23 May 2011

GigOptix’s product revenue rises 7% in Q1 to record $7.1m

For first-quarter 2011, GigOptix Inc of Palo Alto, CA, USA, which designs modulator and laser drivers and transimpedance amplifier (TIA) ICs based on III-V materials as well as polymer electro-optic modulators, has reported revenue of $7.7m, up 45% on $5.3m a year ago but down 6% on $8.1m last quarter.

However, this is due to government contract revenue being down sequentially by $0.9m to $0.6m due to the suspension of a number of federal earmarks by the US Congress in fall 2010.

Nevertheless, product revenue is up 37% on a year ago and 7% sequentially (exceeding guidance of 5%) to a record $7.1m, driven by increasing demand for high-speed fiber-optic communication electronic devices. “The achievement of record product revenue during the first quarter is directly attributable to successful execution on our business initiatives as we continued to focus on product development for the high-growth 40G and 100G markets,” says acting chief financial officer Jeff Parsons.

On a non-GAAP, gross margin of 51% is down from 52% a year ago and 56% last quarter due to the decline in government contract revenue. Total operating expenses were $7.2m, up from $4.6m a year ago and $4.5m last quarter, due mainly to a one-time cash charge of $1.1m from the acquisition of Endwave Corp of San Jose, CA (which designs and manufactures high-frequency RF solutions and semiconductor products, particularly point-to-point (PTP) radio communication systems), a one-time non-cash charge of $1.1m related to the issuance of warrants in conjunction with settlement of litigation with DBSI, and a non-cash charge of $0.7m of stock-based compensation expense.

Although cut from $1.1m a year ago, net loss of $0.4m compares with net income of $0.6m last quarter. Compared to a loss of $0.4m a year ago, adjusted EBITDA of +$45,000 is down from +$1.2m last quarter due to one-time events. During the quarter, cash and investments fell from $4.5m to $4.1m. However, the drop is offset by a $0.4m decrease in the firm's line of credit with Silicon Valley Bank, and is due mainly to the one-time expenses from the Endwave acquisition.

“We continue to work diligently with the government to release our $4m 2011 earmarked projects and hope to reach a resolution in the near future,” says chairman & CEO Dr Avi Katz.

“We continued to build momentum for our 40G TIAs and 100G MZM [Mach–Zehnder Modulator] optical driver devices by securing design wins at a number of Tier 1 customers,” says Katz. “We were pleased to announce a $750,000 purchase order for our 100G quad driver, which we expect to ship in the second and third quarters of 2011, and started shipments of the first-ever TFPS [Thin Film Polymer on Silicon] modulators, initially with the 40G DPSK TFPS MZMs for evaluation by large number of Tier 1 telecom customers,” he adds. GigOptix demonstrated the industry's first production 40G DPSK TFPS MZM and 100G quad MZM driver at March's Optical Fiber Conference (OFC 2011).

“Looking forward, we aim to continue capitalizing on the industry’s accelerating adoption of higher-speed next-generation networking solutions with our broad and growing portfolio of industry-proven 40G and 100G solutions,” says Katz.

“We continue making progress toward our goal of closing the transaction in the second quarter of 2011,” says Katz regarding the Endwave acquisition. “This merger will yield a number of strategic synergies positioning GigOptix as a comprehensive one-stop supplier to an expanded Tier 1 customer base for all high-frequency wireless and high-speed optical communication needs,” he adds.

“First, the products of both companies serve the increasing demand by consumers for more bandwidth and enhanced connectivity. Both GigOptix’s high-speed optical communication systems and Endwave’s high-frequency wireless PTP radio solutions are highly complementary and will provide common Tier 1 telecom OEM customers with a more complete end-to-end data connectivity solution,” Katz continues.

“Second, both companies utilize similar semiconductor technologies, design techniques and product architectures to implement their high-frequency high-speed solutions. Our combined engineering expertise will better enable us to provide industry-leading high-speed and high-frequency RF solutions to serve customers’ growing needs for faster solutions in both wireless mobile backhaul and optical networks,” he adds.

“Third, both GigOptix and Endwave share many of the same large telecom OEM customers, enabling the combined company to leverage established customer relationships of each respective company, strengthening its position with all of its networking customers,” Katz believes.

“Lastly, it is our expectation that this merger will strengthen our balance sheet, and is expected to result in estimated consolidated cash and liquid investments of approximately $16m upon the transaction close, providing a solid financial platform for future growth,” Katz reckons. “We believe the merger will also generate significant cost savings, including notable manufacturing cost efficiencies as well as operational cost savings,” he adds. GigOptix expects most of the operational integration process to be complete early in third-quarter 2011.

“Another positive development for the company since the quarter closed was our settlement agreement with the trustees of the DBSI Liquidating Trust and DBSI Estate Litigation Trust,” notes Katz. “All disputes have been resolved and the trustees agreed to release all claims against GigOptix, its subsidiaries, directors and employees. The trustees also agreed to cancel and return its original GigOptix common stock warrants in exchange for two replacement warrants, both of which are not exercisable for a period of six months from the date of issuance,” he adds. “This settlement was in the best interest of GigOptix and its shareholders in that it prevented any additional legal expenses and the unnecessary use of management's time associated with a potentially lengthy litigation,” believes Katz. “I am very pleased to have resolved this issue on a non-cash basis, which allows us to preserve our existing capital and focus our resources on driving growth and expanding our business.”

For second-quarter 2011, GigOptix expects product revenue to rise by 5% sequentially. “In terms of our government contract revenue, we continue to aggressively lobby the US Congress to reinstate the federal support of our On-Chip Integrated Photonic Polymer Transceiver program,” notes Parsons. “At this time, we are unable to determine whether our efforts will be successful, and so our revenue outlook for government contracts is difficult to forecast. We will therefore not be providing guidance on this segment,” he adds. In February, GigOptix sais that it expected the program suspension to impact about $4m of its federal funding (as part of the Department of Defense Appropriations Bill) that it expected to realize during 2011.

“Looking forward, we are focused on continuing to grow our product revenue as we build on the momentum from our 40G and 100G products and leverage our leadership position as the industry’s only pure-play semiconductor provider of high-speed communication components and sub-assemblies to drive additional growth,” Parsons concludes.

See related items:

GigOptix reports fifth quarter of double-digit revenue growth

GigOptix increases Q3/2010 revenue guidance

GigOptix grows 19% sequentially to record revenue of $6.3m for Q2

GigOptix reports record revenue of $5.3m in Q1

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