SST Reports First Quarter 2005 Financial Results Company Announces
Executive and Board Level Changes SUNNYVALE, Calif., April 21
/PRNewswire-FirstCall/ -- SST (Silicon Storage Technology, Inc.)
(NASDAQ:SSTI), a leader in flash memory technology, today announced
financial results for the first quarter ended March 31, 2005. Net
revenues for the first quarter were $86.3 million, compared with
$104.1 million in the fourth quarter of 2004 and with $104.4
million in the first quarter a year ago. Net loss for the first
quarter of 2005 was $13.9 million, or a loss of $0.14 per share,
based on approximately 97.8 million diluted shares outstanding.
This includes a $9.7 million inventory adjustment, primarily due to
a decline in the pricing of several of SST's products. By
comparison, the company recorded a net loss of $26.9 million, or a
loss of $0.28 per share on approximately 96.2 million diluted
shares outstanding in the fourth quarter of 2004. Net loss in the
fourth quarter of 2004 included a $20.5 million inventory
adjustment. For the first quarter of 2004, the company reported a
net income of $14.2 million, or $0.14 per share on approximately
100.3 million diluted shares outstanding. SST finished the first
quarter 2005 with $75.2 million in cash, cash equivalents and
short-term investments. Executive and Board Level Changes On April
18, 2005, Terry M. Nickerson was appointed to the Board of
Directors, and the Audit Committee, the Compensation Committee and
the Nominating and Corporate Governance Committee of the Board of
Directors. Nickerson replaces Yasushi Chikagami on the Audit
Committee and will assume chairmanship of the Audit Committee
following SST's 2005 Annual Meeting of Shareholders and is an audit
committee financial expert, as such term is defined by the rules
and regulations of the Securities and Exchange Commission. Also on
April 18, 2005, the Board of Directors determined to commence an
executive search for a new chief financial officer. Jack K. Lai
will continue to serve as SST's chief financial officer until his
successor is retained, at which time SST expects that Lai will
transition to a different role within the company. These actions
are part of a broader effort to, among other things, strengthen the
Audit Committee and SST's financial organization, including
controls over sales of SST's common stock by officers and
directors. Management Qualitative Comments "The difficult market
environment that we began to see in the third quarter of 2004
continued through the first quarter of 2005," said Bing Yeh,
president and CEO. "Unit shipments were lower than expected in the
wireless communications and Internet computing segments, primarily
caused by industry oversupply. In particular, shipments to the
smart card IC market decreased by 42 percent after achieving record
shipments in the prior quarter. "Furthermore, the continued
competitive pricing environment resulted in a 9.8 percent drop in
selling prices in the first quarter. The intensified competition
has created severe price erosion of our 4M, 8M and 16Mbit products.
While we do not believe the current pricing environment is
sustainable long-term, we believe that we will not see significant
improvement in memory pricing until the latter part of 2005.
However, due to the expected shipment ramp of our serial flash
products, certain non-memory products and specialty memory products
in the second half of this year, we expect our results to improve
after the second quarter. "For our memory products, we are
continuing to drive manufacturing cost reductions through the
transition to smaller geometries. Substantially all new wafer
starts are now in 0.25 micron and 0.18 micron geometries. We are in
the process of intensively developing 0.13 micron and 0.12 micron
process technologies. While our near term gross margin is expected
to be mainly impacted by our inventory and price erosion, we
believe our cost reduction efforts will position us for the
expected industry upturn. "For our non-memory business, we are
continuing to aggressively introduce new products, including flash
microcontrollers, smart card ICs and RF IC products. Our ATA
controller product with embedded flash is being designed into high
volume applications. Another flash controller product is in the
early stage of sampling for notebook PC applications. Our smart
card ICs are expanding their presence outside the China market,
including India and Europe. We expect revenue from our non-memory
business, which was $11.4 million or 14.2 percent in the first
quarter, to be more than $50 million in the second half of 2005.
