Net revenues declined by $3.1 million, or 17.9%, compared to $17.1 million in the second quarter of fiscal 2009, and net income decreased by $2.1 million, or 58.3%, compared to $3.6 million in the prior quarter. At $3.6 million, third-quarter direct and indirect sales to Cisco Systems, the company’s largest customer, were $0.6 million lower than the $4.2 million reported in the prior quarter. The sequential decline in Cisco revenues, like the decline in the Company’s total revenues, reflects the impact of the current credit crisis and the slowing world economy on the company’s customers.
Sales of the company’s SigmaQuad products represented around 14.9% of shipments in the third quarter of fiscal 2009, compared to around 10.2% in the second quarter and 8.2% in the first quarter of fiscal 2009. For the nine months ended December 31, 2008, SigmaQuad products accounted for 10.8% of total shipments and were 221% higher than in the first nine months of fiscal 2008.
Gross margin and operating margin were 42.7% and 15.1%, respectively, in the third quarter compared to 45.7% and 24.0%, respectively, in the second quarter of fiscal 2009; a year ago, gross margin and operating margin were 39.7% and 14.4%, respectively.
Selling, general and administrative expenses were $2.2 million, or 15.6% of net revenues in the third quarter, compared to $2.4 million, or 13.9% of net revenues, in the second quarter, and $2.5 million, or 17.7% of net revenues, a year ago. The year-over-year decrease is primarily attributable to a decrease in outside consulting expenses related to implementation of the company’s enterprise resource planning (ERP) system and Sarbanes-Oxley Act compliance.
On balance, we are pleased with our financial performance during what was an extremely challenging period across virtually all sectors of the economy, said Lee-Lean Shu, the company’s chairman and chief executive officer. The sequential decline in operating results was not unexpected and reflects a decline in demand for the company’s products in line with the softening global economy. Fortunately, our higher-density products continue to do relatively well and were largely responsible for that fact that, despite the decline in revenue, we were able to meet our expectations regarding gross margin. Margins also were helped by the continued strength in the military/defense sector, which was not SigmaQuad related, which accounted for 20.0% of revenue during the current quarter compared to 15.9% in the second quarter, and demand for high-density 36- and 72-megabit SRAMs remained reasonably solid.
At December 31, 2008, inventory was $13.5 million compared to $15.6 million at the end of the second quarter.
Total third-quarter pre-tax stock-based compensation expense was $348,000 compared to $309,000 in the second quarter and $387,000 in the comparable period a year ago.
At December 31, 2008, the company had $47.6 million in cash, cash equivalents and short-term investments, $15.1 million in long-term investments, $63.8 million in working capital, no debt, and stockholders’ equity of $84.7 million.
On November 6, 2008, the board of directors authorized the repurchase, at management’s discretion, of up to $10 million of the company’s common stock. Under the repurchase program, the company may repurchase shares from time to time on the open market or in private transactions. The specific timing and amount of the repurchases will be dependent on market conditions, securities law limitations and other factors. The repurchase program may be suspended or terminated at any time without prior notice. During the quarter ended December 31, 2008 the company repurchased 869,414 shares at an average price of $2.88.
Outlook for Fourth-Quarter Fiscal 2009
The current economic environment is without question the most challenging in the company’s fourteen-year history, and forecasting quarterly results is more difficult than ever, said Shu. With that understood, we currently expect to see another modest sequential decline in revenues in the fourth quarter, with total net revenues in the range of $11.0 million to $11.7 million. Gross margin is expected to be in the range of 36.0% to 38.0%. Operating expenses are expected to increase around $400,000 in comparison to the December quarter as we incur additional expenses related to research and development projects.
