Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

PMC - Sierra, Inc. (PMCS)

February 13, 2013 6:20 pm ET

Executives

Gregory S. Lang - Chief Executive Officer, President and Director

Steve Geiser - Chief Financial Officer and Vice President

Analysts

James Schneider - Goldman Sachs Group Inc., Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Okay. Good afternoon, everybody. Welcome to the PMC presentation at the Goldman Sachs Technology Unit Conference. I'm Jim Schneider, from the semiconductor team here at Goldman. And it's our pleasure here to have PMC today. Joins our conference are CEO Greg Lang; and newly appointed CFO Steve Geiser. Welcome, guys.

Gregory S. Lang

Thank you.

Question-and-Answer Session

James Schneider - Goldman Sachs Group Inc., Research Division

Just to kind of start off on some of the near-term trends of the business, if we could. I think we've seen -- no, not just for you but all -- for all your peers across the industry, a lot of challenges over the past 4 quarters, 5 quarters or so. But the guidance for Q1 was actually pretty decent and above Street. And that's notable, I think, especially given that you're talking about flattish sales roughly going into Q1, in a what seasonally are the pretty typically down quarter. And so it's seasonally down typically for both storage and comm infrastructure, and I kind of want to discuss both of those in turn, maybe starting with storage. Seasonally, all your customers are down in Q1. HP and EMC are both 10% customers for you. So can you maybe talk about, what are the trends there that are kind of allowing it to be better than seasonal or counter seasonal? Is it the inventory factor or new programs ramping, et cetera?

Gregory S. Lang

Yes. That's a very good point. Storage would typically see its strongest quarter of the year in Q4 and then kind of do a 5-ish, maybe 10% worst-case type of correction -- or not correction, but seasonality in Q1. And we're not seeing that this year. And I think there's really 2 reasons for that. One is you have to roll back and take a look at 2012 as a whole. It was a fairly weak year across the board, both enterprises as well as carrier spend. Carrier spend was obviously off more. But I don't know that I would call the year on kind of a normal year. So considering normal seasonality of an abnormal year, I think it's part of it. But the other part is we have some designs that are ramping up production where we've kind of gained some share and we're kind of growing into that, examples of which I've given in the past where, for example, IBM is designing their own systems, I think, all the way from buying Ingenio systems. And some of those designs are ramping their production. We're seeing some benefit from that. So there's some new revenue coming in that's offsetting what might be otherwise some normal seasonality. I think the positive part of this part of our business, both from the -- both on the server and the storage systems side is, while it seemed like at the beginning of the year, that was last year, there was high hopes for Romley that didn't pan out, it felt like we decelerated in Q2 and Q3, but it felt like we finished the year strong and are starting this one in better shape. So I'm hopeful that points to a more robust 2013, certainly, than we saw last year.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. And then certainly on the carrier side, that scenario was typically, it's down Q1. But again, as you point out, similar to storage, it was weak pretty much all the rest of last year. And so maybe talk about, especially in that area, are you seeing any signs of life yet in terms of carrier spending? Because I think we've all been looking for signs of life there for several quarters and not really seen it materialize in orders yet. And can we talk about what you're seeing through the month of January and whether you have any backlog that extend a little further than it normally does?

Gregory S. Lang

Yes. So yes, without a doubt, the carrier spending space has been very, very challenged, much more so than what I just described on the enterprise front. We are encouraged, though, by some of the, I'll call them, the press releases and the public postures that some of the larger carriers are making, including AT&T and China Mobile, Deutsche Telekom, Sprint, et cetera. So that's good news. Have we seen it? Your real question is, are we seeing this in our backlog at this stage? And the short answer is, not really. I do think that, last quarter, we saw a really nice uplift on the wireless backhaul side where our business grew over 20% quarter-to-quarter. Now that was up a very little base, so some of that was just kind of getting back to a, call it, whatever a normalized level might be. But there's also -- I'm sure, some of that is actually going into -- or is consistent with some of the press releases. But I think, from what we've seen and heard from folks, there should be more coming. And we're, I guess, cautiously optimistic that will be coming in later this quarter or next quarter and second half of the year.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. And then one thing that a lot of people talked about is, typically, you see some kind of order activity pick up after Chinese New Year. And you have good -- decent amount of China customer exposure, I guess, maybe if not China infrastructure exposure. Can you maybe talk about what kind of patterns do you typically see? Is there something that where it kind of pause for a few weeks after coming back from the holiday and then we'll start to make kind of a make-or-break vision on the orders? Or I guess, another way of putting it would be, how long before you know whether things are picking up, especially in that geography?