Also, recently, we purchased the remaining 16.4 percent minority
interest of Emosyn, previously held by ATMI. This will allow us to
more effectively integrate Emosyn into our business and improve the
efficiency of our operations. We believe that our embedded flash
memory business holds strong potential in the coming years. It is
an important part of our ongoing strategy to diversify our revenue
and to selectively enter emerging markets where our technology and
our lower cost manufacturing capabilities give us distinct
advantages over our competition. "While we believe that the current
difficult pricing environment may continue into the second half of
2005, we expect that demand will improve moderately in the second
quarter, primarily driven by a rebound in the wireless
communications market and strengthening in the PC and digital
consumer markets. Furthermore, with increased shipments of
non-memory products and continued lowering of our manufacturing
costs, we believe we can position ourselves for returned growth in
the second half and beyond." Second Quarter 2005 Outlook SST
expects its second quarter unit shipments to increase slightly from
the first quarter. In addition, the company expects average selling
prices to decline by four to six percent. Licensing revenue is
expected to be down slightly from the prior quarter. Therefore, SST
expects its second quarter revenues to be between $80 million and
$90 million, assuming no drastic changes occur in the U.S. and
international economies. Gross margin is expected to be between 11
and 15 percent, which takes into consideration the risks associated
with market condition changes. Research and development spending is
expected to be approximately 10 percent higher than the prior
quarter. In addition, the company expects a $4 to $5 million charge
as a result of the Actrans acquisition. With these revenue and
expense levels, SST expects net loss per share to be between $0.20
and $0.28 in the second quarter. Conference Call Dial-in
Information SST will hold a conference call to discuss its
financial results today at 1:30 p.m. PDT. Those wishing to
participate in the conference should dial 800-230-1951 using the
password "SST" at approximately 1:20 p.m. PDT. A replay of the call
will be available for two weeks by dialing 800-475-6701 using the
access code 776493. A webcast of the conference call will be
available until the next earnings conference call on the company's
Web site at http://www.sst.com/events. About SuperFlash Technology
SST's SuperFlash technology is a NOR type, split-gate cell
architecture that uses a reliable thick-oxide process with fewer
manufacturing steps resulting in a low-cost, nonvolatile memory
solution with excellent data retention and higher reliability. The
split-gate NOR SuperFlash architecture facilitates a simple and
flexible design suitable for high performance, high reliability,
small or medium sector size, in- or off-system programming and a
variety of densities, all in a single CMOS-compatible technology.
About Silicon Storage Technology, Inc. Headquartered in Sunnyvale,
California, SST designs, manufactures and markets a diversified
range of nonvolatile memory solutions, based on proprietary,
patented SuperFlash technology, for high volume applications in the
digital consumer, networking, wireless communications and Internet
computing markets. SST's product families include various densities
of high functionality flash memory components, flash mass storage
products and flash microcontrollers. SST also offers its SuperFlash
technology for embedded applications through its world-class
manufacturing partners and technology licensees including 1st
Silicon (Malaysia) Sdn. Bhd., Freescale Semiconductor, Inc., Grace
Semiconductor Manufacturing Corporation (Grace), IBM, National
Semiconductor Corporation, NEC Corporation, Oki Electric Industry
Co. Ltd., Powerchip Semiconductor Corp., Samsung Electronics Co.
