PMC-Sierra Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.28.13 | About: PMC - (PMCS)

PMC-Sierra (NASDAQ:PMCS)

Q3 2013 Earnings Call

October 28, 2013 4:30 pm ET

Executives

Jennifer Gianola

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

Steven J. Geiser - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

Analysts

James Schneider - Goldman Sachs Group Inc., Research Division

Ruben Roy - Mizuho Securities USA Inc., Research Division

Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Sundeep Bajikar - Jefferies LLC, Research Division

Srini Pajjuri - CLSA Limited, Research Division

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the PMC Third Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is also being recorded today, October 28, 2013. I would now like to turn the conference over to our host, Ms. Jennifer Gianola, please -- Director of Investor Relations. Please go ahead, ma'am.

Jennifer Gianola

Thank you, operator. Good afternoon, everyone, and thank you for joining the call. With me today are Greg Lang, President and CEO; and Steve Geiser, Vice President and CFO. Greg will begin the call with a discussion of the business and key highlights from the third quarter of 2013, and Steve will then discuss the financial results for the third quarter of 2013 and the business outlook for the fourth quarter of 2013.

Please note that our third quarter 2013 earnings press release was disseminated today via BusinessWire after the market closed, and a copy of the release can be downloaded from our website. Before we begin, I would like to point out that during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, PMC's limited revenue visibility due to variable customer demands, market segment growth or decline, customer concentration, bookings rate, changes in inventory, foreign exchange rates and other risk factors that are detailed in the company's Securities and Exchange Commission filings.

Actual results may differ materially from the company's projections. For further information about these risks and uncertainties, please read the company's SEC filings, including our Forms 10-K and 10-Q. Note that PMC undertakes no obligation to update any forward-looking statements. Please note that for each of the historical non-GAAP financial measures mentioned on this call, a full reconciliation to the most comparable GAAP financial measures is included in our press release issued today. In addition, a GAAP to non-GAAP reconciliation of financial measures noted in our outlook will be posted on our website under the Financial Reports section of the Investor Relations tab. [Operator Instructions] Thank you. And I'll now turn the call over to Greg Lang.

Gregory S. Lang

Thank you for joining us today, and welcome to our third quarter earnings call. We reported that our third quarter revenues were up 1% sequentially, at $128.9 million, within the expected outlook range. Our non-GAAP net income was approximately $20 million and non-GAAP EPS was $0.10, up 23% from the second quarter. This translates to 16% operating margin, higher than the second quarter operating margin of 12% due to improved revenue and continued focus on expenses. The third quarter was largely in line with our expectations. We have not seen a material improvement in the end markets, so the environment continues to be a challenging one. With this backdrop, I'll give you an overview of the results for Q3. Carrier business was down 1% quarter-to-quarter, with optical down 3% and the mobile segment up 2%. Storage revenues were up $1 million or 2% due to strength in the OEM side of our business.

And at the top level, the storage segment represented 66% of total revenue, optical came in at 20% and mobile revenues came in at 14% of the total. The legacy portion of our revenue was approximately 6% of total revenue in Q3.

Now I'll provide a bit more detail in each market segment, starting with storage. Our storage market segment was up 2% versus last quarter, slightly better than expected due to our SAS and RAID solutions. We saw a strength in our storage in server OEM business and our large customers, offset by lumpy days and our revenues in the third quarter. The traditional enterprise server and storage customers rebounded nicely after a weak Q2. We also benefited from the new platform ramps that are top 2 customers, EMC with the VNX 2 and HP with their Ivy Bridge server platforms.

In the third quarter, we introduced the Adaptec series 8 12-gig SAS/RAID adapters, establishing PMC as the only supplier of an end-to-end 12-gig architecture from controller to solid-state drives. Systems design with our solutions can provide double the overall storage connectivity, as competing solutions with fewer -- double the storage connectivity of competing solutions, with fewer components, less space and less power.