Gregory S. Lang

Well, I don't know that breaking out China is necessarily the way to look at it because most of our stuff gets booked in China, to start with, so it's kind of the majority of where the bookings come from for us and a lot of our peers. But let me back up for a second. December, with the exception of the week around Christmas, December was a very strong month of bookings. Coming back from the holidays, January was a very strong month for bookings. And that continued all the way up until this week, which is the Chinese New Year. So just as some others have suggested, I think it remains to be seen what happens after, so we can see kind of what their run rate is. But we did have 2 major events, the New Year's in the West and Chinese New Year's that kind of a bookending a very strong period of booking. So it feels to me that it's running at a stronger level even when you adjust out for a couple of week-long holidays, but I, like my peers, would like to see that continue on into March. I mean, if we can go into -- finish this quarter and go into the next with kind of continued bookings, well, I think we're going to all feel good about where Q2 and, hopefully, the balance of the year come out.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. And then just a broader question on kind of carrier spending trends. You talk about -- early about wireless backhaul being one of the drivers you saw kind of late last year and more recently. Can you maybe talk about what your customers are telling you in terms of where the carrier spending priorities are? Was that more wireless base station, the end wireless backhaul where you're seeing? And can do focus on wireline? It's just kind of been a spending donor, if you will. Still, just kind of any color on that obviously would be helpful.

Gregory S. Lang

Yes, the -- clearly, a lot of the public messaging has been around LTE buildout, which is very good for our business. I mean, LTE is all about data bandwidth. The backhaul business will benefit from that directly. We believe that -- and this is in some of the releases, like AT&T talked about a number of different wireline spending potential initiatives. We believe that, with additional backhaul capacity, there's going to -- there will be need to actually deploy more, call it, Metro capacity as well. The big question, though, for me is whether or not we see kind of the first major round of Metro OTN deployment. That has not really taken hold. We've seen probably the most ambitious OTN deployments in China; not much in North America, other than long-haul point-to-point. And that's the part of the business that I would like to see pick up, from a wireline standpoint. Our legacy SONET business is down in a -- as a couple of other pieces are down at about the 7% of revenue range. I'd rather not see that pop back up because we have a little bit of CapEx spend. I'd rather see the OTN part of the business really start to grow because that's lined up with where our investments have been over the last several years. And I think we're positioned well to grow with that when those type of deployments start. Now the indications that we're seeing is more from our customers rather than the carriers, but we are getting a lot of pull from our customers to get -- help them get products and production based on our -- both our second- and our third-generation OTN products. The second generation products are basically edge-type of products or access products that run on 10 and 20 gigabits per second. And then our third generation is a 100-gig product that will be used kind of at more aggregation sites, as well as long haul. And in both cases, there's fairly aggressive pulling and tugging to try to get products into the market, pushed into trials with the carriers and then into production with deployment. For us, the 100-gig part of that doesn't really start from a revenue standpoint until the end of year and maybe 2014. But the second-generation products will see revenue starting in Q2, and hopefully growing throughout the balance of the year.

