INTELLON CORPORATION (ITLN) filed Quarterly Report for the period ended 2009-09-30.
Intellon Corporation designs and sells integrated circuits (ICs) for powerline communications providing HomePlug? - compliant and other powerline ICs for home networking networked entertainment commercial and Smart Grid applications. Intellon is a leader in powerline communications technology. Intellon developed and patented the baseline technology behind the initial standard adopted by the HomePlug Powerline Alliance a global industry group formed to create and promote standards for powerline communications. Intellon Corporation has a market cap of $224.8 million; its shares were traded at around $7.17 with a P/E ratio of 71.7 and P/S ratio of 3.
Highlight of Business Operations:
We have made a substantial investment in research and development and in sales and marketing since our inception in 1989, and, as a result, we sell two families of powerline ICs, HomePlug-based ICs, which account for the majority of our sales, and command and control ICs. We outsource our semiconductor fabrication, assembly and test functions, reducing the level of our capital investment and enabling us to focus on the design, development, sale and marketing of our products. As of September 30, 2009, we had shipped approximately 41.8 million powerline communications ICs, including approximately 33.9 million HomePlug-based ICs that have been integrated into adapters, set-top boxes and other commercial applications. We shipped over 3.2 million powerline communications ICs in the three months ended September 30, 2009, a 3% decline from shipments of over 3.3 million powerline communications ICs in the three months ended September 30, 2008. We shipped approximately 8.0 million powerline communications ICs in the nine months ended September 30, 2009, a 7% decline from shipments of over 8.6 million powerline communications IC in the nine months ended September 30, 2008. Our HomePlug-based ICs represented approximately 99% of our revenue for each of the three and nine months ended September 30, 2009. We expect sales of our HomePlug-based products to continue to represent the predominant share of our revenue in the foreseeable future.
In the third quarter of 2009, our total revenue was $19.9 million compared to $17.5 million in the second quarter of 2009 and $20.1 million in the third quarter of 2008. The 14% sequential increase in revenue during the third quarter of 2009 compared to the second quarter of 2009 was primarily due to a 30% increase in sales in the service provider channel and a 25% increase in sales in the commercial channel for Ethernet-over-Coax applications in China, which was partially offset by a 12% sequential decline in sales in the retail channel, primarily due to continued global economic weakness. The 1.0% quarter-over-quarter decrease in revenue during the third quarter of 2009 compared to the third quarter of 2008 was primarily due to a 23% decline in sales in the retail channel, which was partially offset by an 8% increase in sales in the service provider channel and a 286% increase in sales in the commercial channel for Ethernet-over-Coax applications.
We sell our products directly to original equipment manufacturers (OEMs) and service providers, which include our ICs in their products. We also sell our products directly to original design manufacturers (ODMs), which include our ICs in products they supply to OEMs and service providers. ODMs purchase our products only when an OEM incorporates our IC into the design of the OEM’s product. In addition, we sell our products to distributors, which are independent entities that assist us in identifying and servicing OEMs and ODMs and generally purchase our products directly from us for resale to their OEM and ODM customers. These OEMs and ODMs, in turn, sell our products to service providers and, through retail channels, to end-user customers. Service providers use our HomePlug-based ICs to provide in-home connectivity for a variety of services, including Internet Protocol Television (IPTV) and broadband distribution as well as movies-on-demand. In some cases, a service provider makes products containing our ICs available to its customers as part of the customers’ service subscription, sometimes as an installer option. Other service providers offer such products to customers for purchase at the customer’s discretion. As a result, the percent of a service provider’s installations using product containing our ICs may vary significantly. For the three months ended September 30, 2009, service providers accounted for approximately 63% of our revenue, or $12.5 million. Revenue from the service provider channel in the third quarter of 2009 increased approximately 30% compared to the second quarter of 2009, and increased approximately 8% compared to the third quarter of 2008. The fluctuations in demand for our HomePlug-based ICs in the service provider channel are due, in part, to order timing by our customers, as well as to changes in demand from a single customer deploying set-top boxes incorporating our HomePlug 1.0 ICs. Historically, demand from this customer has fluctuated significantly. Sales to this customer declined approximately 16%, or $0.7 million, for the three months ended September 30, 2009 and approximately 30%, or $2.7 million, for the nine months ended September 30, 2009, compared to the corresponding periods in 2008, primarily as a result of an inventory over-stock position at this customer that affected sales significantly in the first half of 2009. However, sales to this customer increased sequentially approximately 174%, or $2.5 million, in the third quarter of 2009 compared to the second quarter of 2009. In addition, we expect sales to this customer to increase significantly in the fourth quarter of 2009 compared to the third quarter of 2009. However, we expect sales to this customer on an annual basis will be lower in 2009 compared to 2008.
Our sales have historically been made on the basis of purchase orders rather than long-term agreements. The demand for our products is ultimately dependent upon sales of our customers’ products through their channels to retail purchasers, service providers and other customers. As a result, it is difficult for us to accurately forecast our product demand. If the resulting sales of our customers’ products are less than forecasted by our customers, our customers will reduce or terminate their demand for our products. Our lack of visibility into our own customers’ end-customer demand causes us to experience sudden and unexpected fluctuations in our revenue, product mix, inventory levels and gross margins, and we expect these fluctuations to continue and potentially increase in frequency and severity. The limited visibility experienced by us and our customers is exacerbated during product transitions, where we must assess demand both for the new product being introduced and the existing product being replaced. During the three and nine months ended September 30, 2009, revenue in the retail channel declined approximately 23% and 32% compared to the three and nine months ended September 30, 2008, respectively, largely due to the global economic downturn. Although sales into the retail channel increased approximately 96% during the second quarter of 2009 compared to the first quarter of 2009 due, in part, to channel inventory replacement by our customers, sales in our retail channel declined during the third quarter of 2009 by 12% compared to the second quarter of 2009. We expect sales in the retail channel to increase slightly sequentially in the fourth quarter of 2009 due, in part, to channel inventory replacement by our customers, new product introductions and anticipated seasonal sales in the fourth quarter.
We sell our products worldwide through multiple channels that include distributors, independent sales representatives and direct sales. Our sales organization consists of sales professionals, technical sales support and field application engineering. Our independent distributors primarily receive discounts on our products for resale, and occasionally they earn commissions on the products sold directly to our OEMs or ODMs. For the three months ended September 30, 2009 and 2008, 83% and 77% of our revenue was from direct channels, respectively. For the nine months ended September 30, 2009 and 2008, 82% and 75% of our revenue was from direct channels, respectively.
been increasing. We anticipate that significant customer concentration will continue for the foreseeable future and may increase during the remainder of 2009. Our top five customers accounted for approximately 68% and 70% of our revenue for the nine months ended September 30, 2009 and 2008, respectively. The customers representing 10% or more of our revenue during the periods presented were:
ITLN is in the portfolios of Arnold Van Den Berg of Century Management.
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