For third-quarter 2014, GigOptix Inc of San Jose, CA, USA (a fabless supplier of analog semiconductor and optical communications components for fiber-optic and wireless networks) has reported its third consecutive quarter of revenue growth, to $8.5m. This is up 6% on $8m last quarter and up 16% on $7.3m a year ago (and above the $8.2-8.4m guidance given on 28 July).
Of total revenue, 36% came from the Industrial (ASIC) product line and 64% came from the High-Speed Communications product line.
Industrial revenue grew by 27% on last quarter to $3.1m, driven by demand for larger-geometry ASIC products (ahead of an expected shift by customers towards smaller-geometry products starting in 2015).
High-Speed Communications revenue fell by 4% due to a drop in wireless business (to just 5% of High-Speed Communications revenue), nearly offset by strong demand in telecom business (rising to 56% of High-Speed Communications revenue) while datacom business remained robust (at 39%).
Specifically, wireless revenue fell from an exceptionally strong $1.3m last quarter to just $0.3m. In addition to a seasonal decline, GigOptix temporarily held major device shipment to a specific European contract manufacturer for one key customer as they worked through some internal financial issues. “We took a conscious decision to hold more than $400,000 of already booked shipments in order to mitigate any potential financial collision risk and allow for time to negotiate a reasonable payment plan for this contract manufacturer,” says chairman & CEO Avi Katz. “This event did not occur till very late in the third quarter and accounted for most of the sequential quarterly revenue decline,” he adds.
Optics-related revenue (telecom and datacom collectively) grew by almost 20% on last quarter. In particular, telecom-related revenue grew by 49%, driven by successful product introduction and acceptance of the firm’s 100Gb/s coherent linear multi-chip driver modules for multiple telecom applications. In addition, shipments of the 40Gbps datacom product have grown about 80% year-on-year.
“For the last two years we have shipped more of the current-generation 100Gb/s coherent drivers, namely the limiting drivers, than all our competitors combined,” reckons Katz. “With the current successful introduction of our new 100Gb/s coherent linear driver, we will maintain this lead position in the industry in the years to come,” he believes.
The strong demand for the new 100G linear driver product meant that Alcatel was GigOptix’s sole greater-than-10% customer in Q3 (at 32%).
On a non-GAAP basis, gross margin returned to above the 60% threshold, at 61%, compared with 59% last quarter and 62% a year ago. This was driven by a decrease in overhead-related costs coupled with a favorable product mix in Industrial business.
Despite the addition of the 10 engineering staff of Tahoe RF Semiconductor Inc (acquired at end-June by assuming about $450,000 in liabilities, of which $350,000 was paid out during Q3), R&D expense remained at $3m, as the increased headcount-related expense was offset by a decrease in project-related expenses and a small restructuring of GigOptix’s San Jose engineering team. Selling, general & administrative (SG&A) expenses remained about $1.5m.
Net income was a record $0.73m ($0.02 per diluted share), compared with $0.27m ($0.01 per diluted share) last quarter and a net loss of $0.68m ($0.03 per share) a year ago. Adjusted EBITDA has risen further, from $1m last quarter and $0.1m a year ago to a record $1.4m (the firm’s 13th consecutive quarter of EBITDA profitability). During the quarter, cash and cash equivalents fell from $18.5m to $18.1m. The firm has no debt outstanding.
“Our record non-GAAP net income and adjusted EBITDA as well as improved GAAP results in the third quarter validate the positive impact of the actions we’ve taken over the last 24 months in driving revenue growth through restructuring of our worldwide global sales & marketing organization and improving efficiencies by restructuring our back-end operations in the engineering organization,” says Katz.
Driven by continued solid demand for key products, for fourth quarter 2014 GigOptix expects revenue to rise to $8.5-8.8m (up 8-12% year-on-year). Gross margin should be about 60%, despite R&D expenses rising to about $3.2m due to project spending, with SG&A expenses remaining about $1.5m. Capital expenditure (CapEx) should fall from $330,000 in Q3 to about $300,000. Cash reserves should be maintained, as cash generated by operations should be offset by normal working capital purposes.
Driven by the capacity ramp-up for 100Gbps coherent linear telecom products and 40Gb/s datacom products over the coming year, full-year revenue should be about 12% up on 2013 (with datacom revenue roughly doubling to more than $8m).
Regarding wireless business, Katz comments: “Now that we have put in place the contractual payment agreement with this contract manufacturer, we believe that if we begin to see a recovery of the wireless device revenue in the fourth quarter, we will end the year with revenue that will almost double what we have generated out of this line in 2013”. He adds that wireless business should continue to present good growth through 2015.