James Schneider - Goldman Sachs Group Inc., Research Division

That's helpful. Maybe just kind of switching over to storage side for a second. At your Analyst Day last year, you showed a slide where you talked about your storage TAM going from 800 million to 2 billion, I think the number was, by 2017. If I step back for a second, I think, for most investors, there's like -- if you look at the server market, for example, and say it's kind of a low-single-digit growth and as, like, traditional pizza box servers are not growing that fast and it's really the -- these kind of cloud deployments where all the growth is. You've got a lot of exposure to traditional OEMs, so can you -- kind of help us bridge the gap there? How much of that growing into that TAM is being driven by new markets? How much of it is new customers? And how much of it is just new product initiatives or taking share? Or is it...

Gregory S. Lang

Good question. Underneath that growth, to your point, both the storage and servers are established markets, probably going 5-ish percent a year overall. If you aggregate them all together, maybe a big year, a 10% growth. So not a huge growth rate that would map with that. But what we'd -- what we're capturing there is basically what we call the serviceable available market, SAM, the SAM data. And that grows not only with the base business we serve today but with new markets. And so the biggest new area that we captured in that SAM is in the Flash controller space. That's obviously a big growing area. It's relatively new but probably the most disruptive technology to really hit the storage world in a long time. We're a new entrant there, so basically, in early years, we don't show any market. And then in the later years, we show entering the market and having a -- that appears to be growth but it's really kind of the addition of that TAM opportunity. Did I finish it the -- what was your second question? I think...

James Schneider - Goldman Sachs Group Inc., Research Division

Yes, no, it was -- you answered it. It's mostly the Flash controllers that's kind of driving that incremental step-up in SAM, right.

Gregory S. Lang

Yes. A little bit 5% to 10% maybe on the base business and then a big increment from the Flash controller.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. You've traditionally held about 1/3 in the kind of laid-on chip market versus your main competitor in that market. And that competitor, on all sides, seems to be pretty adamant to kind of hold share in the space. Can we -- I think you alluded to the Romley ramp during last year. How does that affect your growth last year? It sounds like it muted the growth a little bit. And I guess, 2 questions: Do you expect things to be different on Grantley as we move forward? And then how do you feel about your overall share position in your main customer in HP?

Gregory S. Lang

So our position on the server side, the part that's kind of best understood is we're the primary supplier into HP. HP is 32% to 36% of the server market, depending on which report you look at, very strong leadership position by HP. And I expect that to continue. I think one of the misnomers is that, somehow, HP is going to wither away in the server market. Without question, they're delivering the most innovative performance platforms in the marketplace and I think they'll continue to be a very strong leader, based on what I see from an execution standpoint. Now the other part of your question is, what about the balance of the server business? The HP part of the server business is only about 60% of what we do in servers. There's another 40% outside of that. That 40% is made up of in the channel. That's made up of data center customers where we are broadly deployed in Microsoft and Amazon, Dropbox type of data centers. So we have a good footprint there, and think those are places that we expect to grow. There's also a lot of talk about hyperscale data centers kind of going direct to ODMs. That's fine. They tend to specify the type of SAS device that they want and ask the ODM to integrate that together. So we'll be able to participate in that business whether it's comes through our major partner at HP, through our channel partner or directly in a lot of those accounts.

James Schneider - Goldman Sachs Group Inc., Research Division

And how do you feel about the positions of the other OEMs like IBM and Dell and other guys like that?

Gregory S. Lang

I think, of the top-tier guys, I don't -- in this cycle, there was no major change in share. I think, in the next cycle, there'll probably be no major change in share position. I think one of us is -- there's a lot of stickiness in the software investment that the companies have to make ourselves, as well as our customers, same with our competitors and their customers. And so it's a difficult proposition to change. I do think that we'll continue to compete around the fringes, but the mainstream business for the next 2 guys, Dell and IBM, I think, will stay kind of largely intact where it is right now. The stickiness is pretty solid.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. And then I want to ask you about the channel business for a second. You made an acquisition of Adaptec a little while ago. It kind of strengthened your position in channel. And more recently, you've kind of furthered your strength in that by putting your own silicon integrated onto those products and then kind of getting a competitive leg up. So you obviously saw some uptick as we move through the 6 gig transition. And kind of maybe talk about where you're share can go when you move to 12 gig eventually over time?

