PMC-Sierra Reports Third Quarter 2007 Results





    --  Q3 2007 Net revenues $117.5 million

    --  Q3 2007 GAAP Net loss $(5.9) million or $(0.03) per share

    --  Q3 2007 Non-GAAP Net income $19.1 million or $0.09 per share

    SANTA CLARA, CALIF., October 18 /CNW/ - PMC-Sierra, Inc. (Nasdaq:  PMCS), a
leading provider of high-speed broadband communications and storage
semiconductors, today reported results for the third quarter ending September
30th, 2007.

    Net revenues in the third quarter of 2007 were $117.5 million compared
with $104.7 million in the second quarter of 2007, and $116.5 million in the
third quarter of the prior year.

    Net loss in the third quarter of 2007 on a GAAP basis was $5.9 million
(GAAP diluted loss per share of $0.03) compared with GAAP net loss of $22.3
million (GAAP diluted loss per share of $0.10) in the second quarter of 2007.
Non-GAAP net income in the third quarter of 2007 was $19.1 million (non-GAAP
diluted earnings per share of $0.09) compared with a non-GAAP net income in
the second quarter of 2007 of $7.4 million (non-GAAP diluted earnings per
share of $0.03).

    "In the third quarter, we experienced strong growth in our telecom
business, particularly in Asia, as well as positive trends in our enterprise
storage business," said Bob Bailey, chairman and chief executive officer of
PMC-Sierra. "Our summer bookings were strong, and our operating performance
increased in the quarter as a result of the combination of top-line growth and
expense reductions."

    Non-GAAP net income in the third quarter of 2007 excludes the following
items: (i) $8.1 million in stock-based compensation expense; (ii) $9.8 million
in amortization of purchased intangible assets; (iii) $1.6 million in costs
and charges related to the Company's corporate restructuring announced March
29, 2007; (iv) $6.8 million foreign exchange loss on foreign denominated FIN
48 tax liabilities; and (v) $1.2 million income tax effect relating to these
non-GAAP adjustments.

    For a full reconciliation of GAAP net income to non-GAAP net income,
please refer to the schedule on page 6 of this release. The Company believes
the additional non-GAAP measures provided are useful to investors for the
purpose of financial analysis. Management uses the non-GAAP measures
internally to evaluate its operating performance before gains, losses and
other charges that are considered by management to be outside of the Company's
core operating results, as well as used to plan for the Company's future
periods. Non-GAAP measures are however neither stated in accordance with, nor
are they a substitute for, GAAP measures.

    The Company made the following product announcements in Q3 2007:

    --  Highly integrated WiMAX RF IC: We announced our first WiMAX RF IC
solutions for Femtocell base stations, Customer Premises Equipment, Mobile
Base Stations, and laptop air cards. The PM8800 WiZIRD(TM) 2Tx/2Rx is the
industry's most integrated WiMAX RF IC solution that supports full 2Tx/2Rx
Multiple In/Multiple Out with Multi-Band functionality (2.3-2.7 GHz and
3.3-3.8 GHz) that allows a single design to cover all popular licensed radio
spectra in the world. These advanced features enable next-generation consumer
services such as gaming, video conferencing, and streaming media applications.
The PM8801 WiZIRD 1Tx/2Rx integrates a single transmit and two receive radio
paths, as well as Multi-Band support, and is ideal for WiMAX Wave2 subscriber
equipment, such as CPE and laptop devices.

    --  High-Performance Multi-Service Processors: We announced two highly
integrated Multi-Service Processors targeted at high-performance,
cost-sensitive embedded applications. These processors meet the performance
and cost targets required to support networked appliances, storage systems and
security solutions. The MSP8110 and MSP8120 SoC solutions, powered by the
MIPS32 34K core, provide large 64KB caches with integrated I/O interfaces and
consume less than 1.5Watts. These devices are targeted for use in IP
surveillance, SMB NAS and network-connected appliances.

    Third Quarter 2007 Conference Call

    Management will review the third quarter 2007 results and provide
guidance for the fourth quarter of 2007 during a conference call at 1:30 p.m.
Pacific Time/4:30 p.m. Eastern Time on October 18, 2007. The conference call
webcast will be accessible under the Financial Events and Calendar section at
http://investor.pmc-sierra.com/. To listen to the conference call live by
telephone, dial (416) 915-8321 approximately ten minutes before the start
time. A telephone playback will be available after the completion of the call
and can be accessed at (647) 436-0148 using the access code 4061228. A replay
of the webcast will be available for five business days.

