal 2010 assuming increasing economic stability and seasonal growth in end demand; (11) our expectation that our international sales will continue to represent a majority of our sales in the foreseeable future; and (12) our expectation that we will not pay within one year any of our liability for uncertain tax positions or associated interest and tax penalties. These statements are only predictions, are not guarantees of future performance, and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include, but are not limited to, whether our target markets continue to experience their forecasted growth and whether such growth continues to require the devices we supply; whether we will be able to increase our market penetration; whether our product mix changes, our unit volume decreases materially, we experience price erosion due to competitive pressures, or our contract manufacturers and assemblers raise their prices to us or we experience lower yields from them or we are unable to realize expected cost savings in certain manufacturing and assembly processes; whether there will be any changes in tax accounting rules; whether we will be successful in developing new products which our customers will design into their products and whether design wins and bookings will translate into orders; whether we encounter any unexpected environmental clean-up issues with our former Tempe facility; whether we discover any further contamination at our former Topaz Avenue Milpitas facility; whether we will incur any large unanticipated expenses; and whether we will have large unanticipated cash requirements, as well as other risk factors detailed in this report, especially under Item 1A, Risk Factors. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.
In this discussion, "CMD," "we," "us" and "our" refer to California Micro Devices Corporation. All trademarks appearing in this discussion are the property of their respective owners. This discussion should be read in conjunction with the other financial information and financial statements and related notes contained elsewhere in this report.
Executive Overview
We design and sell application specific protection devices and display electronics devices for high volume applications in the mobile handset, digital consumer electronics and personal computer markets as well as application specific protection devices in the high brightness light emitting diodes (HBLED) market. These protection devices provide Electromagnetic Interference (EMI) filtering and Electrostatic Discharge (ESD) protection. The display electronic devices include serial interface display controllers. End customers for our semiconductor products are original equipment manufacturers (OEMs). We sell to some of these end customers through original design manufacturers (ODMs) and contract electronics manufacturers (CEMs). We use a direct sales force, manufacturers' representatives and distributors to sell our products. Our manufacturing is completely outsourced and we use merchant foundries to fabricate our wafers and subcontractors to do backend processing and to ship to our customers. We have one operating segment and most of our physical assets are located outside the United States. Assets located outside the United States include product inventories and manufacturing equipment consigned to our wafer foundries and backend subcontractors.
Industry Overview
The semiconductor industry is characterized by rapid technological change, intense competitive pressure, price erosion, periodic oversupply conditions, occasional shortages of materials, volatile demand patterns, capacity constraints, variation in manufacturing efficiencies and significant expenditures for capital equipment and product development. Market disruptions caused by economic downturn, new technologies, entry of new competitors into markets we serve and other factors introduce volatility into our operating performance and cash flow from operations.
Fiscal 2009 key financial highlights
The following are key financial highlights;
Net Sales: Our net sales were $49.3 million in 2009, down 17% from $59.2 million a year ago.
Gross Margin: Our gross margin was $14.8 million (30% of our net sales) in fiscal 2009 as compared to gross margin of $19.6 million (33% of our net sales) a year ago.
Net Loss per Share - Basic and Diluted: Our net loss, basic and diluted, was $0.65 per share in fiscal 2009 whereas our net loss per share, basic and diluted, was $0.06 a year ago.
Cash Provided by or Used in Operating Activities: We used operating cash of $5.7 million in fiscal 2009 compared to cash provided by operations of $4.4 million a year ago.
Net Cash* Position: We ended the fiscal year 2009 with a net cash position of $45.6 million as compared to $51.6 million a year ago. *Net Cash = Cash and cash equivalents + Short-term investments
Major Accomplishments in Fiscal 2009
Fiscal 2009 was certainly a challenging business environment due to the world-wide economic downturn. However, we accomplished a number of important things during the year that will help to strengthen our position going forward.
· In fiscal 2009, we were successful in expanding our customer base to include all of the top 5 handset manufacturers and three of the top 5 digital TV manufacturers.
· We grew our display controller revenue and began sampling two new products.
· We introduced the third generation of CMD's industry leading Praetorian® filters for handsets.
· We also introduced the XtremeESD™ family of ESD protection devices providing new levels of protection and signal integrity for high speed data interfaces.
· In addition, we also introduced the LuxGuard™ family of ESD protection and thermal management devices for High Brightness LEDs.
