Financial Results
Revenue for the first quarter of 2008 was $7.3 million, consisting entirely of product revenue, compared to $7.9 million for the first quarter of 2007, which included last-time buys of the company’s legacy ZMD product of approximately $600,000. Excluding this last-time buy revenue, revenue for Q108 was in line with revenue a year ago. Gross margin was 43% for the quarter compared to 44% a year ago, reflecting product mix and higher costs related to lower yields on certain 1 megabit silicon wafers. The Company reported ex-item net loss for the first quarter of $1.6 million, or $0.10 per share, compared to an ex-item profit of $235,000, or $0.02 per share in Q107. For the quarter, ex-item income excludes the effects of stock options and amortization of acquisition related costs. Included in the first quarter ex-item loss is a $600,000 investment in AgigA Tech, the Company’s newly created subsidiary, as well as costs associated with the Cypress acquisition offer. On a GAAP basis, Simtek reported a net loss for the quarter of $2.5 million or $0.15 per share compared to a loss of $490,000, or $0.03 per share for the comparable 2007 period. The increased loss is attributable to lower revenue and increased research and development expenditures.
“In light of challenging economic conditions across multiple geographic markets and some end-markets, we are pleased with the consistent strength in our core business in the first quarter and believe revenue to be in line with industry trends,” stated Harold A. Blomquist, Simtek president and chief executive officer. “During the quarter we experienced modest growth in revenue and bookings in the North American, Pacific Rim, and Asian markets. Sales to our storage customers are strong and gaining momentum, while shipments to Europe were weak compared to prior periods as we worked through both the last-time buys early in the year, and a build-up of inventory in the channel. Pull-through demand from our European customers appears to be healthy as we look to the remainder of the year. We continued to solidify and enhance our positions in our target markets, securing 39 new design wins in the first quarter, up from 30 in the same quarter last year. During the quarter we saw several new design wins for the 4 megabit product in storage and industrial control applications, and we began accepting pre-production purchase orders for 4 Megs during the quarter.”
“We achieved several significant milestones during the quarter including launching AgigA Tech, a majority owned subsidiary created to focus on the development and commercialization of our low-cost, high density nvRAM solutions; identification of new and potentially significant application areas for nvSRAMs; steady gains in Asian design activity; and the announcement of our 8 megabit nvSRAM. We also completed a new tape out of our 4 megabit product, with design improvements aimed at optimizing manufacturability and anticipate production qualification in the middle of the year, followed by modest revenue in the back half of 2008,” concluded Blomquist.
Evaluation of Strategic Alternatives
In April 2008, the company received a proposal from Cypress Semiconductor Corporation to acquire Simtek for $2.20 per share in cash. After reviewing the proposal, along with its independent financial and legal advisors, Simtek's Board of Directors rejected the offer, stating that the Cypress proposal significantly undervalues the combination of Simtek's core business in nvSRAM and its subsidiary AgigA Tech through which Simtek is developing breakthrough high-density non-volatile RAM solutions. At that time, the Board indicated that it would continue to explore various strategic alternatives in order to maximize long-term value for Simtek stockholders and that it would vigorously resist any attempted acquisition at a price that doesn't adequately value the Company and its growth opportunities. This evaluation is ongoing and developments will be disclosed as the Board deems appropriate.
Ex-Item Earnings
Simtek reports net income or loss in accordance with GAAP and additionally uses ex-item financial measures which are adjusted from the most directly comparable GAAP financial measures to exclude charges related to non-cash, unusual or non-recurring expenses the Company may incur from time to time, in order to provide additional comparative information between periods. Management believes that these ex-item measures are important to investor understanding of the Company’s disclosures regarding past, current and future operating results. Following is reconciliation(a) of the Ex-item financial measures to the most comparable GAAP financial measures, in thousands of dollars, except per share amounts:
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(Amounts in thousands, except per share amounts)
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Three Months Ended March 31, 2008 | Three Months Ended March 31, 2007 | |||||||
| Net Loss, as reported | ($2,455 | ) | ($490 | ) | |||||
| Adjusted-GAAP items: | |||||||||
| Amortization of Non-compete Agreement | 445 | 446 | |||||||
| Costs associated with employee stock options | 392 | 279 | |||||||
| Ex-item Net Income (Loss) | ($1,618 | ) | $ | 235 | |||||
| Per Share Data: | |||||||||
| Net Loss, as reported | ($0.15 | ) | ($0.03 | ) | |||||
| Adjusted-GAAP items: | |||||||||
| Amortization of Non-compete Agreement | $ | 0.03 | $ | 0.03 | |||||
| Costs associated with employee stock options | $ | 0.02 | $ | 0.02 | |||||
| Ex-item Net Income (Loss) Per Share | ($0.10 | ) | $ | 0.02 | |||||
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(a) pursuant to the requirements of Regulation G. |
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