PMC-SIERRA, INC.
NASDAQ : PMCS

PMC-SIERRA, INC.

July 21, 2005 16:02 ET

PMC-Sierra Reports Q2 2005 Results

SANTA CLARA, Calif.--(CCNMatthews - Jul 21, 2005) -

Revenue in Second Quarter 2005 Increases 8.2% Sequentially

-- Q2 Net Revenues: US$71.5 million

-- Q2 Non-GAAP Net Income: US$7.2 million or $0.04 per share (diluted)

-- Q2 GAAP Net Income: US$0.5 million or $0.00 per share (diluted)

PMC-Sierra, Inc. (NASDAQ:PMCS), a leading provider of high-speed broadband communications and storage semiconductors and MIPS-Powered microprocessors, today reported results for the second quarter ending July 3, 2005.

Net revenues in the second quarter of 2005 were $71.5 million, an increase of eight percent compared with $66.1 million for the first quarter of 2005, and a decrease of 17 percent compared with the second quarter of 2004.

Net income in the second quarter of 2005 on a non-GAAP basis was $7.2 million (non-GAAP diluted earnings per share of $0.04) compared with non-GAAP net income of $3.9 million (non-GAAP diluted earnings per share of $0.02) in the first quarter of 2005. GAAP net income in the second quarter of 2005 was $0.5 million (GAAP diluted earnings per share of $0.00) compared with GAAP net income of $3.3 million in the first quarter of 2005 (GAAP diluted earnings per share of $0.02). Non-GAAP net income in the second quarter of 2005 excludes $7.6 million in restructuring costs ($6.6 million for workforce reduction and $1.0 million for asset write-downs) as well as $0.9 million for the reversal of provision for doubtful accounts receivable.

For a full reconciliation of GAAP net income to non-GAAP net income, please refer to the supplemental schedule on page 6 of this release. The Company believes the additional non-GAAP measures provided are useful to investors for the performance of financial analysis. Management uses the non-GAAP measures internally to evaluate its in-period operating performance and to plan for the Company's future periods. However, non-GAAP measures are neither stated in accordance with, nor are they a substitute for, GAAP measures.

"In the second quarter of 2005, we experienced solid growth in our telecom metro transport business and the company's storage revenues grew robustly," said Bob Bailey, chairman and chief executive officer of PMC-Sierra. "We are continuing to see strong activity in Asian geographies and are focused on growth opportunities including 3G Wireless and Voice over Internet Protocol applications."

New products and company announcements in Q2 2005 include the following:

MSP4200 VoIP `Router on a Chip' - the MSP4200 is the latest addition to our Multi-Service Processor (MSP) product family for Voice over Internet Protocol (VoIP) customer premises equipment (CPE). Together with PMC-Sierra's Voice Processing Firmware Module, the MSP4200 provides a field-proven VoIP terminal solution. PMC-Sierra's VoIP technology is the first to be certified by China Telecommunication Technology Labs (CTTL) and has achieved Best-In-Class results from the Telecommunications Technology Association (Korea) and CTTL. The MSP 4200 is based on a system-on-chip platform that provides voice and data components for both wired and wireless VoIP-enabled router applications. VoIP allows users to make phone calls over the Internet.

TEMAP-168 - this framer is the industry's highest density, trans-multiplexing and PDH mapper solution for multi-service switches, routers and access systems. With the TEMAP 168, PMC-Sierra continues to expand its leadership in the transport market, offering a highly integrated, low power solution that requires half the board space of other available competitive offerings. The device also integrates essential performance monitoring and messaging functions to reduce overall equipment operating costs by eliminating the need for separate test access and monitoring hardware.

CPRI-based Reference Design for 3G Wireless Base Stations - we announced the availability of our complete Common Public Radio Interface (CPRI™) reference design that provides 3G base station vendors with significant time to market advantage by allowing low-cost prototype CPRI solutions to be developed and validated quickly. CPRI is an internationally adopted standard for modular system interfaces within 3G base station systems. Our reference design is the industry's most complete standard product solution and provides a clear path to higher integration and lower cost CPRI solutions through the migration to a single chip ASSP solution for production systems. The reference design is already being deployed by major OEMs and meets all the most demanding CPRI requirements including accurate delay calibration and high-quality clock recovery.