Gregory S. Lang

So the question is...

James Schneider - Goldman Sachs Group Inc., Research Division

The channel business.

Gregory S. Lang

Yes. So a big part of the channel business, the way to think about it is it's we're selling into resellers but they're basically integrating server and storage solutions for their end customers. And a lot of those are actually data centers of different sizes; some public, some private data centers. And in that business, we, for the first time actually, in October have kind of what I'll call kind of a world-class competitive product. The product has actually been received very well. But one of the things that's really getting people's attention in that space is -- what we've been able to do is basically put 16 ports of SAS on a single low-profile card which is double the density of anything else that's in the market. And in the data center, density and power is a huge advantage -- or a huge priority. And so our job here is actually to take that position, actually take a bigger piece of the market and then expand that with features and capabilities that those type of customers are looking for, things like encryption. And so we're feeling like we're in a good position to actually grow what is a reasonable position into a much stronger one.

James Schneider - Goldman Sachs Group Inc., Research Division

Okay. You touched on solid-state drives as being a driver of your growth before over the next several years. I think your focus is not just in -- not on the client at all, but it's all on the enterprise. So maybe you can kind of clarify, within the enterprise, what segments are you really intending to play in? Because I think there's a lot of confusion when they hear solid-state drives, in general, whether that's SAS devices, is it PCIe? Is it high end, low end, mid range? How should we think about you opportunity and what you've targeted, first?

Gregory S. Lang

Yes, our -- so that's -- I think so you characterized the first cut well, which is there's a whole range of consumer applications, notebooks, PCs, handheld devices, that we won't participate in. We'll focus on the enterprise part of the business, which is where we're strongest. Our first announcement and our first entry is with the 12-gig SAS solution, so this gives us kind of an End-to-End 12-gig SAS story. Frankly, there's no reason for 12-gig SAS without hard -- without solid-state drives because hard drives just aren't fast enough to take advantage of the performance that it enables. So having that End-to-End solution, we thought, was important. And frankly, it leveraged a lot of our storage heritage and assets. Now you asked another important question, and I'll take the opportunity and try to explain how I think the market will evolve over the next couple of years. Because today, if you look out there, most SSDs are SATA. Most of the volume are SATA drives, which is kind of the cheap hard drive interface. There is a class of product that runs on PCI Express today, although they're not terribly well integrated, from a silicon perspective. And maybe the biggest example of that is Fusion-io. Today, it ships a lot of PCI Express cards. And then the third category is basically SAS. The way I see that evolving over the next couple of years is basically, and again I'm talking about enterprise, I think the market will evolve into 2 major buckets. One is PCI Express and the other is SAS. Basically, anything that sits near. Or if you want to think about it in this way: Inside the server, which -- inside is maybe the wrong word, but kind of close to the CPU cluster, is going to be PCI Express. That's the fastest, most direct route in and out of the system. That, I think, will prevail. Anything that's kind of outside of the box, across the aisle, down the aisle, is going to be SAS because SAS was invented to address these types of how do you get to reliability, how do you do the cabling, the connectors all those kind of stuffs. So I see the market kind of emerging in those 2. Some of the analysts' reports will also say that there's a piece of the market that's going to remain SATA, low cost. It's good enough that it will work. And that's probably the case, but I think the majority of the enterprise base would be those 2. So our participation is on the SAS part upfront, but the leap from SAS to PCI Express is not a big one. It's basically changing kind of the host interface for us, and you'll likely see that from us in the future. Today, we don't have any products announcements or plans. But that would be a likely follow-on. The starting point was an End-to-End 12-gig SAS solution.

James Schneider - Goldman Sachs Group Inc., Research Division

Yes. And can you maybe talk about the size of the opportunity that represents for you over the next 2 years, say, by the 2014 kind of time frame? How big it could be for you in revenue? And then I think you have already talked about the fact that you have one design win, at least there. Maybe give us any kind of timing about when you expect the first revenue from that design win to materialize.

