SOURCE: Atheros

Atheros

October 25, 2010 16:04 ET

Atheros Announces Third Quarter 2010 Results

Revenue up 4 Percent Quarter-Over-Quarter to $247.1 Million

SAN JOSE, CA--(Marketwire - October 25, 2010) - Atheros Communications, Inc. (NASDAQ: ATHR), a global leader in innovative technologies for wireless and wired communications, today announced financial results for its third quarter ended September 30, 2010.

Revenue in the third quarter of 2010 was a record $247.1 million, up 4 percent compared to $238.2 million reported in the second quarter of 2010. Third quarter 2010 revenue increased 58 percent compared to $156.6 million reported in the third quarter of 2009.

In accordance with U.S. generally accepted accounting principles (GAAP), the company recorded net income in the third quarter of 2010 of $28.1 million or $0.39 per diluted share. This compares to GAAP net income of $29.7 million or $0.41 per diluted share in the second quarter of 2010. Net income in the third quarter of 2009 was $38.6 million or $0.60 per diluted share. Cash, cash equivalents and marketable securities were $475.0 million at September 30, 2010, down $33.4 million from the balance at June 30, 2010.

Atheros reports gross margin, operating expenses, operating income, net income and basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis. Non-GAAP net income excludes, where applicable, the effect of stock-based compensation, amortization of acquired intangible assets and acquisition-related charges, the realized gain on sale or the impairment of long-term investments and the tax impact of these excluded items, as well as a benefit from the favorable settlement of a foreign tax liability. A reconciliation of preliminary GAAP net income to non-GAAP net income, as well as a description of items excluded in the calculation of non-GAAP net income, is presented in the financial statements portion of this release.

Non-GAAP gross margin in the third quarter of 2010 was 49.7 percent of revenue, compared to 49.8 percent reported in the second quarter of 2010 and 48.4 percent in the third quarter of 2009. Non-GAAP operating income in the third quarter of 2010 was 22.1 percent of revenue, compared to 22.6 percent in the second quarter of 2010 and 19.4 percent in the third quarter of 2009.

Non-GAAP net income in the third quarter of 2010 was $48.8 million or $0.67 per diluted share, compared to $49.2 million or $0.67 per diluted share in the second quarter of 2010 and $29.3 million or $0.46 per diluted share in the third quarter of 2009.

"While we continue to see weakness in certain channels, increasing demand for Atheros' ROCm® low-power mobile connectivity solutions in a growing number of consumer electronics products fueled our record revenue in the third quarter," said Craig Barratt, president and chief executive officer of Atheros Communications. "Additionally, with our recently completed acquisition of Opulan, we further strengthened our networking product line, enabling us to address an even larger portion of the rapidly expanding global networking market."

Conference Call

Atheros will broadcast its third quarter financial results conference call today, Monday, October 25, 2010, at 2 p.m. Pacific time (5 p.m. Eastern time). To listen to the call from within the United States, please dial 877-835-9268 approximately 10 minutes prior to the start of the call. To listen to the call from outside the United States, please dial 706-634-9690 approximately 10 minutes prior to the start of the call. The pass code is Atheros.

Prior to this conference call, Atheros will post supplemental financial data on its web site at http://investors.atheros.com. Atheros is making this information available prior to the conference call in order to provide the investment community with additional time to analyze Atheros' results and prepare for the call with management.

Atheros' financial results conference call will also be available via a webcast at http://investors.atheros.com. To access the live webcast, please log in 15 minutes prior to the start of the call to download and install any necessary audio software. The webcast will be recorded and available approximately one hour after the live call concludes at http://investors.atheros.com for six months.

About Atheros Communications, Inc.

Atheros Communications is a global leader in innovative technologies for wireless and wired communications. Atheros combines its wireless and networking systems expertise with high-performance radio frequency (RF), mixed signal and digital semiconductor design skills to provide highly integrated chipsets that are manufactured on low-cost, standard complementary metal-oxide semiconductor (CMOS) processes. Atheros technology is used by a broad base of leading customers, including networking equipment, computing and consumer device manufacturers. For more information, please visit www.atheros.com or send an email to info@atheros.com.