Second Quarter 2005 Conference Call

Management will review the second quarter 2005 results and provide guidance for the third quarter of 2005 during a conference call at 1:30 pm Pacific Time/4:30 pm Eastern Time on July 21, 2005. To listen to the call, investors can access an audio webcast of the conference call on the Financial Events and Calendar section at http://investor.pmc-sierra.com/. A replay of this webcast will be posted and available two hours after the conference call has been completed. To listen to the conference call live by telephone, please dial (719) 457-2642 approximately ten minutes before the start time. A telephone replay will be available 15 minutes after the completion of the call and can be accessed by dialing (719) 457-0820 (replay access code is 7270947). A replay of the webcast will be available for five business days.

Third Quarter 2005 Conference Call

PMC-Sierra is planning on releasing its results for the third quarter of 2005 on October 20th. A conference call will be held on the day of the release to review the quarter and provide an outlook for the fourth quarter of 2005.

Safe Harbor Statement

PMC-Sierra's forward-looking statements are subject to risks and uncertainties. Actual results may differ from these projections. The Company's SEC filings describe more fully the risks associated with market trends and sales of newer products, including rapid changes in demand due to customer inventory levels and production schedules, fluctuations in demand for networking equipment, risks of doing business in Asia, including the regional economy and local business practices, and customer concentration. The Company does not undertake any obligation to update the forward-looking statements.

About PMC-Sierra

PMC-Sierra™ is a leading provider of high-speed broadband communications semiconductors and MIPS-Powered™ processors for enterprise, access, metro, storage, wireless infrastructure and customer premises equipment. The company offers worldwide technical and sales support, including a network of offices throughout North America, Europe and Asia. The company is publicly traded on the NASDAQ Stock Market under the PMCS symbol and is included in the S&P 500 Index. For more information, visit www.pmc-sierra.com.

(C)Copyright PMC-Sierra, Inc. 2005. All rights reserved. PMC, PMCS, PMC-Sierra, and "Thinking You can Build On" are trademarks of PMC-Sierra, Inc. All other trademarks are the property of the respective owners



PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)

Three Months Ended
-----------------------------
(unaudited)

Jul 3, Apr 3, Jun 27,
2005 2005 2004

Net revenues $ 71,541 $ 66,111 $ 85,703

Cost of revenues 21,372 19,621 23,843
--------- --------- ---------
Gross profit 50,169 46,490 61,860


Other costs and expenses:
Research and development 29,456 31,416 30,689
Marketing, general and administrative 13,251 13,004 12,203
Amortization of deferred
stock compensation:
Marketing, general and
administrative 215 - -
Restructuring costs 7,606 868 -
--------- --------- ---------
Income (loss) from operations (359) 1,202 18,968

Other income:
Interest income, net 2,502 2,685 1,055
Foreign exchange gain (loss) 512 (590) 20
Loss on extinguishment of debt and
amortization of debt issue costs - (1,634) (97)
Gain on sale of property
and investments - 1,439 -
--------- --------- ---------
Income before provision for
income taxes 2,655 3,102 19,946

Recovery of (provision for)
income taxes (2,126) 175 (4,537)
--------- --------- ---------
Net income $ 529 $ 3,277 $ 15,409
========= ========= =========

Net income per common share - basic $ 0.00 $ 0.02 $ 0.09

Net income per common share - diluted $ 0.00 $ 0.02 $ 0.08

Shares used in per share
calculation - basic 183,386 182,192 179,570
Shares used in per share
calculation - diluted 188,305 188,678 190,136


PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)

Six Months Ended
---------------------
(unaudited)

Jul 3, Jun 27,
2005 2004

Net revenues $ 137,652 $ 164,363

Cost of revenues 40,993 47,600
---------- ----------
Gross profit 96,659 116,763


Other costs and expenses:
Research and development 60,872 59,491
Marketing, general and administrative 26,255 24,128
Amortization of deferred stock compensation:
Marketing, general and administrative 215 697
Restructuring costs 8,474 -
---------- ----------
Income (loss) from operations 843 32,447

Other income:
Interest income, net 5,187 2,011
Foreign exchange gain (loss) (78) (13)
Loss on extinguishment of debt and
amortization of debt issue costs (1,634) (2,039)
Gain on sale of property and investments 1,439 8,587
---------- ----------
Income before provision for income taxes 5,757 40,993

Recovery of (provision for) income taxes (1,951) (8,737)
---------- ----------
Net income $ 3,806 $ 32,256
========== ==========

Net income per common share - basic $ 0.02 $ 0.18
Net income per common share - diluted $ 0.02 $ 0.17

Shares used in per share calculation - basic 182,789 178,989
Shares used in per share calculation - diluted 188,492 191,218



As a supplement to the Company's consolidated financial statements
presented on a generally accepted accounting principles (GAAP)
basis, the Company provides additional non-GAAP measures for net
income and net income per share in its press release.