Gregory S. Lang

Yes, so the first -- so maybe I'll work my way backwards. The first revenue, I think, is going to be late this year. I think the whole 12-gig SAS ecosystem is coming together, maybe see some servers in the Q3 time frame with them; some options for a 12-gig port, SAS ports. But I think, when you start looking at drives and the other things, it's -- it will take a little bit longer. So I'm guessing it's the end of this year. Some of the systems guys will probably be 2011 to 2014. So I think this is going to come along at a modest pace, not necessarily a quick pace. On the other part of your question...

James Schneider - Goldman Sachs Group Inc., Research Division

How big can it be?

Gregory S. Lang

Oh, how big can it be. So we -- actually, it's good to take a step back and talk about how we'll participate. I believe that, like our RAID controller business, we have a silicon part of the business. There's a silicon in the software part of the business and then a board-level solution that we'll offer. I think the same will be true in this business where we'll have silicon sales as well as a higher level of integration, if you will. So keep that in mind, as I commented. But I think this is a "several hundred million dollar" controller opportunity and hundreds more from a board-level opportunity, depending on how we participate. So for us, we think this is a "several hundred million dollar" business opportunity that we're pursuing. And the question of how big it gets really depends on how aggressive or how ambitious we go on the post-solution end of the spectrum.

James Schneider - Goldman Sachs Group Inc., Research Division

All right. Do you have any kind of expectation about what share you would like to achieve aspirationally and over the long term?

Gregory S. Lang

Well, we're the new guy in town. We can't just break into the market, so we'll remain humble and earn piece by piece. I will put a number out there that you can hold me to next time.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. Maybe just switching over to the communications infrastructure side for a second. You alluded to OTN a little while ago, which I think is some people know as kind of a way to packet-ized transport over a unit between any carrier network. But you've been talking about OTN for a long time. And so I guess I want to talk about, first, the market and then kind of PMC's position within it. Maybe you can talk about kind of what the market drivers are and why maybe it's taken longer for the carriers to kind of get there when everybody is expected.

Gregory S. Lang

Yes. So OTN has -- the positive about OTN is it's been deployed in long-haul connections and networks in North America and China, so it's started. So the good news is there has been a number of OTN deployments around the world. The bad news is -- for us is we didn't participate in the first round. We were busy doing storage products, and that's worked out pretty well, but we did -- we do desire and intend to kind of re-intercept or intercept the market in the second round which we felt like there was going to be Metro deployments of OTN. And that's the part of the business that really hasn't taken off yet. We believe that some of the key characteristics in the Metro deployment is going to be the ability to do switching and not just point-to-point connections. And so our solution was built around that type of capability. So the other part of your question is, why do we think that's the case? It's clearly a year, if not 2 years, behind where we thought it might start. And I think that the -- that one of the answers is, clearly, this was a bigger transition than most people thought. And -- excuse me, it's a bigger transition that's taken more time than most people thought it would. And it's natural. I mean, in hindsight, this is a big technology change for the carrier so it takes them some time to do the planning. I also think the products weren't exactly ready when -- 2 years ago when we thought they were. And if for no other reasons there has been an evolution in the OTN standard that added some additional granularity to the capabilities, that, I think, again in hindsight, makes a lot of sense for carriers to expect in a network, and that's -- it's a standard called ODU0. And really what that means is it allows the OTN standard to be -- or the OTN pipe to be broken down into 1 gigabit per second granularity. As we all know, carrier Ethernet comes in 100-megabit, 1-gigabit, 10-gigabit granularity. So being able to map those together at 1 gig to 1 gig, from a carrier Ethernet to an OTN standpoint, is a big deal. Mapping 1 gig into 2.5 gig is really inefficient. And I think that, again with the benefit of hindsight, that's going to end up being a very important feature for carriers that starts to deploy. Those products are just coming out as we speak. And so I think that'll be another enabler for carriers to actually bring this into the Metro part of the network. So my hope, the products will come together. The carriers have had time to do their studies and their planning, and we'll start to see this coming out in a bigger way this year. It is interesting to note that China has probably been -- China Mobile has been one of the most ambitious at deploying OTN. And they've gone through and done a lot in their kind of long-haul point-to-point between the major cities. And they're now looking at and actively going out putting out RFQs, expanding that into the Metro network, even perhaps all the way out to the business environment, so kind of a CPE type of device OTN all the way out to the endpoint. So good signs, but we need to see it actually in a broader way and in North America as well as in China.

