Mindspeed Technologies Inc. Reports Operating Results (10-Q)

Mindspeed Technologies Inc. (MSPD) filed Quarterly Report for the period ended 2012-06-29.

Mindspeed Technologies, Inc. has a market cap of $111.4 million; its shares were traded at around $2.99 with and P/S ratio of 0.7.

Highlight of Business Operations:

We market and sell our semiconductor products directly to network infrastructure OEMs. We also sell our products indirectly through electronic component distributors and third-party electronic manufacturing service providers, who manufacture products incorporating our semiconductor solutions for OEMs. Sales to distributors accounted for approximately 65% of our revenue for the first nine months of fiscal 2012. Our revenue is well diversified globally, with 83% of the revenue in the first nine months of fiscal 2012 coming from outside of the Americas. We believe a substantial portion of the products we sell to OEMs and third-party manufacturing service providers in the Asia-Pacific region is ultimately shipped to end markets in the Americas and Europe. Approximately 34% of our revenue for the first nine months of fiscal 2012 was derived from customers in China.

The demand environment was dynamic throughout the third quarter of fiscal 2012. Certain customers increased or accelerated product orders to earn financial incentives, while other customers requested product shipments that could not be supported due to standard manufacturing lead times exceeding the time between orders being placed and requested delivery dates. The net impact of these activities was an increase to net revenue of $1.7 million for the three months ended June 29, 2012.

Gross margin decreased for the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 due to a $6.8 million, or 16%, decrease in product revenue. The decrease in gross margin was also due to $3.4 million (3.2% of net revenue) of asset impairments recorded in cost of goods sold, which related to the impairment of an intellectual property license and a photomask during the third quarter of fiscal 2012, as described above, and $760,000 from the write-up to fair value of acquired inventory and amortization of acquired intangible assets related to the picoChip acquisition. The decrease in our gross margin as a percent of net revenue for the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 was driven primarily by the asset impairments and a change in product mix and absorption.

Gross margin decreased for the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 due to both a $14.8 million, or 12%, decrease in product revenue, and a $1.9 million decrease in intellectual property revenue. The decrease in gross margin was also due to $3.4 million of asset impairments recorded in cost of goods sold, which related to the impairment of an intellectual property license and a photomask during the third quarter of fiscal 2012, as described above, and $1.4 million from the write-up to fair value of acquired inventory and amortization of acquired intangible assets related to the picoChip acquisition. The decrease in our gross margin as a percent of net revenue for the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 was driven primarily by a change in product mix, as well as a decrease in intellectual property revenue, which had little associated cost and the asset impairments.

We believe that our existing cash balances, cash expected to be generated from product sales and our revolving credit facility will be sufficient to fund our operations, research and development efforts, anticipated capital expenditures, working capital and other financing requirements, including interest payments on debt obligations, for at least the next 12 months. We have $375,000 of principal payments due in March 2013 on our term loan with SVB and $15.0 million of principal payments due in August 2013 on our 6.50% convertible notes. We have no other principal payments on debt obligations for the next 12 months. We may acquire our debt securities through privately negotiated transactions, tender offers, exchange offers (for new debt or other securities), redemptions or otherwise, upon such terms and at such prices as we may determine appropriate. We will need to continue a focused program of capital expenditures to meet our research and development and corporate requirements. We may also consider acquisition opportunities to extend our technology portfolio and design expertise and to expand our product offerings. In order to fund capital expenditures, increase our working capital, re-pay debt or complete any acquisitions, we may seek to obtain additional debt or equity financing. We may also need to seek to obtain additional debt or equity financing if we experience downturns or cyclical fluctuations in our business that are more severe or longer than anticipated or if we fail to achieve anticipated revenue and expense levels. However, we cannot assure you that such financing will be available to us on favorable terms, or at all, particularly in light of recent economic conditions in the capital markets.

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