A non-GAAP financial measure is a numerical measure of a company's
performance, financial position, or cash flows that either excludes
or includes amounts that are not normally excluded or included in
the most directly comparable measure calculated and presented in
accordance with GAAP. The Company believes that the additional
non-GAAP measures are useful to investors for the performance of
financial analysis. Management uses these measures internally to
evaluate its in-period operating performance and the measures are
used for planning and forecasting of the Company's future periods.
However, non-GAAP measures are not in accordance with, nor are they
a substitute for, GAAP measures. Other companies may use different
non-GAAP measures and presentation of results.

PMC-Sierra, Inc.
Reconciliation of GAAP net income to Non-GAAP net income
(in thousands, except for per share amounts)
(unaudited)

Three Months Ended
------------------------------
Jul 3, Apr 3, Jun 27,
2005 (1) 2005 (2) 2004 (3)

GAAP net income $ 529 $ 3,277 $ 15,409

Amortization of deferred
stock compensation 215 - -
Reversal of provision for excess
inventory resulting from the
sale of inventory that was
previously provided for - - (651)
Restructuring costs 7,606 868 -
Elimination of provision (900) - -
Loss on extinguishment of debt - 1,618 -
Gain on sales of property
and investments - (1,439) -
Recovery of prior year income taxes - (998) -
Foreign exchange (gain)
loss on Canadian taxes (522) 710 -
Income tax effect of above items 315 (150) 163
--------- --------- ----------
Non-GAAP net income $ 7,243 $ 3,886 $ 14,921
========= ========= ==========

Non-GAAP net income per
share - diluted $ 0.04 $ 0.02 $ 0.08

Shares used to calculate non-GAAP 188,305 188,678 190,136
net income per share - diluted

Non-GAAP adjustments

The above amounts have been adjusted to eliminate the following:

(1) $0.2 million amortization of deferred stock compensation; $7.6
million restructuring costs including $6.6 million for workforce
reduction and $1.0 million for asset write-downs; $0.9 million
reversal of provision for doubtful accounts receivable; $0.5 million
foreign exchange gain on Canadian taxes and $0.3 million income tax
effect related to these non-GAAP adjustments.

(2) $0.9 million restructuring costs relating to workforce
reduction, $1.6 million loss on extinguishment of debt, $1.4 million
gain on sales of property and investments, $1.0 million reversal of
state income tax, $0.7 million foreign exchange loss on Canadian
taxes and $0.2 million income tax effect related to these non-GAAP
adjustments.

(3) $0.7 million reversal of a provision for excess inventory
resulting from the sale of inventory that was previously provided
for and $0.2 million income tax effect related to this non-GAAP
adjustment.


PMC-Sierra, Inc.
Reconciliation of GAAP net income to Non-GAAP net income
(in thousands, except for per share amounts)
(unaudited)

Six Months Ended
---------------------
Jul 3, Jun 27,
2005 (4) 2004 (5)

GAAP net income $ 3,806 $ 32,256

Amortization of deferred stock compensation 215 697
Reversal of provision for excess inventory
resulting from the sale of inventory that
was previously provided for - (651)
Restructuring costs 8,474 -
Elimination of provision (900) -
Loss on extinguishment of debt 1,618 1,845
Gain on sales of property and investments (1,439) (8,587)
Recovery of prior year income taxes (998) -
Foreign exchange (gain) loss on Canadian taxes 188 -
Income tax effect of above items 165 163
---------- ----------
Non-GAAP net income $ 11,129 $ 25,723
========== ==========

Non-GAAP net income per share - diluted $ 0.06 $ 0.13

Shares used to calculate non-GAAP
net income per share - diluted 188,492 191,218


Non-GAAP adjustments

The above amounts have been adjusted to eliminate the following:

(4) $0.2 million amortization of deferred stock compensation; $8.5
million restructuring costs including $7.5 for workforce reduction
and $1.0 million for asset write-downs; $0.9 million reversal of
provision for doubtful accounts receivable; $1.6 million loss on
extinguishment of debt, $1.4 million gain on sales of property and
investments, $1.0 million reversal of state income tax; $0.2 million
foreign exchange loss on Canadian taxes, and $0.2 million income tax
effect relating to these non-GAAP adjustments.