· We established the Phoenix Design Center to strengthen development capability for protection devices.
· During the year, we sold LED driver assets for $1.3 million.
· We repurchased 673,000 shares out of a 1 million share program authorized by our board.
· We ended the year with $45.6 million in cash and cash equivalents.
Future Outlook
In the last fiscal year, adverse economic conditions around the world impacted many customers and consumers and resulted in lower total demand in the markets we serve. However, as we look forward into fiscal 2010, we see the demand picture beginning to improve. Orders in the fourth quarter of fiscal 2009 were well above the depressed levels of third quarter of fiscal 2009 and orders so far in the first quarter of fiscal 2010 are running well ahead of fourth quarter of fiscal 2009. From what we can tell, most of our customers are no longer aggressively liquidating inventory but are still taking a cautious approach with respect to adding inventory. We believe that revenue has bottomed and is likely to begin growing again in the second quarter of fiscal 2010 assuming increasing economic stability and seasonal growth in end demand.
Results of Operations
The table below shows our net sales, cost of sales, gross margin, expenses and net loss, both in dollars and as a percentage of net sales, for fiscal 2009, 2008 and 2007 (in thousands):
Year Ended March 31,
2009 2008 2007
% of % of % of
Net Net Net
Amount Sales Amount Sales Amount Sales
Net sales $ 49,273 100 % $ 59,217 100 % $ 68,006 100 %
Cost of sales 34,425 70 % 39,599 67 % 42,790 63 %
Gross margin 14,848 30 % 19,618 33 % 25,216 37 %
Research and development 10,303 21 % 7,097 12 % 7,977 12 %
Selling, general and
administrative 14,652 30 % 15,264 26 % 16,757 25 %
Goodwill impairment 5,258 10 % - 0 % - 0 %
In-process research and
development - 0 % - 0 % 2,210 3 %
Amortization/Impairment of
intangible assets 133 0 % 165 0 % 158 0 %
Operating loss (15,498 ) (31 %) (2,908 ) (5 %) (1,886 ) (3 %)
Other income, net 1,647 3 % 2,390 4 % 2,432 4 %
Income (loss) before income
taxes (13,851 ) (28 %) (518 ) (1 %) 546 1 %
Provision for income taxes 1,311 3 % 896 1 % 627 1 %
Net loss $ (15,162 ) (31 %) $ (1,414 ) (2 %) $ (81 ) (0 %)
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Net Sales
Fiscal 2009 versus 2008
Net sales by market were as follows (in millions):
Year ended March 31,
2009 2008
As % of As % of
Total Total
Amount Sales Amount Sales $ Change % Change
Mobile handset $ 30.2 61 % $ 37.3 63 % $ (7.1 ) (19 %)
Digital consumer
electronics and
personal computers 14.8 30 % 18.7 32 % (3.9 ) (21 %)
HBLED 4.3 9 % 3.2 5 % 1.1 34 %
Total $ 49.3 100 % $ 59.2 100 % $ (9.9 ) (17 %)
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Net sales for fiscal 2009 were $49.3 million, a decrease of $9.9 million or 17% from $59.2 million of net sales in fiscal 2008. During fiscal 2009, sales from products for the mobile handset market decreased by $7.1 million or 19% and sales from products for the digital consumer electronics and personal computer market decreased by 3.9 million or 21% as compared to a year ago. Lower sales of both product lines were primarily driven by the weak global economy during the second half of the fiscal year. Sales from products for the HBLED market increased to $4.3 million during fiscal 2009 from $3.2 million in the same period a year ago, up $1.1 million or 34%. Net sales during the first half of fiscal 2009 were approximately 4% greater than the net sales during the first half of fiscal 2008 while net sales during the second half of fiscal 2009 were down approximately 37% compared to net sales during the second half of fiscal 2008.
In fiscal 2009, the total number of units sold decreased to 613 million units from 757 million units in fiscal 2008.