    Fourth Quarter 2007 Conference Call

    PMC-Sierra is planning on releasing its results for the fourth quarter of
2007 on January 24, 2008. A conference call will be held on the day of the
release to review the quarter and provide an outlook for the first quarter of
2008.

    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 the Company's
business including PMC-Sierra's limited revenue visibility due to variable
customer demands, market segment growth or decline, orders with short delivery
lead times, customer concentration, and the uncertain timing of expense
reductions associated with corporate restructurings and their related impact
on PMC's business. The Company does not undertake any obligation to update the
forward-looking statements.

    About PMC-Sierra

    PMC-Sierra(TM) is a leading provider of broadband communications and
storage semiconductors for metro, access, fiber to the home, wireless
infrastructure, storage, laser printers, and fiber access gateway equipment.
PMC-Sierra offers worldwide technical and sales support, including a network
of offices throughout North America, Europe, Israel and Asia. The company is
publicly traded on the NASDAQ Stock Market under the PMCS symbol. For more
information, visit www.pmc-sierra.com.

    (C) Copyright PMC-Sierra, Inc. 2007. All rights reserved. PMC is a
registered trademarks of PMC-Sierra, Inc. in the United States and other
countries. PMC-SIERRA, PMCS, WiZIRD and "Enabling connectivity. Empowering
people." are trademarks of PMC-Sierra, Inc. Other product and company names
mentioned herein may be trademarks of their respective owners.

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

                              Three Months Ended        Nine Months Ended
                         ----------------------------- -------------------
                         September July 1,   October   September October
                          30, 2007    2007    1, 2006   30, 2007  1, 2006

    Net revenues         $117,455  $104,692  $116,514  $325,812  $323,075
    Cost of revenues       39,871    37,650    39,146   115,092   109,331
                         --------- --------- --------- --------- ---------
     Gross profit          77,584    67,042    77,368   210,720   213,744


    Other costs and
     expenses:
     Research and
      development          35,557    41,635    41,611   121,716   116,947
     Selling, general
      and administrative   24,124    25,171    29,235    75,993    76,002
     Amortization of
      purchased
      intangible assets     9,836     9,836    11,202    29,507    23,246
     In-process research
      and development           -         -         -         -    35,300
     Restructuring costs
      and other charges     1,564     3,786     6,404    12,244     5,666
                         --------- --------- --------- --------- ---------
    Income (loss) from
     operations             6,503   (13,386)  (11,084)  (28,740)  (43,417)

    Other income
     (expense):
     Interest income,
      net                   2,728     2,472     1,849     7,037     6,682
     Foreign exchange
      loss                 (7,052)   (7,926)     (252)  (15,975)   (3,617)
     Amortization of
      debt issue costs       (242)     (242)     (242)     (726)     (726)
     Loss on
      investments, net          -         -         -         -    (1,269)
                         --------- --------- --------- --------- ---------
    Income (loss) before
     provision for
     income taxes           1,937   (19,082)   (9,729)  (38,404)  (42,347)

    Provision for income
     taxes                 (7,877)   (3,177)   (1,796)   (5,619)  (15,345)
                         --------- --------- --------- --------- ---------
    Net loss             $ (5,940) $(22,259) $(11,525) $(44,023) $(57,692)
                         --------- --------- --------- --------- ---------

    Net loss per common
     share - basic and
     diluted             $  (0.03) $  (0.10) $  (0.05) $  (0.20) $  (0.29)

    Shares used in per
     share calculation -
     basic and diluted    216,837   215,688   211,298   215,469   200,528
    

    
    As a supplement to the Company's condensed consolidated statement of
     operations presented on a generally accepted
    accounting principles (GAAP) basis, the Company provides additional
     non-GAAP measures for net income (loss) and
    net income (loss) 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 purpose of financial
     analysis.  Management uses these measures
    internally to evaluate the Company's in-period operating performance
     before gains, losses and other charges that
    are considered by management to be outside of the Company's core
     operating results.  In addition, 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 loss to Non-GAAP net income
                 (in thousands, except for per share amounts)
                                 (unaudited)



                                                  Three Months Ended
                                                  September 30, 2007
                                            ------------------------------
                                                        Non-
                                                        GAAP
                                            Reported   Items     Non-GAAP
                                            --------- --------   ---------

    Net revenues                            $117,455             $117,455

    Cost of revenues                          39,871     (298)(1)  39,573
                                            --------- --------   ---------