(5) $0.7 million reversal of a provision for excess inventory
resulting from the sale of inventory that was previously provided
for, $0.7 million amortization of deferred stock compensation, $1.8
million loss on extinguishment of debt, $8.6 million gain on sale of
an investment and $0.2 million income tax effect related to these
non-GAAP adjustments.



PMC-Sierra, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

Jul 3, Dec 26,
2005 2004

ASSETS:
Current assets:
Cash and short-term investments (1) $ 306,736 $ 274,686
Accounts receivable, net 25,086 19,931
Inventories, net 14,712 15,823
Prepaid expenses and other current assets 16,688 17,042
---------- ----------
Total current assets 363,222 327,482

Investment in bonds and notes (1) 55,189 139,111
Other investments and assets 4,639 4,565
Property and equipment, net 14,219 16,177
Goodwill and other intangible assets, net 12,760 12,910
Deposits for wafer fabrication capacity 5,145 6,779
---------- ----------
$ 455,174 $ 507,024
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 16,462 $ 16,598
Accrued liabilities 36,796 40,195
Income taxes payable 30,128 28,931
Accrued restructuring costs 15,928 13,735
Deferred income 8,079 7,646
Current portion of long-term debt - 68,071
---------- ----------
Total current liabilities 107,393 175,176

Deferred taxes and other tax liabilities 28,077 28,077

PMC special shares convertible into 2,677
(2004 - 2,897) shares of common stock 3,636 4,434

Stockholders' equity
Capital stock and additional paid in capital 907,432 893,704
Accumulated other comprehensive income (loss) (453) 350
Accumulated deficit (590,911) (594,717)
---------- ----------
Total stockholders' equity 316,068 299,337
---------- ----------
$ 455,174 $ 507,024
========== ==========


(1) Total cash and marketable investments, current and non-current,
comprised of Cash and short-term investments plus Investments in
bonds and notes, totaled $361.9 million and $413.8 million at July
3, 2005 and December 26, 2004, respectively.


PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Six Months Ended
---------------------
Jul 3, Jun 27,
2005 2004

Cash flows from operating activities:
Net income $ 3,806 $ 32,256
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,805 8,694
Gain on disposal of property and equipment (184) -
Impairment of goodwill and
purchased intangible assets 538 -
Loss on extinguishment of debt 1,618 1,845
Gain on sale of investments and other assets (1,255) (8,587)
Reversal of write-down of excess inventory - (651)
Changes in operating assets and liabilities:
Accounts receivable (5,155) (7,316)
Inventories 1,111 1,626
Prepaid expenses and other current assets (1,070) (3,616)
Accounts payable and accrued liabilities (2,452) (8,638)
Income taxes payable 1,780 8,600
Accrued restructuring costs 2,193 (4,016)
Deferred income 432 2,213
---------- ----------
Net cash provided by operating activities 7,167 22,410
---------- ----------

Cash flows from investing activities:
Purchases of short-term
available-for-sale investments (82,389) (288)
Proceeds from sales and maturities of
short-term available-for-sale investments 141,084 60,373
Purchases of long-term available-for-sale
investments in bonds and notes (10,231) (177,991)
Proceeds from sales and maturities
of long-term available-for-sale
investments in bonds and notes 44,760 111,291
Purchases of investments and other assets (2,000) (5,905)
Proceeds from sale of investments
and other assets 734 10,094
Proceeds from refund of wafer
fabrication deposits 1,634 -
Purchases of property and equipment (2,666) (5,220)
Proceeds from sale of property 2,604 -
Purchase of intangible assets (1,530) (2,354)
---------- ----------
Net cash provided by (used in)
investing activities 92,000 (10,000)
---------- ----------

Cash flows from financing activities:
Repurchase of convertible subordinated notes (70,177) (106,929)
Proceeds from issuance of common stock 12,715 13,304
---------- ----------
Net cash used in financing activities (57,462) (93,625)
---------- ----------

Net increase (decrease) in cash
and cash equivalents 41,705 (81,215)
Cash and cash equivalents,
beginning of the period 121,276 225,959
---------- ----------
Cash and cash equivalents, end of the period $ 162,981 $ 144,744
========== ==========



Contact Information

  • PMC-Sierra Contacts:
    VP Finance & CFO
    Alan Krock, 1 408-988-1204
    or
    Director, Investor Relations and Corp. Communications
    David Climie, 1 408-988-8276
    or
    Manager, Corp. Communications
    Susan Kirk, 1 408-988-8515
    email: susan_kirk@pmc-sierra.com