James Schneider - Goldman Sachs Group Inc., Research Division

Yes. I also want to talk on your mobile business a little bit. You acquired Integra some time ago. Obviously, as we talked about before, the carrier CapEx environment has been muted, and the guys have grown as quickly as you might have hoped. But can you give us a sense of what that gave you in terms of new product capabilities and then what it gave you in terms of new customer exposure, for example, to more customers in Europe, in the U.S., et cetera?

Gregory S. Lang

So Integra has done a very good job over the past several years of building a very strong position, with people building basically cell site routers. That's what we also call mobile backhaul. But basically, a cell site router is a box that sits at a cell tower site. You've got -- you might have multiple different base stations that connect into the cell site router and then that hooks into the balance of the network. And so what there -- the kind of the secret sauce there is the variable to handle multiple different protocols, multiple different generations, and route them accordingly over the network. Strong positions at many of the top-tier cell site router vendors, Alcatel-Lucent being #1; Cisco is the top 4; Enison [ph] Ericsson -- excuse me, not Enison [ph] but Ericsson and Tellabs and a number of others. So they've done a very good job. In fact, they -- I think probably the only one of the top 5 that's missing is Huawei. And Huawei has kind of designed their own FPGA and ASIC. So very strong position. And it did bring us -- I think it enhanced our footprint, and Alcatel-Lucent enhanced our footprint, Cisco. They're not new customers, of course. But it did actually give us a new entrée at Ericsson. So part of your question was new customer exposure, I would say Ericsson is probably the one that brought us more critical mass because, historically, we really haven't had much presence there.

James Schneider - Goldman Sachs Group Inc., Research Division

That's fair. I want to ask 2 more financially oriented questions for a second. I mean, even though revenue has been under some pressure over the past 1.5 years or so, gross margin has been awesome, you've kind of pushed it the 70-percent-plus level at this point. And I was wondering, first of all, can you address what has allowed you to do so well in the gross margin line? And then secondly, can you maybe talk about what's required beyond just more revenue scale to kind of get back to your targeted operating margin model? Are there additional OpEx leverage that you can pull? How should we think about profile of the OpEx as that plays through the year or over the next 4 or 6 quarters?

Gregory S. Lang

Let me take the first one, and then Steve can respond to the second one. I think the -- there's really no -- there's no magic around the gross margin. It's really a function of the amount of investment required. And the markets that we sell into require us to have high gross margins to pay for the R&D investment. It's no secret that we also have a very high R&D spend as a percentage of revenue. But -- and so those 2 go hand in hand. And the reason I say that is, as we go from generation to generation, the cost of every new device goes up. And that cost, in our case, has to be split over a market set. We're selling into OTN boxes and we're selling into storage boxes. And those markets don't -- aren't being -- those unit volumes aren't in the hundreds of millions of year -- per year. They're more in the -- a good one, a big one would be 1 million units a year. And we've got to spread that R&D over that number of units. So any time your server narrow a market, you need to have higher gross margins to pay the bills. So I'm -- and I think that's what we've been successfully able to do with our customers in the model we've built with our customers. So that's one reason. The second is there's a huge amount of software content in the products that we sell. Our software -- or excuse me, storage products is basically a storage processor platform, and we've got to write all of the software around that to make that work. And the value added goes with that. The Wintegra product is a processor platform that can deliver on the software. So in those businesses, we have as many software -- or more software engineers than we do chip guys. And so that has to get paid for in that same pricing model as well. So we're not just doing silicon, silicon plus software, narrow markets even the math has to work that way with gross margins, or we can't sustain the R&D investment.