Fiscal 2008 versus 2007
Net sales by market were as follows (in millions):
Year ended March 31,
2008 2007
As % of As % of
Total Total
Amount Sales Amount Sales $ Change % Change
Mobile handset $ 37.3 63 % $ 48.1 71 % $ (10.8 ) (22 %)
Digital consumer
electronics and
personal computers 18.7 32 % 18.6 27 % 0.1 1 %
HBLED 3.2 5 % 1.3 2 % 1.9 146 %
Total $ 59.2 100 % $ 68.0 100 % $ (8.8 ) (13 %)
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Net sales for fiscal 2008 were $59.2 million, a decrease of $8.8 million or 13% from $68.0 million of net sales in fiscal 2007. Sales from products for the mobile handset market decreased by $10.8 million or 22% for fiscal 2008, as compared to fiscal 2007, primarily due to two factors: a) lower sales to a major customer as a result of share shifts in the mobile handset market and competition as well as b) price decreases of our products. These declines were partially offset by increases in unit sales to other customers. Sales from products for the digital consumer electronics and personal computer market increased marginally to $18.7 million in fiscal 2008 from $18.6 million in fiscal 2007, up $0.1 million or 1%. Sales from products for the HBLED market increased to $3.2 million during fiscal 2008 from $1.3 million in the same period a year ago, up $1.9 million or 146%.
In fiscal 2008 the total number of units sold decreased to 757 million units from 907 million units in fiscal 2007.
Sales by Region
Net sales by geographic region were as follows (in millions), based on where we
ship our products rather than where the customers' headquarters are located:
Year Ended March 31,
2009 2008 2007
% of % of % of
Amount Total Amount Total Amount Total
United States $ 6.5 13 % $ 5.5 9 % $ 4.4 6 %
China 17.8 36 % 15.9 27 % 28.2 42 %
Korea 11.1 23 % 19.6 33 % 16.5 24 %
Taiwan 8.1 16 % 11.2 19 % 10.4 15 %
Singapore 2.5 5 % 4.2 7 % 6.7 10 %
Others 3.3 7 % 2.8 5 % 1.8 3 %
Total net sales $ 49.3 100 % $ 59.2 100 % $ 68.0 100 %
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Fiscal 2009 versus 2008
International sales decreased from 91% of our net sales in fiscal 2008 to 87% of our net sales in fiscal 2009. The decrease in revenue is primarily coming from the Korea region which is partially offset by increase in demand from China region as compared to a year ago. We expect that our international sales will continue to represent a majority of our sales in the foreseeable future.
Fiscal 2008 versus 2007
International sales decreased from 94% of our net sales in fiscal 2007 to 91% in fiscal 2008. In fiscal 2008, revenue from the China region was 27% of our total sales as compared to 42% a year ago, primarily as a result of lower demand from one of our major customers.
Gross Margin
Fiscal 2009 versus 2008
Gross margin decreased by $4.8 million in fiscal 2009 to $14.8 million from
$19.6 million in fiscal 2008 due to the following reasons:
Gross margin increase (decrease) compared to prior period (in millions):
Price change of products based on a constant mix for target markets $ (6.1 )
Volume, mix and other factors (2.2 )
Cost reductions of our products on a constant mix 3.5
$ (4.8 )
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The gross margin decrease was primarily driven by price declines of our products and lower shipments, partially offset by product cost reductions. Our ASP declined 10% based on a constant mix of products in fiscal 2009 as compared to a year ago. In the future we expect our ASP for similar products, based on a constant mix of products, to decline at the rate of 12% to 15% per year. The cost reductions of our products were primarily driven by outsourcing with lower cost subcontractors, migrating from 6" to 8" wafer size and continued improvement in our assembly and testing processes.
Gross margin as a percentage of net sales decreased to 30% in fiscal 2009 as compared to 33% in fiscal 2008. Our long-range gross margin target remains 38% to 40%. However, our gross margin could fail to achieve this target range or could decline.
Fiscal 2008 versus 2007
Gross margin decreased by $5.6 million in fiscal 2008 to $19.6 million from $25.2 million in fiscal 2007 due to the following reasons:
Gross margin increase (decrease) compared to prior period (in millions):
Price change of products based on a constant mix for target markets $ (7.5 )
Volume, mix and other factors (4.0 )
Cost reductions of our products on a constant mix 5.9
$ (5.6 )
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The gross margin decrease was primarily driven by decreases in prices and volume of our products as well as change in our product mix, partially offset by product cost reductions. Our ASP declined 12% based on a constant mix of products in fiscal 2008 as compared to a year ago. Units sold in mobile handset market decreased by 27% and units sold in digital consumer electronics and personal computer markets increased by 15% during fiscal 2008 as compared to a year ago. The cost reductions of our products were primarily due to outsourcing with lower cost subcontractors, migration of low capacitance ESD products to the lower cost sinker process and continued improvement in our assembly and testing processes.
