Integrated Silicon Solution Inc. (ISSI, Financial) filed Quarterly Report for the period ended 2008-12-31.
Integrated Silicon Solutions designs develops and markets high performance memory devices including static random access memory low and medium density dynamic random access memory and nonvolatile memory as well as voice recording devices and certain microcontrollers and embedded memories. Their memory devices are used in networking applications telecommunications data communications disk drives and other peripherals personal computers office automation instrumentation and consumer products. Integrated Silicon Solution Inc. has a market cap of $43.12 million; its shares were traded at around $1.77 with and P/S ratio of 0.18.
Interest and other income, net. Interest and other income, net was $0.6 million in the three months ended December 31, 2008 compared to $2.1 million in the three months ended December 31, 2007. The $0.6 million of interest and other income in the three months ended December 31, 2008 is comprised primarily of net interest income of $0.2 million and $0.4 million in rental income from the lease of excess space in our Taiwan facility. The $2.1 million of interest and other income in the three months ended December 31, 2007 is comprised primarily of interest income of $1.7 million and $0.4 million in rental income from the lease of excess space in our Taiwan facility. The decrease in interest income is primarily attributable to lower cash balances and a decrease in the interest rates in the three months ended December 31, 2008 compared to the three months ended December 31, 2007.
As of December 31, 2008, our principal sources of liquidity included cash, cash equivalents and short-term investments of approximately $45.7 million. During the three months ended December 31, 2008, operating activities provided cash of approximately $0.1 million compared to $11.7 million provided in the three months ended December 31, 2007. The cash provided by operations in the three months ended December 31, 2008 was primarily due to decreases in accounts receivable of $13.9 million, decreases in other assets of $1.6 million and decreases in inventories of $0.5 million. This was offset by decreases in accounts payable of $11.9 million, decreases in accrued liabilities of $1.9 million and our net loss of $4.1 million adjusted for non-cash items of $2.0 million. The cash provided by operations in the three months ended December 31, 2007 was primarily due to increases in accounts payable of $12.6 million, our net income of $3.0 million adjusted for non-cash items of $1.9 million, increases in accrued liabilities of $1.4 million and decreases in other assets of $1.5 million. This was partially offset by increases in inventories of $6.1 million and increases in accounts receivable of $2.6 million.
In the three months ended December 31, 2008, we generated $1.2 million from investing activities compared to $31.7 million generated in the three months ended December 31, 2007. In the three months ended December 31, 2008, we generated $1.8 million from the net sales of available-for-sale securities. We also received proceeds of approximately $0.3 million from the minority investee in our consolidated subsidiary Wintram Inc. In the three months ended December 31, 2007, we generated $29.7 million from the net sales of available-for-sale securities. We also generated approximately $2.7 million from the sale of shares of SMIC, resulting in a pre-tax gain of approximately $0.2 million.
We used $3.0 million for financing activities during the three months ended December 31, 2008 compared to $1.4 million used during the three months ended December 31, 2007. In the three months ended December 31, 2008, we used $3.0 million for the repurchase and retirement of our common stock. In the three months ended December 31, 2007, we used $3.5 million for the repayment of short-term borrowings and $0.9 million for the repurchase and retirement of our common stock. Our sources of financing for the three months ended December 31, 2007 were borrowings of $2.9 million under ICSI lines of credit and proceeds from the issuance of common stock of $0.1 million from stock option exercises.
We had cash, cash equivalents and short-term investments of $44.1 million at December 31, 2008 excluding $1.6 million of Ralink stock included in short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without increasing risk. We invest primarily in high-quality, short-term debt instruments and instruments issued by high quality financial institutions and companies, including money market instruments. A hypothetical one percentage point decrease in interest rates would result in approximately a $0.4 million decrease in our interest income. Included within our investment portfolio classified as long-term investments are $20.0 million par value ($16.9 million fair value) of AAA rated investments in auction rate securities. The underlying assets of these auction rate securities are student loans which are backed by the federal government under the Federal Family Education Loan Program. We have experienced some market risk and liquidity issues related to auction rate securities. See the Liquidity and Capital Resources section in Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations for more detail on these investments.
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Integrated Silicon Solutions designs develops and markets high performance memory devices including static random access memory low and medium density dynamic random access memory and nonvolatile memory as well as voice recording devices and certain microcontrollers and embedded memories. Their memory devices are used in networking applications telecommunications data communications disk drives and other peripherals personal computers office automation instrumentation and consumer products. Integrated Silicon Solution Inc. has a market cap of $43.12 million; its shares were traded at around $1.77 with and P/S ratio of 0.18.