Steve Geiser

On the OpEx side. So in response to a challenging macro environment, we have selectively taken the opportunity of big development projects come to a close to scale back some of that spend, more specifically on the R&D side, but really across the board. We have achieved some level of savings. Our guidance in Q1 suggested OpEx down a couple million dollars on a year-on-year basis. And we guided -- in terms of opportunity for continued synergy going forward, we have -- we do see that there are some opportunities and we guided, where OpEx was going to be in the mid to high 70s in the first half of the year, we guided to low to mid 70s in the second half of the year. So we see some more of those type of opportunities going forward, and we'll continue down that path.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. And then the last one, just on kind of the broader capital allocation and strategic issue, if you will. You've done some pretty large moves there. I mean, you did a pretty large buyback program over the course of last year. You were talking about 15% of your share's out equity, I believe. And more recently, you've announced that one of your large shareholders, Relational, has the option to take a board seat at some point this year. Just thinking maybe you can talk about, when you talk with your larger shareholders, what they're telling you about what they'd like to see out of the company in terms of either more capital allocation or strategic options or other things you might take -- undertake.

Gregory S. Lang

I think, the first part of the question, maybe Steve can comment on the buyback and specific use of cash part of the question. For the first (sic) [second] part, in terms of what our major shareholders are asking for, looking for from us, is the same thing we want which is, some of these growth factors that we've been investing in for the last few years, to kick in and start to grow and produce the kind of results we think they're capable of. So I think we're very well aligned on the underlying objective, which is to realize the growth potential that we've built into the pipeline. So hopefully, this is the year we start showing the -- some of that potential.

Steve Geiser

You correctly stated that we executed on the $200 million equity buyback in 2012, which is about, as you say, 15% of our shares. That was against the total authorization by the board of $350 million, so there's a remaining authorization of $150 million against that. On top of that, we also retired $68 million in notes in the fourth quarter. So we have utilized some of the cash, strengthened the balance sheet a bit and we've -- I'd say it's an ongoing dialogue in terms of how best to deploy that cash going forward, short of a specific decision at this point.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. Let me just open up to see if there's 1 or 2 questions from the audience. Oh, I'm just going to ask 1 more, in that case, which is just a very broad question. As we look into 2013 or 2014, your pick, what's the 1 or 2 biggest-dollar growth drivers that you think you can achieve in terms of any of your projects? Or as we've talked before, what's your -- or the ones that get you most excited?

Gregory S. Lang

So the -- you asked for 1 or 2, but I'll give you 3, but I'll do it quick. The first one is clearly in storage. We have yet to grow into the sockets that we won and the share gains that we have. Not -- it -- that, on top of the fact that, I think, 2012 was a muted year. I think that will come back to a stronger underlying business, and some share gains there will give us some, I think, good growth upside in 2013 and 2014. The second area that I'll point to is all the commentary or chatter about LTE buildouts here in North America and China, later in Europe, were going to -- are going to have a direct benefit on our backhaul business. That's, the only reason to do LTE is data traffic. So that will be a positive for us. And the third one is, when we see this OTN start to get deployed in the Metro, I think that'll give us several years of good growth upside because we're ready, products are done and are almost done on the 100-gig front. And so we'd like to see them go into production and, actually, experience the benefits now that we've spent the money to actually get them get to the market.

James Schneider - Goldman Sachs Group Inc., Research Division

Okay, great. I think, with that, we're basically out of time. But Greg, Steve, thanks so much for being with us today. Appreciate it.

Gregory S. Lang

Thank you.

Steve Geiser

Thanks.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: PMC-Sierra Inc. Presents at Goldman Sachs Technology & Internet Conference 2013, Feb-13-2013 03:20 PM
This Transcript
All Transcripts