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APPLIED MICRO CIRCUITS CORPORATION COMMON STOCK-NE Reports Operating Results (10-Q)

August 03, 2009 | About:

APPLIED MICRO CIRCUITS CORPORATION COMMON STOCK-NE (AMCC) filed Quarterly Report for the period ended 2009-06-30.

Applied Micro Circuits Corporation is a global leader in network and embedded PowerPC processing optical transport and storage solutions. The Company\'s products enable the development of converged IP-based networks offering high-speed secure data high-definition video and high-quality voice for carrier metropolitan access and enterprise applications. AMCC provides networking equipment vendors with industry-leading network and communications processing Ethernet SONET and switch fabric solutions. AMCC is also the leading vendor of high-port count SATA RAID controllers enabling low-cost high-performance high-capacity storage. AMCC\'s corporate headquarters are located in Sunnyvale California. Sales and engineering offices are located throughout the world. APPLIED MICRO CIRCUITS CORPORATION COMMON STOCK-NE has a market cap of $569.91 million; its shares were traded at around $8.65 with a P/E ratio of 37.61 and P/S ratio of 2.66.

Highlight of Business Operations:

In calendar 2006, we changed our strategic direction in such a way that certain patents while still valuable were no longer core to our strategic direction. We reported our non-focus revenues separately and began to analyze our patent portfolio in detail. These patents related to non-focus products, foundry and other items that were not relevant to our long-term strategic product road maps. As a result, we embarked on a program to monetize this intellectual property. In July 2008, we entered into a Patent Purchase Agreement (the Agreement) with QUALCOMM Incorporated (Qualcomm). Pursuant to the Agreement, we agreed to sell a series of our patents, patent applications and associated rights related to certain technologies for an aggregate purchase price of $33.0 million. The purchase price is being paid over three years in equal quarterly payments of $3.0 million each beginning in the three months ended September 30, 2008. Due to the nature of the payment terms, related revenue is being recorded as the payments are received beginning in the quarter ended September 30, 2008. Under the Agreement, we and our affiliates have retained a worldwide and non-exclusive right to manufacture and sell existing AppliedMicro products that utilize technology covered by the patents. The Agreement includes customary representations, warranties and covenants by us. Prior to the due date of the final payment, Qualcomm is permitted to withhold a portion of the total purchase price in the event we breach the representations, warranties or covenants that we made under the Agreement. We hope to achieve a sustainable long-term revenue stream from our program to monetize our non-core intellectual property in the next three-to-five years.

Under the Asset Purchase Agreement with LSI Corporation (the Purchase Agreement), which we entered on April 5, 2009, we sold substantially all of the operating assets (other than patents) of our 3ware storage adapter business. The assets sold included customer contracts, inventory, fixed assets, certain intellectual property and other assets, as well as rights to the name 3ware. The purchase price was approximately $20.8 million, subject to an adjustment for changes in the level of inventory at the closing of the sale. We estimate the adjustment could increase the purchase price by up to $0.8 million. We are currently in discussions with LSI on the adjustment amount and will record the adjustment when an amount is agreed upon.

Our policy is to value inventories at the lower of cost or market on a part-by-part basis. This policy requires us to make estimates regarding the market value of our inventories, including an assessment of excess or obsolete inventories. We determine excess and obsolete inventories based on an estimate of the future demand for our products within a specified time horizon, generally 12 months. The estimates we use for future demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. If our demand forecast is greater than our actual demand we may be required to take additional excess inventory charges, which would decrease gross margin and net operating results. For example, as of June 30, 2009, reducing our future demand estimate to six months could decrease our current inventory valuation by approximately $5.6 million or increasing our future demand forecast to 18 months could increase our current inventory valuation by approximately $0.2 million.

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