Gross margin as a percentage of net sales decreased to 33% in fiscal 2008 as compared to 37% in fiscal 2007.
Research and Development
Research and development expenses consist primarily of compensation and related
costs for employees, prototypes, masks and other expenses for the development of
new products, process technology and packages. The changes in research and
development expenses for fiscal 2009 compared to fiscal 2008, and for fiscal
2008 compared to fiscal 2007, were as follows:
Fiscal 2009 Fiscal 2008
compared to compared to
Expense increase (decrease) compared to prior fiscal year
(in thousands): Fiscal 2008 Fiscal 2007
Outside services $ 864 $ 89
Engineering supplies and tooling 774 (658 )
Product related costs 416 (360 )
Salaries and benefits and other costs 1,152 49
$ 3,206 $ (880 )
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Fiscal 2009 versus 2008
Research and development expenses increased by $3.2 million, or 45%, during fiscal 2009 as compared with fiscal 2008, primarily due to increased spending for our serial interface display controller line of products.
As a percentage of sales, research and development expenses increased from 12% in fiscal 2008 to 21% in fiscal 2009. Our long term target for research and development expenses is 9% to 10% of sales. However, research and development expenses will continue to exceed our target range and represent more than 20% of sales until sales increase substantially, driven by continuing development efforts for our products, especially during the first half of fiscal 2010.
Fiscal 2008 versus 2007
Research and development expenses decreased by $0.9 million, or 11%, during fiscal 2008 as compared with fiscal 2007, primarily due to the timing of our new product development projects in both our serial interface display controller product and protection devices. This decline of research and development expenses during fiscal 2008 was temporary as serial interface display controller and protection devices development activity ramped up during fiscal 2009.
As a percentage of sales, research and development expenses were flat at 12% in fiscal 2008 as compared to a year ago primarily due to decrease in our sales.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of compensation
and other employee related costs, sales commissions, marketing expenses, legal,
accounting, and information technology expenses. The changes in selling, general
and administrative expense for fiscal 2009 compared to fiscal 2008, and for
fiscal 2008 compared to fiscal 2007, were as follows:
Fiscal 2009 Fiscal 2008
compared to compared to
Expense increase (decrease) compared to prior fiscal year
(in thousands): Fiscal 2008 Fiscal 2007
Commissions, salaries and benefits $ (226 ) $ (270 )
Employee stock based compensation expense (224 ) (515 )
Outside services (49 ) (446 )
Marketing samples, travel and other expenses (113 ) (262 )
$ (612 ) $ (1,493 )
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Fiscal 2009 versus 2008
Selling, general and administrative expenses decreased by $0.6 million, or 4%, in fiscal 2009 as compared with a year ago, primarily due to a decrease in sales commissions, employee stock-based compensation expense, professional services and travel expenses. Decrease in sales commission was due to reduced sales during fiscal 2009 as compared with a year ago and decrease in travel expenses, professional services and marketing samples was the result of cost cutting measures taken by the Company to reduce discretionary spending.
As a percentage of sales, selling, general and administrative expenses increased from 26% in fiscal 2008 to 30% in fiscal 2009, primarily as a result of lower sales. Our long term target for selling, general and administrative expenses is 15% to 16% of sales. However, selling, general and administrative expenses will continue to exceed our target range and represent more than 16% of sales until our sales increase substantially, especially during the first half of fiscal 2010.
Fiscal 2008 versus 2007
Selling, general and administrative expenses decreased by $1.5 million, or 9%, in fiscal 2008 as compared with a year ago, primarily due to a decrease in employee stock-based compensation expense, professional services, and sales commissions as a result of reduced sales. Others factors included reduced spending for marketing samples and reduction in legal charges incurred during fiscal 2008 as compared with a year ago.
As a percentage of sales, selling, general and administrative expenses increased from 25% in fiscal 2007 to 26% in fiscal 2008, primarily as a result of reduced sales.
Goodwill Impairment
Goodwill impairment was $5.3 million during fiscal 2009. As a result of adverse economic conditions, our operating results, and the sustained decline in our . . .
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