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Vitesse Closes Fiscal 2010

CAMARILLO, Calif. — Vitesse Semiconductor Corporation (Pink Sheets: VTSS.PK), a leading provider of advanced IC solutions for Carrier and Enterprise networks, today reported its financial results for the fourth quarter and audited fiscal year 2010 ended September 30, 2010.

Fiscal Year 2010 Highlights

• Net revenues of $166.0 million compared with $168.2 million in fiscal year 2009.
• Product revenues increased to $165.6 million from $154.9 million in the prior year.
• Product margins increased to 56.4% from 49.4% in the prior year.
• Introduced 30 new products, nearly double the products introduced in fiscal year 2009.
• Successfully remediated the outstanding material weaknesses related to internal controls over financial reporting.

CEO Commentary

“We closed fiscal year 2010 on a strong note, achieving the top end of our guidance for both quarterly revenue and gross margins and made solid progress in moving our business forward based on the overall objectives that were set last year,” said Chris Gardner, CEO of Vitesse. “Most importantly, we generated an operating profit and met our target to deliver 30 new products in 2010, which is now driving an increasing flow of new design wins. We look forward to seeing our investment in new product development translate into sustained revenue growth, which is expected to start towards the end of 2011 and ramp up in 2012.”

“During 2010, our revenue remained about flat with 2009 levels in spite of the economic climate, industry wide component shortages and a declining contribution from our legacy storage business. Our product revenue grew nearly 7.0% to $165.6 million and revenue from our core products in Carrier and Enterprise Networking increased approximately 15.0% to $148.4 million. Product margins increased significantly during the year and the Company generated positive cash flow from operations. By moving our manufacturing to an outsourced model, we reduced fixed costs, increased margins and shortened our cycle times. We now have a strong foundation and robust product pipeline for profitable growth in the years ahead.”

“Lastly, we are pleased that we fully remediated the outstanding material weaknesses and received a clean audit opinion for our fiscal year 2010 audit. This is the result of intense efforts by our operations and finance teams and allows us to start the process towards a relisting on the NASDAQ exchange. We will continue to invest in our financial and operating systems and expect to begin the implementation of a new ERP system in 2011.”

Fiscal Year 2010 Financial Results Summary

Net revenues for fiscal year 2010 were $166.0 million, a decrease of 1.3% compared with $168.2 million reported for fiscal year 2009. Net product revenues were $165.6 million, a 6.9% increase from $154.9 million in fiscal year 2009. Intellectual property revenues were $0.4 million, compared to $13.3 million in fiscal year 2009.

Carrier Networking product revenues were $72.4 million, or 43.7% of product revenues, compared with $69.0 million, or 44.5% in fiscal year 2009. Enterprise Networking product revenues were $76.0 million, or 45.9% of product revenues, compared with $60.4 million, or 39.0%, in fiscal year 2009.

Core Carrier and Enterprise Networking product revenues were $148.4 million, or 89.6% of product revenue. Non-core product revenues were $17.3 million, or 10.4% of product revenues.

Cost of revenues decreased $6.2 million to $72.2 million in fiscal year 2010, compared with $78.4 million in the prior year. Product margins increased to 56.4% in fiscal year 2010, from 49.4% in the prior year. Product margins are product revenues less cost of revenues, as a percentage of product revenues.

R&D expenses were $51.1 million in fiscal year 2010, compared with $45.7 million a year ago, an increase of $5.4 million, or 11.8%. Selling, general and administrative expenses decreased to $37.8 million, or 22.8% of net revenues, compared with $40.2 million, or 23.9% of net revenues a year ago.

The Company’s income from operations was $4.0 million compared with an operating loss of $179.0 million in fiscal year 2009. Non-GAAP income from operations was $7.1 million compared with $7.0 million in fiscal year 2009.

The Company’s net loss was $20.2 million, or $0.96 per share in fiscal year 2010, compared with a net loss of $194.0 million, or $16.92 per share in fiscal year 2009. Included in the fiscal year 2010 net loss is a $21.3 million loss on debt extinguishment and a $7.9 million gain from the fair value adjustment of the 2024 and 2014 embedded derivatives. Fiscal year 2009 results included non-cash expense of $191.4 million for goodwill impairment and a $12.2 million fair value adjustment to the derivative liability associated with the 2024 debentures.

Non-GAAP net loss was $3.5 million in fiscal year 2010 compared with non-GAAP net income of $4.1 million in fiscal year 2009. On a per share basis, non-GAAP net loss was $0.17 per share in fiscal year 2010 compared with non-GAAP net income per share of $0.35 in the prior fiscal year.

{complink 5981|Vitesse Semiconductor Corp.}

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