Ltd., SANYO Electric Co., Ltd., Seiko Epson Corp., Shanghai Hua
Hong NEC Electronics Co., Ltd., Taiwan Semiconductor Manufacturing
Co. Ltd. (TSMC), Toshiba Corporation, Vanguard International
Semiconductor Corporation and Winbond Electronics Corp. TSMC offers
embedded SuperFlash under its trademark Emb-FLASH. Further
information on SST can be found on the company's Web site at
http://www.sst.com/ . Forward-Looking Statements Except for the
historical information contained herein, this news release contains
forward-looking statements regarding market conditions for flash
memory products, and other non-flash memory products, such as RF
ICs, flash microcontrollers, and smart cards, the company's future
financial performance, the performance of new products and the
company's ability to bring new products to market that involve
risks and uncertainties. These risks may include timely
development, acceptance and pricing of new products, the terms and
conditions associated with licensees' royalty payments, the impact
of competitive products and pricing, and general economic
conditions as they affect the company's customers, as well as other
risks detailed from time to time in the company's SEC reports,
including the Annual Report on Form 10-K for the year ended
December 31, 2004. For more information about SST and the company's
comprehensive list of product offerings, please call
1-888-SST-CHIP. Information can also be requested via email to or
through SST's Web site at http://www.sst.com/. SST's head office is
located at 1171 Sonora Court, Sunnyvale, Calif.; telephone:
408-735-9110; fax: 408-735-9036. NOTE: The SST logo and SuperFlash
are registered trademarks of Silicon Storage Technology, Inc.
Emb-FLASH is a trademark of TSMC. All other trademarks or
registered trademarks are the property of their respective holders.
Silicon Storage Technology, Inc. and Subsidiaries Condensed
Consolidated Statements of Operations (in thousands except per
share data) Three months ended March 31, 2004 2005 (unaudited) Net
revenues: Product revenues $91,370 $79,270 Technology licensing
13,063 7,045 Total net revenues 104,433 86,315 Cost of revenues
66,282 73,722 Gross profit 38,151 12,593 Operating expenses:
Research and development 11,803 11,965 Sales and marketing 6,928
7,340 General and administrative 3,999 6,702 Total operating
expenses 22,730 26,007 Income (loss) from operations 15,421
(13,414) Interest and other income 394 327 Interest and other
expense (54) (147) Impairment of equity investments -- -- Income
(loss) before provision for income taxes 15,761 (13,234) Provision
for income taxes 1,528 747 Minority interest -- (84) Net income
(loss) $14,233 $(13,897) Net income (loss) per share - basic $0.15
$(0.14) Shares used in per share calculation 95,821 97,820 Net
income (loss) per share - diluted $0.14 $(0.14) Shares used in per
share calculation 100,258 97,820 Silicon Storage Technology, Inc.
and Subsidiaries Condensed Consolidated Balance Sheets (in
thousands) December 31, March 31, 2004 2005 (unaudited) (unaudited)
ASSETS Current assets: Cash, cash equivalents and short-term
investments $103,993 $75,216 Trade accounts receivable, net 58,179
45,790 Inventories 156,618 176,194 Other current assets 16,049
14,521 Total current assets 334,839 311,721 Equipment, furniture
and fixtures, net 16,620 16,132 Long-term marketable securities
23,094 27,092 Other assets 112,178 111,473 Goodwill 15,600 15,600
Total assets $502,331 $482,018 LIABILITIES Current liabilities:
Notes payable, current portion $705 $372 Trade accounts payable
89,155 84,297 Accrued expenses and other liabilities 30,593 23,023
Deferred revenue 2,388 2,566 Total current liabilities 122,841
110,258 Other liabilities 1,307 1,958 Minority interest 2,199 2,115
Total liabilities 126,347 114,331 SHAREHOLDERS' EQUITY Common stock
358,578 360,303 Accumulated other comprehensive income 16,542
20,416 Retained earnings/(Accumulated deficit) 864 (13,032) Total
shareholders' equity 375,984 367,687 Total liabilities and
shareholders' equity $502,331 $482,018 DATASOURCE: Silicon Storage
Technology, Inc. CONTACT: Leslie Green of Stapleton Communications
Inc., +1-650-470-0200, for Silicon Storage Technology, Inc.; or
Jack K. Lai, Vice President & Chief Financial Officer of
Silicon Storage Technology, Inc., +1-408-735-9110, or Web site:
http://www.sst.com/
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