Actions Semiconductor's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 7.13 | About: Actions Semiconductor (ACTS)

Actions Semiconductor Co., Ltd. (NASDAQ:ACTS)

Q1 2013 Earnings Call

May 7, 2013 5:30 p.m. ET


Ellen Davis - The Blueshirt Group, IR

Zhenyu Zhou - CEO

Nigel Liu - CFO


Rick Fearon - Accretive Capital Partners


Ladies and gentlemen thank you for standing by. Welcome to the Actions Semiconductor first quarter 2013 results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday, May 7, 2013.

I would now like to turn the conference over to Ellen Davis with The Blueshirt Group. Please go ahead ma’am.

Ellen Davis

Thank you. Good afternoon and thank you for joining us on today's conference call to discuss Actions Semiconductor’s first quarter 2013 financial results. This call is being broadcast live over the web and can be accessed on the Investor Relations section of Actions’ website at for 90 days. On today's call are Dr. Zhenyu Zhou, Chief Executive Officer; Nigel Liu, Chief Financial Officer and Chung Hsu, Director of Investor Relations.

After the market closed in the US today, Actions issued a press release discussing the results for its first quarter ended March 31, 2013. The press release was also filed on Form 6-K with the US Securities and Exchange Commission. The press release is accessible online at the company's website as well as the SEC’s website or you can call The Blue Shirt Group at 415-217-7722 and we will email you a copy.

We would like to remind you that during the course of this conference call, Actions’ management team may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are simply estimates and actual events or results may differ materially. We refer you to the documents that Actions file from time-to-time with the SEC specifically the company's most recently filed Forms F-1, 2-0F and 6-Ks. These documents identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

And now I would like to turn the call over to Dr. Zhenyu Zhou. Dr. Zhou please continue.

Zhenyu Zhou

Thank you for participating in Actions earnings conference call. We appreciate your continued interest in the company. I will provide an update on our first quarter performance. Later on the call, Nigel Liu, the CFO will discuss financial results for the quarter. I will be available for the Q&A portion of the call along with Nigel and Chung Hsu, Actions’ Director of Investor Relations.

And now for an update on our business. We were pleased to report better than expected results for the first quarter of 2013. First quarter revenue grew 52.9% year over year and we saw sequential improvement to gross margin increasing to 36.2% from 32.1% in the fourth quarter.

Our strong results were driven by robust sales of our first OWL series chipsets. In the first quarter of 2013, Actions’ revenue was $16.4 million and net income was $0.4 million or $0.01 per ADS compared to revenue of $10.7 million and net loss of $0.06 million or $0.01 per ADS in the first quarter of 2012. Overall I am very pleased with our achievement in the first quarter. Our results reflect strong customer adoption of our tablet solutions, market share gains in the whitebox tablet segment and solid financial execution.

And now for a detailed look at each product category mobile internet device and tablets. We gained strong traction with the chipset targeting the tablet market during the first quarter. Revenue contribution from our tablet product segment comprised 39% of our total revenue in the first quarter compared to 13% in the fourth quarter.

Sales of our second product family, Actions’ OWL series, continued to ramp (inaudible) customers in China during the quarter, including ANO and RMOS (ph). During the first quarter, our OWL series chipsets account for the majority of shipments of our tablet products. As previously noted, we expect continued volume transition from our first generation tablet chipset to ATM701X to the OWL series over the next several quarters.

We recently announced our second chipset that ATM7023 in our OWL series. With the Cortex dual-core CPU and a powerful GPU port, this chipset brings dual core performance at single power loss cuts and a power consumption to at the level happens. We expect to begin volume production of the ATM7023 series during the second quarter.

Our product roadmap for the ATM702X addresses the needs of each segment of the whitebox tablet markets from the low end to high end. Based on our current momentum, we plan to continue to introduce follow on tablet products in this series throughout the year.

We believe Actions’ deep breadth of shipments of the tablet chipsets is indicated of the rapid growth in the whitebox tablet markets. According to recent research industry research reports, the momentum in the tablet market remains healthy and shipments are expected to grow from an estimated 50 million units in 2012 to more than 80 million units in 2013.

Customer response to our tablet product has been very positive. We believe our OWL product series positions Actions to capture significant market share. We anticipate meaningful revenue contributions from this product series in 2013 and beyond. We are launching our advanced product using 55 nanometer process and now we are aggressively moving towards launching 40-ARP and 28-ARP advanced process for our future tablet products.