Highlight of Business Operations:
Gross profit. Cost of sales includes die cost from the wafers acquired from foundries, subcontracted package, assembly and test costs, costs associated with in-house product testing, quality assurance and import duties. Gross profit decreased by $5.5 million to $7.7 million in the three months ended December 31, 2008 from $13.2 million in the three months ended December 31, 2007. Our gross margin decreased to 20.5% in the three months ended December 31, 2008 from 20.8% in the three months ended December 31, 2007. Our gross profit for the three months ended December 31, 2008 included inventory write-downs of $4.3 million compared to $2.5 million of inventory write-downs in the three months ended December 31, 2007. The inventory write-downs were for lower of cost or market accounting and excess and obsolescence issues on certain of our products. Excluding the impact of our inventory write-downs, our gross margin increased in the three months ended December 31, 2008 compared to the three months ended December 31, 2007 primarily as a result of a shift in our product mix to higher margin SRAM products from low margin commodity DRAM products. In addition, declines in the cost of our SRAM products more than offset declines in the average selling prices of our SRAM products in the three months ended December 31, 2008 compared to the three months ended December 31, 2007 which contributed to an increase in our SRAM gross margin. Declines in the cost of our DRAM products more than offset declines in the average selling prices of our DRAM products in the three months ended December 31, 2008 compared to the three months ended December 31, 2007 as we limited our shipments of lower margin commodity DRAM products. This contributed to an increase in our DRAM gross margin over such period. The decrease in our gross profit in the three months ended December 31, 2008 compared to December 31, 2007 was primarily a result of a decrease in unit shipments across all our products but more significantly for our DRAM products. Our gross profit for the three months ended December 31, 2008 and December 31, 2007 benefited from the sale of $0.3 million and $0.6 million, respectively, of previously written down products. Our gross profit for the three months ended December 31, 2007 benefited from approximately $0.4 million for a DRAM development project. We believe that the average selling prices of our products will decline over time and, unless we are able to reduce our cost per unit to the extent necessary to offset such declines, the decline in average selling prices will result in a material decline in our gross margin. Although we have product cost reduction programs in place that involve efforts to reduce internal costs and supplier costs, there can be no assurance that product costs will be reduced or that such reductions will be sufficient to offset the expected declines in average selling prices. We do not believe that such cost reduction efforts are likely to have a material adverse impact on the quality of our products or the level of service provided by us.Interest and other income, net. Interest and other income, net was $0.6 million in the three months ended December 31, 2008 compared to $2.1 million in the three months ended December 31, 2007. The $0.6 million of interest and other income in the three months ended December 31, 2008 is comprised primarily of net interest income of $0.2 million and $0.4 million in rental income from the lease of excess space in our Taiwan facility. The $2.1 million of interest and other income in the three months ended December 31, 2007 is comprised primarily of interest income of $1.7 million and $0.4 million in rental income from the lease of excess space in our Taiwan facility. The decrease in interest income is primarily attributable to lower cash balances and a decrease in the interest rates in the three months ended December 31, 2008 compared to the three months ended December 31, 2007.
As of December 31, 2008, our principal sources of liquidity included cash, cash equivalents and short-term investments of approximately $45.7 million. During the three months ended December 31, 2008, operating activities provided cash of approximately $0.1 million compared to $11.7 million provided in the three months ended December 31, 2007. The cash provided by operations in the three months ended December 31, 2008 was primarily due to decreases in accounts receivable of $13.9 million, decreases in other assets of $1.6 million and decreases in inventories of $0.5 million. This was offset by decreases in accounts payable of $11.9 million, decreases in accrued liabilities of $1.9 million and our net loss of $4.1 million adjusted for non-cash items of $2.0 million. The cash provided by operations in the three months ended December 31, 2007 was primarily due to increases in accounts payable of $12.6 million, our net income of $3.0 million adjusted for non-cash items of $1.9 million, increases in accrued liabilities of $1.4 million and decreases in other assets of $1.5 million. This was partially offset by increases in inventories of $6.1 million and increases in accounts receivable of $2.6 million.
In the three months ended December 31, 2008, we generated $1.2 million from investing activities compared to $31.7 million generated in the three months ended December 31, 2007. In the three months ended December 31, 2008, we generated $1.8 million from the net sales of available-for-sale securities. We also received proceeds of approximately $0.3 million from the minority investee in our consolidated subsidiary Wintram Inc. In the three months ended December 31, 2007, we generated $29.7 million from the net sales of available-for-sale securities. We also generated approximately $2.7 million from the sale of shares of SMIC, resulting in a pre-tax gain of approximately $0.2 million.
We used $3.0 million for financing activities during the three months ended December 31, 2008 compared to $1.4 million used during the three months ended December 31, 2007. In the three months ended December 31, 2008, we used $3.0 million for the repurchase and retirement of our common stock. In the three months ended December 31, 2007, we used $3.5 million for the repayment of short-term borrowings and $0.9 million for the repurchase and retirement of our common stock. Our sources of financing for the three months ended December 31, 2007 were borrowings of $2.9 million under ICSI lines of credit and proceeds from the issuance of common stock of $0.1 million from stock option exercises.
We had cash, cash equivalents and short-term investments of $44.1 million at December 31, 2008 excluding $1.6 million of Ralink stock included in short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without increasing risk. We invest primarily in high-quality, short-term debt instruments and instruments issued by high quality financial institutions and companies, including money market instruments. A hypothetical one percentage point decrease in interest rates would result in approximately a $0.4 million decrease in our interest income. Included within our investment portfolio classified as long-term investments are $20.0 million par value ($16.9 million fair value) of AAA rated investments in auction rate securities. The underlying assets of these auction rate securities are student loans which are backed by the federal government under the Federal Family Education Loan Program. We have experienced some market risk and liquidity issues related to auction rate securities. See the Liquidity and Capital Resources section in Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations for more detail on these investments.
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