For the second quarter of 2002, the loss from continuing operations includes a modest gain of $0.02 per share from sales of securities, compared to a $0.93 per share gain in the second quarter of fiscal 2001, primarily related to sales of a portion of SMSC’s investment in Chartered Semiconductor Manufacturing, Ltd.
The discontinued operations loss in the second quarter of fiscal 2002 was $0.02 per share and represents legal expenses associated with certain businesses previously disposed by SMSC. Similar or slightly larger charges of this nature are likely in the remaining quarters of the current fiscal year. The net loss for the second quarter of fiscal 2002 was $1.2 million, or $0.07 per share, compared to net income of $17.5 million, or $1.03 per share, in the second quarter of fiscal 2001.
Gross margins for the second quarter of fiscal 2002 were 40.1% versus 40.5% in the comparative year-ago quarter.
As a result of previously implemented cost reduction programs, research and development expenses were $7.6 million for the second quarter of fiscal 2002, compared to $8.2 million in the second quarter of fiscal 2001. Selling, general and administrative expenses for the second fiscal quarter were $7.7 million, down $1.4 million from the same period last year.
Cash and short-term investments at the end of the fiscal quarter totaled $104 million and the Company has no bank debt. The current ratio was almost 8:1 at the end of the second quarter.
Commenting on second quarter results, Steven J. Bilodeau, Chairman and Chief Executive Officer, said, Sequential revenues remained essentially flat and cost reduction programs have yielded good results. The loss from continuing operations has shown dramatic sequential improvement, having dropped by almost half. In addition, despite the difficult economic conditions which continue to plague the industry, our lean infrastructure has enabled us to manage costs effectively, and thereby maintain gross margins of 40% during the quarter.
Mr. Bilodeau continued, We believe that the PC market has stabilized, and we expect a stronger third quarter due to a modest seasonal demand increase and the ramping of shipments for several new products. Most importantly, we have won several new Advanced I/O designs for one of the largest global PC manufacturers for its desktop platforms. These design wins, which are starting to ramp now, should add $15 to $20 million per year in incremental business for SMSC cumulatively in our next fiscal year alone. This is a significant strategic win for us.
As anticipated, demand for our Embedded product line reflected weakness in the second quarter. However, customer activity is strengthening and our new products are being received well by the marketplace. We are now looking for the Embedded market to stabilize during the fiscal fourth quarter and for growth in demand to return to more healthy levels early in the next fiscal year.
Regarding the quarterly outlook for operating results, Andrew M. Caggia, Senior Vice President and Chief Financial Officer said, We expect revenues to grow approximately 10% to 15% sequentially, aided by a seasonally stronger third quarter. Gross margins are expected to remain near 40%, sustained by ongoing aggressive cost-cutting measures. Operating expenses will likely be higher, as the second quarter included certain one-time cost reductions. In line with our plan to maintain investments in key programs, research and development expenditures will continue at approximately 20% to 25% of sales. As a result, we expect a third quarter loss from continuing operations in the range of $0.04 to $0.06 per share.
Mr. Caggia added, Looking further out, we are reiterating our previous guidance calling for stronger revenue and earnings, before gains on sales of securities, in the second half of the fiscal year, and believe that the steps we are taking today, combined with the significance of new design wins, will provide a solid platform to support growth of shareholder value.
SOURCE: COMPANY PRESS RELEASE
