Netlist Inc. Reports Operating Results (10-K)

Netlist Inc. (NASDAQ:NLST) filed Annual Report for the period ended 2011-01-01.

Netlist Inc. has a market cap of $57.5 million; its shares were traded at around $2.27 with and P/S ratio of 3.1. Hedge Fund Gurus that owns NLST: Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

In February 2010, we announced general availability of NVvault battery-free, a non-volatile cache memory subsystem targeting Redundant Array of Independent Disks, ("RAID") storage applications. NVvault battery-free provides server and storage OEMs a solution for enhanced datacenter fault recovery. Unlike our traditional battery-powered fault tolerant cache product which relied solely on batteries to power the cache, NVvault battery-free utilizes a combination of DRAM for high throughput performance and flash for extended data retention. The introduction of NVvault battery-free, as well as the launch of the current version of the battery-powered module in connection with Dell, Inc.'s ("Dell") introduction of the PERC 7 line of servers in December 2009, has resulted in RAID controller subsystem revenues of $20.2 million, or 54% of total revenues for 2010, including $4.8 million of NVvault. This compares favorably with $7.3 million in RAID controller subsystem revenues, or 40% of total revenues for 2009. Although revenues in 2010 have been primarily for shipments to Dell, in the fourth quarter of 2010 we qualified NVvault battery-free with other OEMs. We also intend to pursue end-user opportunities.

We primarily market and sell our products to leading OEMs in the server, storage and communications markets. Consistent with the concentrated nature of the OEM customer base in our target markets, a small number of large customers have historically accounted for a significant portion of our net sales. Dell and F5 Networks, Inc. ("F5 Networks") represented approximately 59% and 19%, respectively, of our net sales in 2010. Dell and DRS Electronics, Inc. ("DRS Electronics") represented approximately 53% and 13%, respectively, of our net sales in 2009. Net sales to some of our OEM customers include memory modules that are qualified by us directly with the OEM customer and sold to electronic manufacturing services providers ("EMSs"), for incorporation into products manufactured exclusively for the OEM customer or, in some instances, to facilitate credit and logistics. These net sales to EMSs have historically fluctuated period to period as a portion of the total net sales to the OEM customers. Net sales to Hon Hai Precision Industry Co. Ltd., an EMS operating under the trade name of Foxconn that purchases memory modules from us for incorporation into products manufactured exclusively for Dell, represented approximately 96% and 76% of net sales to Dell for 2010 and 2009, respectively. Arrow Electronics Inc. ("Arrow") is an EMS for DRS Electronics. Substantially all of our products used by DRS Electronics are sold to Arrow for incorporation in subassembly products. Similarly, substantially all of the products sold to F5 Networks were sold through Flextronics International Ltd. For further information regarding our sales to our OEM customer base, please refer to Note 12 of Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Report.

We schedule production based on purchase order commitments and anticipated orders. We release raw materials to the manufacturing floor by means of an on-line shop floor control system, which allows for internal quality analysis, direct access to inventory information and production floor material tracking. We have a flexible manufacturing workforce which allows us to manage unforecasted demand. In addition, in order to mitigate inventory risks, we have the capability to sell excess quantities of certain component inventories of DRAM ICs and NAND to distributors and other users of memory integrated circuits. However, the ASIC and DRAM components used in our HyperCloud product have limited alternative uses. As such, we may not be able to sell excess quantities of the components, should we fail to obtain qualification with major OEMs. Our sales of excess inventory generated less than 1% of our net sales in 2010 and approximately 4% of our net sales in 2009.

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