Atheros, the Atheros logo, Opulan and ROCm, are trademarks of Atheros Communications, Inc. All other trademarks mentioned in this document are the sole property of their respective owners.

NOTE ON FORWARD-LOOKING STATEMENTS

Except for the historical information contained herein, the matters set forth in this press release, including our statements regarding the weakness of certain channels, our market opportunities and the expected growth of the global networking market, and the anticipated benefits from our acquisition of Opulan Technologies Corp., our future prospects, and the benefits of using non-GAAP financial measures are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including, but not limited to, difficulties in the development of new and enhanced products, general economic conditions, the effects of competition and technological change, the risk that we will not realize the benefits we expect from the Opulan Technologies acquisition, the risks detailed in Atheros' Annual Report on Form 10-K for the year ended December 31, 2009 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, as filed with the Securities and Exchange Commission, and in other reports filed with the SEC by Atheros from time to time. These forward-looking statements speak only as of the date hereof. Atheros disclaims any obligation to update these forward-looking statements.


ATHEROS COMMUNICATIONS, INC.
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

                                            Three Months Ended
                                ------------------------------------------
                                September 30,    June 30,     September 30,
                                    2010           2010           2009
                                ------------   ------------   ------------
Net revenue                     $    247,086   $    238,219   $    156,641
Cost of goods sold                   124,600        119,792         81,047
                                ------------   ------------   ------------
Gross profit                         122,486        118,427         75,594
Operating expenses:
  Research and development            49,587         46,459         32,619
  Sales and marketing                 22,864         22,055         14,872
  General and administrative          10,842         10,686          8,178
  Amortization of acquired
   intangible assets                   8,851          8,266          2,580
  Acquisition-related charges            797            317            977
                                ------------   ------------   ------------
     Total operating expenses         92,941         87,783         59,226

Income from operations                29,545         30,644         16,368
Interest income, net                   1,010          1,140          1,351
Realized gain (impairment) of
 long-term investments, net                -             62           (874)
Income tax benefit (provision)        (2,439)        (2,111)        21,731
                                ------------   ------------   ------------
Net income                      $     28,116   $     29,735   $     38,576
                                ============   ============   ============

Basic earnings per share        $       0.40   $       0.42   $       0.62
                                ============   ============   ============
Diluted earnings per share      $       0.39   $       0.41   $       0.60
                                ============   ============   ============

Shares used in computing basic
 earnings per share                   71,158         70,403         62,111
                                ============   ============   ============
Shares used in computing
 diluted earnings per share           72,737         72,950         64,215
                                ============   ============   ============





ATHEROS COMMUNICATIONS, INC.
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

                                                   Nine Months Ended
                                                      September 30,
                                              ----------------------------
                                                  2010            2009
                                              ------------    ------------
Net revenue                                   $    700,010    $    356,790
Cost of goods sold                                 355,707         186,072
                                              ------------    ------------
Gross profit                                       344,303         170,718
Operating expenses:
  Research and development                         139,016          92,144
  Sales and marketing                               65,572          42,593
  General and administrative                        31,036          20,980
  Amortization of acquired intangible assets        26,232           8,350
  Acquisition-related charges                        1,580             977
                                              ------------    ------------
     Total operating expenses                      263,436         165,044

Income from operations                              80,867           5,674
Interest income, net                                 3,295           4,585
Realized gain (impairment) of long-term
 investments, net                                      258          (2,011)
Income tax benefit (provision)                      (6,830)         22,526
                                              ------------    ------------
Net income                                    $     77,590    $     30,774
                                              ============    ============

Basic earnings per share                      $       1.11    $       0.50
                                              ============    ============
Diluted earnings per share                    $       1.07    $       0.49
                                              ============    ============

Shares used in computing basic earnings
 per share                                          70,117          61,485
                                              ============    ============
Shares used in computing diluted earnings
 per share                                          72,500          63,162
                                              ============    ============





ATHEROS COMMUNICATIONS, INC.
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)