Furthermore, our 12-gig solutions offer the highest I/O performance of any SAS solution in the industry, which is critical for the much higher performance afforded by SSDs. We're pleased to see third-party reviews that support this claim. In the performance testing done by the SSD review, they highlighted the outstanding performance we've achieved. I'll give you a snippet here. "Series 8 is a great RAID adaptor. It offers 16 ports of 12-gig SAS with amazing throughput. We had no issues of hitting 700,000 IOPS and 6 gigabytes per second. Those are amazing maximus, but we were more impressed with the incredible consistency that we observed. With sub-microsecond variance, the Series 8 destroyed our latency tests."

So beyond 12-gig SAS controllers, we also have the highest density family of 12-gig SAS switches. We continue to win designs across both product families and have now won controller and/or switching sockets at several of the first- and second-tier server OEMs. We believe we're on track to gain more than 10 points market share, with the most of the impacts starting with the Grantley transition of the Intel-Grantley platform in the second half of next year.

Now moving onto Flash. We're now 90 days into the acquisition of the IDT Flash controller business, and I'm pleased to report that the team is fully integrated and has not missed a step. We're on track to reach production status by the end of the year with the world's first PCI Express NVMe controller. With thousands of production for all devices in the hands of our customers, we are on target for a Q1 production ramp. In addition, we have our 12-gig SAS controller production silica under final test and are also looking to a Q1 '14 production release. We expect revenue to ramp -- to align with the rest of the 12-gig ecosystem in the second half of 2014.

At the Flash Memory Summit this summer, we showcased our industry-leading performance for both PCI Express and 12-gig SAS controllers. Our storage business is at the center of the Big Data transformation. We're delivering leading silicon and software solutions for the next-generation enterprise data centers and cloud services. And now with our new Flash controllers, having a strong footprint in the world's largest data centers, we continue to accelerate our design win position.

Now I'll move to the carrier side of the business, which was roughly flat in Q3, in line with our expectations. Details to follow. The optical segment was down 3% sequentially in the third quarter. We experienced another record in OTN, as China prepares for their LTE buildout. We're pleased to see the fourth straight quarter of OTN growth. The PON business was flat with the solid Q2. These positives were offset by declines in the legacy Sonet/SDH business. The largest carrier in the world also continues to be the most aggressive, with plans to push OTN further out in the network. There are -- these are very positive signs for adoption of OTN switching in the carrier networks around the world.

PMC's DIGI 120G is the industry's only single-chip OTN processor, supporting 12 by 10-gig, 3 by 40-gig and 1 by 100-gig speeds for OTN transport, aggregation and switch deployments. The unique architecture allows OEMs to leverage a common hardware and software investment to develop a full portfolio of line cards. DIGI 120 allows the dynamic assignment of network resources, effectively virtualizing the network to meet the elastic traffic demands of Big Data. Our design win footprint across many of the major OEMs puts us in a great position to see continued growth in a market that we believe will exceed $500 million in 2017.

Now onto mobile end market segment, where our revenues were up 2% versus the previous quarter, which remains at a healthy level. The slight increase was due to strength in the WinPath family of processors, although, we have yet to see broader LTE carrier deployments take place. That being said, we continue to see and hear of aggressive plans in China, U.S. and Europe. Lastly, we continue to make good progress with our target customers in the Remote Radio Head market segment. Our unique integrated 3-device chipset solved several of the major challenges equipment OEMs faced while trying to address the LTE capacity requirements. We provide a common radio platform from pico to macro, drive down the footprint and power and support a broad range of instantaneous bandwidth requirements. We've won small-celled designs and macro designs of the top 5 accounts but are still in the middle of a major design win cycle. We expect early revenue at the end of 2014, with more material revenue in 2015.