    Gross profit                              77,584     (298)     77,882

    Operating expenses:
     Research and development                 35,557   (3,805)(1)  31,752
     Selling, general and administrative      24,124   (4,007)(1)  20,117
     Amortization of purchased intangible
      assets                                   9,836   (9,836)          -
     In-process research and development           -                    -
     Restructuring costs and other charges     1,564   (1,564)(2)       -
                                            --------- --------   ---------
                                                                        -
    Income (loss) from operations              6,503   19,510      26,013

    Other income (expense):
     Interest income, net                      2,728                2,728
     Foreign exchange gain (loss)             (7,052)   6,789 (3)    (263)
     Amortization of debt issue costs           (242)                (242)
     Loss on investments, net                      -                    -
                                            --------- --------   ---------

    Income (loss) before provision for
     income taxes                              1,937   26,299      28,236

    (Provision for) recovery of income
     taxes                                    (7,877)  (1,231)(4)  (9,108)
                                            --------- --------   ---------
    Net (loss) income                       $ (5,940) $25,068    $ 19,128
                                            --------- --------   ---------

    Net (loss) income per common share -
     basic                                  $  (0.03)            $   0.09
    Net (loss) income per common share -
     diluted                                $  (0.03)            $   0.09

    Shares used in per share calculation -
     basic                                   216,837              216,837
    Shares used in per share calculation -
     diluted                                 216,837              219,345


                                                 Three Months Ended
                                                   October 1, 2006
                                           -------------------------------
                                                     Non-GAAP
                                           Reported    Items     Non-GAAP
                                           --------- ---------   ---------

    Net revenues                           $116,514              $116,514

    Cost of revenues                         39,146      (379)(1)  38,767
                                           --------- ---------   ---------

    Gross profit                             77,368      (379)     77,747

    Operating expenses:
     Research and development                41,611    (4,186)(1)  37,425
     Selling, general and administrative     29,235    (8,391)(5)  20,844
     Amortization of purchased intangible
      assets                                 11,202   (11,202)          -
     In-process research and development          -         -           -
     Restructuring costs and other charges    6,404    (6,404)(6)       -
                                           --------- ---------   ---------

    Income (loss) from operations           (11,084)   30,562      19,478

    Other income (expense):
     Interest income, net                     1,849                 1,849
     Foreign exchange gain (loss)              (252)     (108)(3)    (360)
     Amortization of debt issue costs          (242)                 (242)
     Loss on investments, net                     -
                                           --------- ---------   ---------

    Income (loss) before provision for
     income taxes                            (9,729)   30,454      20,725

    (Provision for) recovery of income
     taxes                                   (1,796)   (1,520)(4)  (3,316)
                                           --------- ---------   ---------
    Net (loss) income                      $(11,525) $ 28,934    $ 17,409
                                           --------- ---------   ---------

    Net (loss) income per common share -
     basic                                 $  (0.05)             $   0.08
    Net (loss) income per common share -
     diluted                               $  (0.05)             $   0.08

    Shares used in per share calculation -
     basic                                  211,298               211,298
    Shares used in per share calculation -
     diluted                                211,298               212,561



    Non-GAAP adjustments consist of:
    (1) Stock based compensation
    (2) $1.6 million restructuring costs including $1.2 million for
     severance and $0.3 million for excess facilities.
    (3) Foreign exchange loss (gain) on Canadian taxes
    (4) Income tax effect relating to these non-GAAP adjustments
    (5) Stock based compensation expense of $6.0 million and $2.4 million
     payroll tax accrual in a foreign jurisdiction
    (6) $6.4 million restructuring costs including $2.6 million for
     severance, $3.5 million for excess facilities, and $0.3 million for
     contract termination and asset impairment primarily related to the
     workforce reduction in Portland and the closure of the Ottawa
     facility
    

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



                                                  Nine Months Ended
                                                 September 30, 2007
                                           -------------------------------
                                                     Non-GAAP
                                           Reported    Items     Non-GAAP
                                           --------- ---------   ---------

    Net revenues                           $325,812              $325,812

    Cost of revenues                        115,092    (1,347)(1) 113,745
                                           --------- ---------   ---------

    Gross profit                            210,720    (1,347)    212,067

    Operating expenses:
     Research and development               121,716   (12,472)(1) 109,244
     Selling, general and administrative     75,993   (11,140)(2)  64,853
     Amortization of purchased intangible
      assets                                 29,507   (29,507)          -
     In-process research and development          -         -           -
     Restructuring costs and other charges   12,244   (12,244)(3)       -
                                           --------- ---------   ---------