                                              September 30,   December 31,
                                                  2010            2009
                                              ------------    ------------
ASSETS
Current assets:
Cash, cash equivalents and marketable
 securities                                   $    475,012    $    402,235
Accounts receivable, net                           109,640          58,012
Inventory                                           95,477          70,396
Deferred income taxes and other current
 assets                                             27,289          26,985
                                              ------------    ------------
     Total current assets                          707,418         557,628

Property and equipment, net                         22,132          14,955
Long-term investments                               13,935          15,523
Goodwill and net acquired intangible assets        385,981         324,229
Deferred income taxes and other assets               7,147           3,014
                                              ------------    ------------
                                              $  1,136,613    $    915,349
                                              ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                           $    185,436    $    141,068

Deferred income taxes and other long-term
 liabilities                                        57,275          42,421

Stockholders' equity                               893,902         731,860
                                              ------------    ------------
                                              $  1,136,613    $    915,349
                                              ============    ============





ATHEROS COMMUNICATIONS, INC.
RECONCILIATION OF PRELIMINARY NON-GAAP ADJUSTMENTS
(Unaudited)
(In thousands, except per share data)

                                            Three Months Ended
                                ------------------------------------------
                                September 30,    June 30,     September 30,
                                    2010           2010           2009
                                ------------   ------------   ------------
GAAP net income                 $     28,116   $     29,735   $     38,576
Stock-based compensation:
  Cost of goods sold                     308            315            178
  Research and development             7,279          7,286          5,040
  Sales and marketing                  4,701          4,618          3,206
  General and administrative           2,668          2,507          1,981
                                ------------   ------------   ------------
     Total stock-based
      compensation                    14,956         14,726         10,405

Acquisition-related charges:
  Amortization of acquired
   intangible assets                   8,851          8,266          2,580
  Amortization of
   acquisition-related step-up
   value of inventory                     65              -              -
  Other acquisition-related
   charges                             1,087            317            977

Realized impairment (gain) of
 long-term investments, net                -            (62)           874

Tax related items:
  Tax benefit from favorable
   settlement of foreign tax
   liability                               -              -        (21,706)
  Net tax effect of non-GAAP
   adjustments                        (4,259)        (3,809)        (2,401)
                                ------------   ------------   ------------

Non-GAAP net income             $     48,816   $     49,173   $     29,305
                                ============   ============   ============

Shares used in computing
 non-GAAP basic earnings
 per share                            71,158         70,403         62,111
                                ============   ============   ============
Shares used in computing
 non-GAAP diluted earnings
 per share                            72,737         72,950         64,215
                                ============   ============   ============

Non-GAAP basic earnings
 per share                      $       0.69   $       0.70   $       0.47
                                ============   ============   ============
Non-GAAP diluted earnings
 per share                      $       0.67   $       0.67   $       0.46
                                ============   ============   ============





ATHEROS COMMUNICATIONS, INC.
RECONCILIATION OF PRELIMINARY NON-GAAP ADJUSTMENTS
(Unaudited)
(In thousands, except per share data)

                                                   Nine Months Ended
                                                      September 30,
                                              ----------------------------
                                                  2010            2009
                                              ------------    ------------
GAAP net income                               $     77,590    $     30,774
Stock-based compensation:
  Cost of goods sold                                   839             537
  Research and development                          21,164          14,804
  Sales and marketing                               13,386           9,440
  General and administrative                         7,323           5,515
                                              ------------    ------------
     Total stock-based compensation                 42,712          30,296

Acquisition-related charges:
  Amortization of acquired intangible
   assets                                           26,232           8,350
  Amortization of acquisition-related
   step-up value of inventory                        2,699               -
  Other acquisition-related charges                  1,870             977

Realized impairment (gain) of long-term
 investments, net                                     (258)          2,011

Tax related items:
  Tax benefit from favorable settlement
   of foreign tax liability                              -         (21,706)
  Net tax effect of non-GAAP adjustments           (12,135)         (5,175)
                                              ------------    ------------

Non-GAAP net income                           $    138,710    $     45,527
                                              ============    ============

