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July 28, 2009
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For the fourth fiscal quarter, Trident Microsystems (TRID) missed the consensus revenue estimate by 12.3%, and the EPS estimate by $0.01. Revenue was at the low end of the company’s guidance of $15.0 million to $18.0 million, and below our expectation of $18.0 million. EPS on a pro forma basis was also much below our estimate.
Results for the quarter include the recently completed acquisition of consumer division assets from Micronas, which led to the sequential increase in revenue and EPS. Revenue for the quarter was $14.9 million, of which $8.0 million was from the newly acquired product lines and $6.9 million was from core Trident. This compares to $6.9 million reported on a standalone basis in the previous quarter and $39.5 million last year. Combined revenue for the quarter decreased 62.2% from the year-ago period, but increased 117.6% from the previous quarter.
Non-GAAP gross margin was 37.3% versus 45.7% in the year-ago quarter and 22.3% in the previous quarter. It was above the company's expectation of the low 30.0% range. Sequential improvement was attributed to better leverage of fixed manufacturing costs, one-time reserve benefits and richer product mix.
On a non-GAAP basis, operating expenses increased to $19.5 million from $17.3 million in the year-ago quarter and $15.4 million in the previous quarter. This was due to higher R&D expenses, which increased 20.2% year-over-year and 24.1% quarter-over-quarter. SG&A decreased by 10.9% year-over-year but increased 17.2% sequentially. This resulted in a non-GAAP operating loss of $13.9 million -- better than expected, which in turn improved the cash burn rate and ending cash balance.
Pro forma net loss for the quarter was $15.7 million or $0.24 per basic share versus net income of $7.0 million or $0.12 per diluted share in the year-ago quarter and net loss of $14.4 million or $0.23 per basic share in the previous quarter.
For the first quarter, Trident expects revenue in the $22.0 million to $25.0 million range, which is above the consensus expectation of $21.9 million. Although the outlook is decent, the current macro environment weighs heavily on the stock, which led the company to lower its outlook from the May forecast of $35.0 million in combined revenues for the first quarter. Despite the upbeat outlook, the company expects economic uncertainty, a longer sales cycle, weak demand and intense competition to continue in the future quarters.
On a positive note, to align its workforce with the opportunities in fiscal year 2010, the company will implement a 10% reduction in its global workforce, which is expected to result in restructuring charges of approximately $1.5 million in the first quarter. The company expects to generate approximately $1 million per quarter in savings from the first quarter of fiscal year 2010. Also, Trident believes that the acquisition of Micronas will help it win business for digital TV (DTV) chips from top-tier TV vendors in 2010.
We believe that Micronas acquisition should enable Trident to generate top and bottom line growth. The acquisition is a significant step in re-establishing the company as a leader in the DTV market. Also, the new design wins, significant growth in the SoC business and cost reduction initiatives are paving the way for growth. Another positive for the company is its cash per share of $3.28, which is well above its stock price.
Increasing competition from Broadcom (BRCM) and changes in supply relationships with major tier-1 customers Sony (SNE) and Samsung have hurt results. Despite the fact that the stock is selling at less than cash value, the uncertainties of Trident’s near-term revenue stream and the high level of operating expenses prompt us to reiterate our Hold recommendation on the stock.
Read the full analyst report on "TRID"
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