    (Loss) income from operations           (28,740)   66,710      37,970

    Other income (expense):
     Interest income, net                     7,037         -       7,037
     Foreign exchange gain (loss)           (15,975)   16,074 (4)      99
     Amortization of debt issue costs          (726)        -        (726)
     (Loss) Gain on investments                   -                     -
                                           --------- ---------   ---------

    (Loss) Income before (provision for)
     recovery of income taxes               (38,404)   82,784      44,380

    (Provision for) recovery of income
     taxes                                   (5,619)   (7,872)(5) (13,491)
                                           --------- ---------   ---------
    Net (loss) income                      $(44,023) $ 74,912    $ 30,889
                                           --------- ---------   ---------

    Net (loss) income per common share -
     basic                                 $  (0.20)             $   0.14
    Net (loss) income per common share -
     diluted                               $  (0.20)             $   0.14

    Shares used in per share calculation -
     basic                                  215,469               215,469
    Shares used in per share calculation -
     diluted                                215,469               217,602


                                                 Nine Months Ended
                                                  October 1, 2006
                                          --------------------------------
                                                    Non-GAAP
                                          Reported    Items      Non-GAAP
                                         ---------- ---------    ---------

    Net revenues                          $323,075               $323,075

    Cost of revenues                       109,331   (10,241) (6)  99,090
                                          --------- ---------    ---------

    Gross profit                           213,744   (10,241)     223,985

    Operating expenses:
     Research and development              116,947   (10,738) (1) 106,209
     Selling, general and administrative    76,002   (17,072) (7)  58,930
     Amortization of purchased intangible
      assets                                23,246   (23,246)           -
     In-process research and development    35,300   (35,300) (8)       -
     Restructuring costs and other
      charges                                5,666    (5,666) (9)       -
                                          --------- ---------    ---------

    (Loss) income from operations          (43,417)  102,263       58,846

    Other income (expense):
     Interest income, net                    6,682                  6,682
     Foreign exchange gain (loss)           (3,617)    3,074  (4)    (543)
     Amortization of debt issue costs         (726)                  (726)
     (Loss) Gain on investments             (1,269)    1,269 (10)       -
                                          --------- ---------    ---------

    (Loss) Income before (provision for)
     recovery of income taxes              (42,347)  106,606       64,259

    (Provision for) recovery of income
     taxes                                 (15,345)    4,247 (11) (11,098)
                                          --------- ---------    ---------
    Net (loss) income                     $(57,692) $110,853     $ 53,161
                                          --------- ---------    ---------

    Net (loss) income per common share -
     basic                                $  (0.29)              $   0.27
    Net (loss) income per common share -
     diluted                              $  (0.29)              $   0.26

    Shares used in per share calculation
     - basic                               200,528                200,528
    Shares used in per share calculation
     - diluted                             200,528                207,945



    Non-GAAP adjustments consist of:
    (1) Stock based compensation expense
    (2) Stock based compensation expense of $13.4 million and $2.2 million
     reversal of a payroll tax accrual in a foreign jurisdiction
    (3) $12.2 million restructuring costs including $9.3 million for
     severance, and $2.4 million for excess facilities, and $0.5 million
     for contract termination and asset impairment
    (4) Foreign exchange loss on Canadian taxes
    (5) Provision for income taxes includes $4.0 million additional
     recovery of prior years' income taxes and $3.8 million income tax
     effect of non-GAAP adjustments
    (6) Stock based compensation expense of $1.3 million and purchase
     accounting adjustments of $8.9 million
    (7) Stock based compensation expense of $14.5 million; acquisition
     costs of $0.2 million and $2.4 million payroll tax in a foreign
     jurisdiction
    (8) $35.3 million in charges for in-process research and development
     from the purchases of Passave and the Avago Storage Semiconductor
     Business
    (9) $5.7 million in restructuring comprised of $1.2 million net
     provision for excess facilities, $4.2 million additional severance,
     and $0.3 million in contract termination and asset impairment
    (10) $1.3 million net loss on investments including a $3.2 million
     write-down, offset by $1.9 million gains on sales of investment
    (11) $7.0 million withholding and other taxes on repatriation of funds
     offset by $2.8 million income tax effect of these non-GAAP
     adjustments
    

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

                                                September 30, December 31,
                                                    2007          2006