Portable audio. During Q1, we maintained our leading position in the mainstream audio boom box market category. We experienced a normal seasonality in our shipments of audio products during the quarter. Having already executed on our robust products with our bracket customers in China, we have focused on penetrating traditional branded customers. By offering the full spectrum of products, we expect to increase our share in the boom box market segment, which we believe represents the best growth opportunity within the portable audio market, additional product in this segment including boom boxes with high definition media adoptions and Bluetooth enabled boom box.

As we progress with development plans, we will provide additional updates. During the quarter, we maintained our leading market share position in the mainstream segment of the MP3 market serving the non-display, no display, mono-display and a small color display media products. Going forward we anticipate a decreasing revenue contribution from our MP3 and MP4 products as we continue to shift our focus to faster growing end markets.

Portable video, overall shipments in the video category including our standard definition D1 and high-definition HD PMP and gaming products remained relatively strong in the first quarter. We remain focused on increasing our contributions from our newer advanced products in the video category.

During the first quarter, 0.15 micrometer process technology accounted for the majority of our audio shipment volumes and current inventory. We are migrating the process for mainstream product from 0.15 micrometer to 0.14 micrometer, which we expect will benefit the company’s gross margin in 2013. As planned, our advanced high-definition products are using 0.11 micrometer processors.

Creating the long-term shareholder value remains a top priority for the company. In the first quarter, we spent approximately $1.5 million on the share repurchase program, compared with $0.8 million in the fourth quarter. As of March 31, 2013, the company invested a total of approximately $47.1 million in the program, representing approximately 20.9 million ADS shares. Although improved in the first quarter, our repurchase activity remains constrained by shrinking volume and blackout periods.

In summary, our first quarter performance was a great start to the year. We are particularly pleased to see our revenue growth being fueled by our newest product family, the OWL series. We believe the growth we achieved in the tablet market in a short period of time speaks to the strength of our technology and our ability to effectively address the market segment.

We look to continually expand our share in the whitebox tablet market as the year progresses. At the same time, we expect to preserve our leading market share positions in our mainstream portable audio and portable video products. Our growth for the remainder of the year will be primarily driven by further penetration of the tablet market.

Before I turn the call to Nigel Liu, I want to mention that I plan to travel to the United States to conduct investor and analyst meeting in June. I look forward to meet many of you while in Boston and New York.

Now, I would like to turn the call over to Nigel Liu, CFO who will review our financial results for the first quarter.

Nigel Liu

Thank you, Zhenyu Zhou. As a reminder, our financials are reported in accordance with US GAAP. For the first quarter ending March 31, 2013; we reported revenue of $20.4 million compared to $15.2 million in the fourth quarter of 2012.

Our gross margin for the first quarter was 36.2% compared to 32.1% for the prior quarter. As noted, our results were primarily driven the strong sales of our first OWL series chipset.

For the first quarter, total stock-based compensation expense was $0.2 million compared to $0.3 million in the fourth quarter. R&D sales was $6 million or 36.7% of revenue for the first quarter compared with $6.2 million in the fourth quarter. We anticipate our R&D expense to continue to represent a higher percentage of revenue as we continue to invest R&D resources in high-end new product developments.

G&A expense was $2 million in the first quarter or 12% of revenue compared to $2.7 million in the fourth quarter. Shares and the marketing expense was $0.5 million in the first quarter or 6% of revenue compared to $0.4 million in the fourth quarter. We continue to tightly manage the expense levels in this category by managing, accelerating the efficiency of our current workforce and optimizing our working process.

Operating loss was $2.5 million for first quarter of 2013 compared to operating loss of $4.2 million for the prior quarter. Net other income for the first quarter was $0.2 million due to foreign exchange benefit compared to other income of $1.7 million for the fourth quarter also related to a foreign exchange benefit.

Interest income was $3.2 million for the first quarter down from $3.3 million in the fourth quarter. Income before tax was $0.8 million for the first quarter compared to loss before tax of $1.9 million in the fourth quarter. Net income tax expense was $0.4 million for the first quarter compared to income tax benefit of $0.4 million in the fourth quarter.

Net income attributable to Actions Semiconductor on the US GAAP basis for the first quarter of 2013 was $0.4 million or $0.01 per diluted ADS. This compares to net loss of $1.7 million or $0.02 per diluted ADS for the fourth quarter of 2012. Included the net loss for the first year of 2013 was $2.5 million relating to an other-than-temporary impairment loss on investments.