Shares used in computing non-GAAP basic
 earnings per share                                 70,117          61,485
                                              ============    ============
Shares used in computing non-GAAP diluted
 earnings per share                                 72,500          63,162
                                              ============    ============

Non-GAAP basic earnings per share             $       1.98    $       0.74
                                              ============    ============
Non-GAAP diluted earnings per share           $       1.91    $       0.72
                                              ============    ============



ATHEROS COMMUNICATIONS, INC.
RECONCILIATION OF PRELIMINARY GAAP TO NON-GAAP FINANCIAL MEASURES

To supplement our unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles, or GAAP, we disclose certain non-GAAP financial measures, including non-GAAP gross profit, operating expenses, operating income, net income and earnings per share. These supplemental measures exclude stock-based compensation, acquisition-related charges, other-than-temporary impairments of long-term investments net of subsequent realized gains, a tax benefit resulting from the favorable settlement of a foreign tax liability and any tax detriment or benefit between the income tax expense with and without the non-GAAP measures. These non-GAAP measures are not in accordance with, nor serve as an alternative for GAAP. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our GAAP results of operations. These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our core operating performance on a period-to-period basis. The excluded items represent stock-based compensation and charges and gains that are primarily driven by discrete events that we do not consider to be directly related to core operating performance. We use non-GAAP measures to evaluate the core operating performance of our business, for comparison with forecasts and strategic plans, for calculating return on investment and for benchmarking performance externally against competitors. In addition, management's incentive compensation is determined using these non-GAAP measures. Also, when evaluating potential acquisitions, we primarily consider the impact of the target's performance and valuation on our non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results reviewed by management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by offering:


--  more meaningful comparability of our on-going operating results;
--  the ability to better identify trends in our underlying business; and
--  a way to compare our operating results against analyst financial models
    and operating results of competitors that supplement their GAAP results
    with non-GAAP financial measures.

The following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:

Stock-based compensation expense relates to equity awards granted to our workforce. Our stock incentive plans are important components of our employee incentive compensation arrangements and are reflected as expenses in our GAAP results. While we include the dilutive impact of such equity awards in weighted average shares outstanding, the expense associated with stock-based awards is excluded from non-GAAP net income. These non-cash charges are not factored into our internal evaluation of net income as we believe their inclusion would hinder our ability to assess core operational performance.

Acquisition-related charges include the amortization of acquired intangible assets primarily consisting of acquired technology, customer relationships, covenants not to compete, step-up of inventory to its estimated fair value, backlog, trade names and transaction costs including severance and other retention expenses related to our acquisitions, including the recent acquisitions of Intellon Corporation and Opulan Technologies Corporation. These charges are not factored into our evaluation of potential acquisitions, or of our performance after completion of acquisitions, because they are not related to our core operating performance, and the frequency and amount of such charges vary significantly based on the timing and magnitude of our acquisition transactions, the then fair market value of our common stock and the maturities of the businesses being acquired.

Realized gains/impairments of long-term investments relates primarily to the other-than-temporary, non-operating write down of our investments in auction-rate securities rated AA and AAA at the date of purchase net of gains realized as the result of sales of these securities. The liquidity and fair value of these securities has been impacted by the failure of these markets and the exposure of these securities to the financial condition of bond insurance companies. We have determined that certain of these assets have been other-than-temporarily impaired and therefore they were written down to their estimated fair value. These charges are not factored into our internal evaluation of net income as we believe they are non-operating charges that do not impact our core operating performance.

Adjustment for taxes relates to the tax effect of various adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure of non-GAAP net income. In addition, the tax benefit from the favorable settlement of a foreign tax liability in the third quarter of 2009 has been excluded. We believe that these adjustments provide us with the ability to more clearly view trends in our core operating performance.