    ASSETS:
    Current assets:
     Cash and cash equivalents                  $    328,001  $   258,914
     Accounts receivable, net                         41,440       37,303
     Inventories, net                                 30,499       34,505
     Prepaid expenses and other current assets        18,271       16,186
     Deferred tax assets                               4,321          978
                                                ------------- ------------
      Total current assets                           422,532      347,886

    Goodwill                                         398,418      395,943
    Intangible assets, net                           198,493      223,629
    Property and equipment, net                       16,978       18,904
    Investments and other assets                      12,519       14,653
    Deposits for wafer fabrication capacity            5,145        5,145
    Deferred tax assets                               50,482          397
                                                ------------- ------------
                                                $  1,104,567  $ 1,006,557
                                                ------------- ------------

    LIABILITIES AND STOCKHOLDERS' EQUITY:
    Current liabilities:
     Accounts payable                           $     23,462  $    19,074
     Accrued liabilities                              52,943       51,199
     Income taxes payable                              5,086          722
     Deferred income taxes                             3,481        2,042
     Liability for unrecognized tax benefit           69,212       58,706
     Accrued restructuring costs                      12,728       12,657
     Deferred income                                  13,494       11,340
                                                ------------- ------------
      Total current liabilities                      180,406      155,740

    Long-term obligations                              1,012            -
    2.25% Senior convertible notes due October
     15, 2025                                        225,000      225,000
    Deferred taxes and other tax liabilities          13,505       10,612
    Liability for unrecognized tax benefit            99,547       42,045

    PMC special shares convertible into 2,099
     (2006 - 2,099) shares of common stock             2,732        2,732

    Stockholders' equity
     Common stock and additional paid in
      capital                                      1,375,130    1,327,808
     Accumulated other comprehensive income
      (loss)                                           2,778       (1,127)
     Accumulated deficit                            (795,543)    (756,253)
                                                ------------- ------------
      Total stockholders' equity                     582,365      570,428
                                                ------------- ------------
                                                $  1,104,567  $ 1,006,557
                                                ------------- ------------
    

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

                                                     Nine Months Ended
                                                  ------------------------


                                                  September 30, October 1,
                                                      2007         2006

    Cash flows from operating activities:
     Net loss                                        $ (44,023) $ (57,692)
     Adjustments to reconcile net loss to net
      cash (used in) provided by operating
      activities:
       Stock-based compensation                         27,172     26,525
       Depreciation and amortization                    42,606     34,520
       In-process research and development                   -     35,300
       Loss on investments                                   -      1,243
       Loss on disposal of property and equipment          496          -
       Changes in operating assets and
        liabilities:
         Accounts receivable                            (4,137)    (6,070)
         Inventories                                     3,655     (5,463)
         Prepaid expenses and other current
          assets                                           462    (13,202)
         Accounts payable and accrued liabilities        5,700     (7,359)
         Deferred taxes and income taxes payable        27,522     14,518
         Accrued restructuring costs                       223       (713)
         Deferred income                                 2,154      1,742
                                                  ------------- ----------
          Net cash provided by operating
           activities                                   61,830     23,349
                                                  ------------- ----------

    Cash flows from investing activities:
     Acquisition of businesses, net of cash
      acquired                                               -   (417,738)
     Proceeds from sales and maturities of short-
      term available-for-sale investments                    -    222,357
     Proceeds from sale of investments and other
      assets                                                 -      5,444
     Purchases of property and equipment                (5,781)    (6,422)
     Purchase of intangible assets                      (7,112)    (3,944)
                                                  ------------- ----------
          Net cash used in investing activities        (12,893)  (200,303)
                                                  ------------- ----------

    Cash flows from financing activity:
     Proceeds from issuance of common stock             20,150     21,857
                                                  ------------- ----------
          Net cash provided by financing activity       20,150     21,857
                                                  ------------- ----------

    Net (decrease) increase in cash and cash
     equivalents                                        69,087   (155,097)
    Cash and cash equivalents, beginning of the
     period                                            258,914    405,566
                                                  ------------- ----------
    Cash and cash equivalents, end of the period     $ 328,001  $ 250,469
                                                  ------------- ----------
    




For further information:

For further information: PMC-Sierra, Inc. Vice President & CFO Mike
Zellner, 1-408-988-1204 or VP Marketing Communications David Climie,
1-408-988-8276 or Senior Manager, Communications Susan Shaw, 1-408-988-8515

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