Now moving to the balances sheet, cash and cash equivalents together with time deposit, trading securities and both current and the non-current marketable securities, totaled 223.7 million as of March31, 2013, compared to 223.3 million as of December 31, 2012. Of the 223.7 million total 32.8 million was in cash and the short term interest bearing investments together with time deposit that was generally issued by large domestic banks in China, for terms no more than 3 months and can be redeemed any time.

$115.9 million was in trading securities and the marketable securities both current and the non-current which was principle currency or price investment with higher interest rate on the minimal returns of three months, less marketable securities, while many issue (inaudible) and currency by top ratings status financial institutions in China.

Our short term borrowings totaled $25.5 million at the end of the first quarter compared to $20.5 million at the end of the fourth quarter. The increase in short term borrowing was $5 million in the first quarter was due to our borrowing arrangement that we entered into which allowed us to borrow U.S. dollar in a low interest rate in Hong Kong with the currency of RMB deposits in mainland China. Additionally as they are using our funds in China, was driven on all onshore large credits for US cash needs. This opportunity further has to take advantage of lower interest rates in U.S. dollar loans while enabling us to continue earning highest rate on all RMB denominated investment even considering short-term exchange fluctuations.

Accounts receivable was 5.6 million at the end of the first quarter of 2013 compared to 6.4 million at the end of the fourth quarter. Accounts receivable includes notes receivable amount due (inaudible) rate deposit as well as (inaudible) equity measured interest fees.

Inventories were 17 million at the end of the first quarter, up from 7 million at the end of the prior quarter. Our higher inventory level continues to be a result of our strategy of arrangement with strong (inaudible) to secure preparation for wafer price and the capacity for certain popular products and as operative, we expect higher shipment of the more of a sense in the second quarter of 2013.

We continue to buy back shares, spending approximately 1.5 million on the share repurchase program during the first quarter compared with 0.8 million in the fourth quarter. Our repurchase activity remains constrained by the new products and the (inaudible) program as well as limited activity in the quarter. As of March 31, 2013 the company had investment of approximately a total of 47.1 million is appropriate representing approximately 20.9 million ADS shares.

And now turning to our outlook. Our guidance for the second quarter of 2013 is a revenue in the range of 18 million to 20 million. We expect gross margin for the second quarter to be approximately 36%.

Now I would like to open the line for questions. Operator?

Question-and-Answer Session


(Operator Instructions) Our first question comes from the line of Rick Fearon with Accretive Capital Partners.

Rick Fearon - Accretive Capital Partners

Congratulations on a terrific quarter, and Zhenyu, you have done a wonderful job of guiding Actions towards a return to the exciting growth market that Actions was built on originally with the tablets products now. And you’ve demonstrated the strength and the capabilities of the company’s R&D team with some really exciting wins particularly the Ramos wins last quarter. And I am just curious if you are expecting additional significant customer wins this quarter or in the latter half of the year or if the growth that you all anticipate is driven primarily from these existing customers ramping up?

Zhenyu Zhou

Thank you Rick for all the nice words, and actually we are really beyond just two customers. We indicated in the earnings release that we are ramping up with more branded customers, but some of the names, either they are very small customers or they prefer not to announce their names, that’s why we – at this moment we didn’t topically stated their names. So we already – beyond the two customers and certainly the customer base will expand even more aggressively in the second quarter and beyond. And starting from the second quarter our penetration actually will go beyond branded customers, the so called whitebox customers that don’t have a brand.

Rick Fearon - Accretive Capital Partners

That’s exciting and are those customers – do you expect to begin building relationships with customers outside of China and I am assuming the end markets right now are truly global but are some of the larger customers that you are beginning to deal with and identify outside of China?

Zhenyu Zhou

Yes, definitely, actually for the whitebox markets, the so called export market from the Chinese perspective is much bigger than the domestic sales. So that represents, in this case, a much bigger growth what we go beyond the Chinese customers.

Rick Fearon - Accretive Capital Partners

And what would you estimate the market share – Actions’ market share to be among the non-Apple app with manufacturers right now, are we in the low single digits or getting closer to double digits at this point?

Zhenyu Zhou

I think I have to make a definition first, okay. Even with the non-Apple markets, we still have two categories, one is so called international first tier like Samsung or like HP, so if taking those first tier away, the so called the whitebox market as we indicated last year 60 million units, this year it will go beyond 80 million units, within this market segment, we are in the mid-single digit market share and we target for a 10% market share toward the end of the year. That’s our – we work towards to it.