Reconciliations of non-GAAP measures disclosed in this press release are
set forth below (in thousands, except percentages):

                                            Three Months Ended
                                ------------------------------------------
                                September 30,    June 30,     September 30,
                                    2010           2010           2009
                                ------------   ------------   ------------

GAAP gross profit               $    122,486   $    118,427   $     75,594
  Stock-based compensation               308            315            178
  Amortization of
   acquisition-related
   step-up value of inventory             65              -              -
                                ------------   ------------   ------------
Non-GAAP gross profit           $    122,859   $    118,742   $     75,772
                                ============   ============   ============

GAAP gross profit as a % of
 revenue                                49.6%          49.7%          48.3%
  Stock-based compensation               0.1%           0.1%           0.1%
  Amortization of
   acquisition-related
   step-up value of inventory              -%             -%             -%
                                ------------   ------------   ------------
Non-GAAP gross profit as a %
 of revenue                             49.7%          49.8%          48.4%
                                ============   ============   ============

GAAP operating expenses         $     92,941   $     87,783   $     59,226
  Stock-based compensation           (14,648)       (14,411)       (10,227)
  Amortization of acquired
   intangible assets                  (8,851)        (8,266)        (2,580)
  Acquisition-related charges         (1,087)          (317)          (977)
                                ------------   ------------   ------------
Non-GAAP operating expenses     $     68,355   $     64,789   $     45,442
                                ============   ============   ============

GAAP income from operations     $     29,545   $     30,644   $     16,368
  Stock-based compensation            14,956         14,726         10,405
  Amortization of acquired
   intangible assets                   8,851          8,266          2,580
  Acquisition-related charges          1,087            317            977
  Amortization of
   acquisition-related
   step-up value of inventory             65              -              -
                                ------------   ------------   ------------
Non-GAAP income from operations $     54,504   $     53,953   $     30,330
                                ============   ============   ============

GAAP income from operations as
 a % of revenue                         12.0%          12.9%          10.4%
  Stock-based compensation               6.1%           6.2%           6.7%
  Amortization of acquired
   intangible assets                     3.6%           3.4%           1.7%
  Acquisition-related charges            0.4%           0.1%           0.6%
  Amortization of
   acquisition-related step-up
   value of inventory                      -%             -%             -%
                                ------------   ------------   ------------
Non-GAAP income from operations
 as a % of revenue                      22.1%          22.6%          19.4%
                                ============   ============   ============





Reconciliations of non-GAAP measures disclosed in this press release are
set forth below (in thousands, except percentages):

                                                   Nine Months Ended
                                                      September 30,
                                              ----------------------------
                                                  2010            2009
                                              ------------    ------------

GAAP gross profit                             $    344,303    $    170,718
  Amortization of acquisition-related
   step-up value of inventory                        2,699               -
  Stock-based compensation                             839             537
                                              ------------    ------------
Non-GAAP gross profit                         $    347,841    $    171,255
                                              ============    ============

GAAP gross profit as a % of revenue                   49.2%           47.8%
  Amortization of acquisition-related
   step-up value of inventory                          0.4%              -%
  Stock-based compensation                             0.1%            0.2%
                                              ------------    ------------
Non-GAAP gross profit as a % of revenue               49.7%           48.0%
                                              ============    ============

GAAP operating expenses                       $    263,436    $    165,044
  Stock-based compensation                         (41,873)        (29,759)
  Amortization of acquired intangible assets       (26,232)         (8,350)
  Acquisition-related charges                       (1,870)           (977)
                                              ------------    ------------
Non-GAAP operating expenses                   $    193,461    $    125,958
                                              ============    ============

GAAP income from operations                   $     80,867    $      5,674
  Stock-based compensation                          42,712          30,296
  Amortization of acquired intangible assets        26,232           8,350
  Amortization of acquisition-related
   step-up value of inventory                        2,699               -
  Acquisition-related charges                        1,870             977
                                              ------------    ------------
Non-GAAP income from operations               $    154,380    $     45,297
                                              ============    ============

GAAP income from operations as a % of revenue         11.6%            1.6%
  Stock-based compensation                             6.1%            8.5%
  Amortization of acquired intangible assets           3.7%            2.3%
  Amortization of acquisition-related
   step-up value of inventory                          0.4%              -%
  Acquisition-related charges                          0.3%            0.3%
                                              ------------    ------------
Non-GAAP income from operations as a % of
 revenue                                              22.1%           12.7%
                                              ============    ============

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