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Aetrium Inc. Reports Operating Results (10-K)

March 20, 2012 | About:

Aetrium Inc. (ATRM) filed Annual Report for the period ended 2011-12-31.

Aetrium Inc has a market cap of $8.5 million; its shares were traded at around $0.75 with and P/S ratio of 1.

Highlight of Business Operations:

Industry conditions continued to improve in 2010 and many IC manufacturers expanded their production capacity. Aetrium’s results generally followed the improving trend of our industry segment. In the first nine months of 2010, our net sales increased substantially over the prior year. However, our net sales decreased significantly in the fourth quarter of 2010 due in part to a general slowdown in the semiconductor industry and also due to significantly lower sales to one of our largest customers. This customer, in addition to being impacted by the industry slowdown, was transitioning from four site testing to eight site testing, and we believe its extended eight site test handler evaluations in the fourth quarter of 2010 resulted in delayed orders from that customer. As a result of these factors, our net sales decreased to $1.7 million in the fourth quarter of 2010. Despite the sharp drop-off in sales in the fourth quarter, net sales for fiscal year 2010 totaled $16.3 million compared with $8.6 million in 2009, an increase of 88%.

In 2011, worldwide economic uncertainty contributed to relatively flat and inconsistent business conditions in the semiconductor industry. Many manufacturers operated at less than full capacity throughout the year, and our sales of test handlers were adversely impacted by this industry weakness. Although the customer referenced above purchased some initial units of our new VMAX eight-site test handler and related equipment in the first half of 2011, it made no further purchases of gravity feed test handlers during the remainder of 2011. Accordingly, our net sales increased sequentially to $1.9 million and $3.3 million in the first and second quarters of 2011, respectively. However, as business conditions in the semiconductor industry weakened further in the second half of the year, our net sales decreased to $1.5 million in the third quarter of 2011. Our fourth quarter net sales increased to $2.4 million due to strong sales of our reliability test equipment products, driven by advanced IC design geometries notwithstanding weakened semiconductor demand and idle production capacity. Net sales for fiscal year 2011 totaled $9.0 million compared with $16.3 million in 2010, a decrease of 45%.

Aetrium’s gross profit as a percentage of net sales can fluctuate based on a number of factors, including but not limited to the mix of products sold, distribution channel mix, price discounting, product maturity, inventory write downs, and the utilization of manufacturing capacity associated with varying production levels. Gross profit was 31.1% of net sales in 2011 compared with 42.1% in 2010. Our gross margin decreased in 2011 primarily due to inefficiencies associated with significantly lower production and net sales levels and due to higher charges for excess and obsolete inventories, partially offset by a more favorable product mix. In the third quarter of 2011, due to general economic uncertainties and weakening business conditions in the semiconductor industry that we believed would continue into 2012, we reviewed the potential impact of the slowdown on our sales forecasts and on our ability to fully realize our inventories. We determined that the potential to realize the full value of our inventories for certain of our older gravity test handler products had been reduced. Accordingly, we recorded a charge for excess and obsolete inventories of $1.1 million, which represented 12.6% of 2011 net sales. In fiscal year 2010, we recorded charges for excess and obsolete inventories of $0.4 million, which represented 2.6% of 2010 net sales. The charges in 2010 resulted primarily from product design changes and anticipated changes in future product sales mix in favor of newer products. Test handlers, which are generally lower margin sales than reliability test equipment and spare parts/change kits, represented 28% of total net sales in 2011 compared with 61% in 2010. Reliability test equipment sales represented 39% of total net sales in 2011 compared with 22% in 2010 and spares/change kit sales represented 33% of total net sales in 2011 compared with 17% in 2010. The mix of discounted sales to distributors was comparable in 2011 and 2010, representing 34% and 29% of total net sales, respectively.

Research and development expenses were $2.5 million in 2011 compared with $3.0 million in 2010, a decrease of 18%. Contract engineering services and materials costs decreased $0.6 million and $0.2 million, respectively. These expense decreases were partially offset by a $0.2 million increase in employee compensation and a $0.1 million severance charge related to a workforce reduction implemented in September 2011. Research and development expenses represented 27.6% of total net sales in 2011 compared with 18.6% of total net sales in 2010. New product development is an essential part of our strategy to gain market share. Over time, we expect to invest approximately 12% to 15% of our revenues in research and development, although we may exceed this range in periods of relatively low revenues, as was the case in 2011 and 2010.

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About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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