Rick Fearon - Accretive Capital Partners

So really for by the end of 2013, the run rate could very well be 8 million units, 10% of the $80 million market anticipated which is also growing at this point?

Zhenyu Zhou

Right, right Rick, that’s reasonable because our early first quarter was definitely not at that level, yes but fourth quarter run rate should be close to 8 million – 7 or million units.

Rick Fearon - Accretive Capital Partners

And won’t that put you significantly above the 25% growth that you’ve projected for the year and I know you are conservative in that, it’s absolutely the right way to approach it. But if you are getting that run rate presumably you will be significantly above that?

Zhenyu Zhou

You said that already, we are taking a very conservative forecast but we see it clearly at least 25%, not 25%.

Rick Fearon - Accretive Capital Partners

But we saw a nice improvement in gross margin quarter over quarter and I assume this is a direct function of the product mix, more heavily weighted towards the OWL series chipset?

Zhenyu Zhou

In the first quarter that may be true but in the meanwhile I also want to give an indication that the pricing erosion is pretty high, the competition is very severe. So I don’t want to have a force, expectation on the gross margin. But for the first quarter definitely the improvement is due to OWL series.

Rick Fearon - Accretive Capital Partners

So it sounds like the 36% margin that we hit this quarter, that, that’s where you see things shaking out for the existing quarter we are in now and do you anticipate that sort of being the point at which Actions levels off as ASP comes down somewhat and this product matures or do you think that the gross margin will continue to pick up in the latter half of the year?

Zhenyu Zhou

We will try to see as its ballpark.

Rick Fearon - Accretive Capital Partners

And it does look like on the expense side, the things you were able to bring down the R&D expense somewhat, I also noticed that SG&A came down, I didn’t think there was anything more that could be confirmed, that you think but certainly on the R&D side, you’ve got 500 plus engineers and are there opportunities to fine tune that team somewhat and continue to bring that expense down or is this where you anticipate running in the foreseeable future?

Zhenyu Zhou

Honestly this is a level I anticipated that we have sustained, because the revenue actually grew, and the customer support, and product development requires a lot more investments. So even to maintain this level of expense, meaning we already taking out unnecessary expense because we are taking out (inaudible) in order to maintain the same level of financial expense. I do expect, the growth in the expense as well for personal investments.

Rick Fearon - Accretive Capital Partners

And you have done a terrific job, then you have certainly during the last year that you have been with Actions and previously the prior management at least in preserving the capital and generating at least breakeven bottom line by making up the operating loss with the interest income on the large cash balance, but really it looks like the business is once again in a position to generate a significant cash flow and I am assuming that’s – that will be the case as soon as quarterly revenue runs in the low sort of $20 million range that you start to hit that inflection point. Are you expecting to reach that point in the latter half of this year or should we think of that as the 2014 type of event?

Zhenyu Zhou

Could you repeat that, you were saying at least –

Rick Fearon - Accretive Capital Partners

With the assumptions that I have just at a 36% gross profit margin, that the company reaches a operating income once again in the low $20 million range, the 22, 23 million revenue range and I am assuming that you can preserve that type of gross profit margin, at that point it looks like you can cover your quarterly operating expenses and generating operating income and I guess it’s in around about way of asking do you expect to be at that level some time in 2013 or is that more like a 2014 event?

Zhenyu Zhou

This is a good question, and I think every investor care about that. But let me put this in this way. Q1 is our seasonally slow quarter and typically is the slowest quarter on the year. So I do expect a much better financial return in the Q3 and Q4. So at this moment the company don’t give exact forecast of when they are turning back or breakeven point but I do expect or at least we will work very hard towards in 2013 to breakeven.

Rick Fearon - Accretive Capital Partners

And you’ve positioned Actions again for a very exciting future and we appreciate the hard work and look forward to hopefully scheduling some time together in June when you are in the States.

Zhenyu Zhou

Yeah definitely.


There appears to be no questions at this time. Please continue with any closing remarks.

Zhenyu Zhou

Thanks again for joining us on today’s earnings call. We appreciate your interest in and continuing support of Actions. Thank you.


Ladies and gentlemen, this concludes Actions Semiconductor first quarter 2013 results conference call. Thank you for your participation and you may now disconnect.

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 All other use is prohibited.


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