Now turning to our outlook. We expect Q4 revenues to be flat to down 8% or down 4% at the midpoint. Considering today's backlog, we believe that storage will be up slightly on a sequential base due to the early Enterprise Flash Controller revenue. In the carrier segment, we expect to be down due to a pause in the otherwise strong PON deployments this year in Japan. And in addition, our customers slightly over-built inventory, we believe, in Q2 in anticipation of the LTE rollout in China, which looks to be starting a little slower than I anticipated. Our understanding is that China Mobile LTE deployments will roll out over multiple quarters, and we look forward to participating in both the mobile backlog portion and the OTN network that will be required to service it. We're focused on executing on our new product cycles and expanding our addressable markets across all of our major businesses. Over the next 5 quarters, we expect to see new revenue growth from our Enterprise Flash Controller wins, 6-gig data center wins, 12-gig SAS share gains, to ramp up our OTN product families, and later in 2014, we expect our first revenue from our Remote Radio Head products. With the continued growth of data creation and data traffic, we're optimistic about our prospects to transform the networks that connect, move, and store Big Data.

So with that, I'll hand it over to Steve to -- for details on the financials and our outlook.

Steven J. Geiser

Thanks, Greg. Before addressing details of our third quarter financial results, I will first comment on the revisions contained in our press release to some of the prior GAAP financial results presented for comparison. As you know, the company changed its independent outside auditor in the third quarter. In the process, certain accounting errors were discovered. The most significant of which relates back to 1999 and 2000. The errors involved a misclassification between net operating versus equity-related loss carryforwards. The primary cumulative effect is to reclassify the benefit on utilization of equity-related lost carryforwards from accumulated deficit to additional paid in capital.

There is no change in the total tax loss carryforwards, taxes payable, cash or non-GAAP results in any period. We are tracing through the implications of the accounting errors and think we have identified the effect on all the periods, as presented in the press release issued today. To the extent that there are any further revisions, they will be reflected in our upcoming filings, so please read them when they come out.

I'll now discuss our third quarter financial results and comment further on our outlook for the fourth quarter of 2013. Third quarter revenue of $128.9 million was near the midpoint of our outlook range. Q3 revenue was 1% higher than Q2, representing our second quarter of sequential growth. In Q3, we had 2 customers, which each accounted for more than 10% of our revenues, calculated on a rolling 12-month basis, namely HP and EMC. Non-GAAP gross margin was fairly consistent sequentially in the third quarter at 70.1%, down slightly from 70.6% in Q2 and also within our outlook range for the quarter.

On a non-GAAP basis, operating expenses came in at $70 million for the third quarter, favorable to our outlook range due to continued emphasis on expense control. Operating expenses in the third quarter were $4.8 million lower than in the second quarter. As we incurred lower tape-out-related expenses, lower employee-related costs and reduced external service costs. These decreases were partially offset by increased salary and facilities expenses as we added staff and premises relating to the IDT acquisition. This resulted in non-GAAP operating margin of 16% for the third quarter, up sequentially compared to 12% in Q2.

Non-GAAP net income was $20 million or $0.10 per share, as compared to $16.3 million or $0.08 per share in the second quarter of 2013, with the increase mainly driven by the reduction in operating expenses in Q3. Q3 GAAP net loss was $2.7 million or $0.01 per share versus $0.02 net loss per share in Q2. The primary items reconciling GAAP to non-GAAP net income for Q3 are as follows: $13.1 million in amortization of purchased intangible assets; $5.9 million in stock-based compensation expense; and $4.2 million in tax expense, the majority of which is related to non-deductible intangible asset amortization. You can see our press release issued today for a full reconciliation.

Turning to the balance sheet. We ended the third quarter with approximately $210 million of cash and cash equivalents, short-term investments and investment securities. This is a $99 million decrease from our Q2 ending position of $309 million. This decrease arises from $96 million paid in the acquisition of IDT's Enterprise Flash Controller business, $17 million in stock repurchases completed during Q3; and $4 million of capital purchases, partially offset by $8 million of cash generated from operations, $7 million from employee stock plan purchases and option exercises and $4 million from the sale of investments.

Our net inventory at the end of Q3 was $32 million, $1.5 million higher than as of the end of the prior quarter, as the result of staging incremental strategic inventory in support of key product ramps. The increase from the prior quarter is attributable to the inventory associated with the recently acquired IDT Flash Controller business, as well as SAS board-level products due to lower demand. Despite this increase, net inventory turns remained at a reasonably healthy level in Q3 at 4.9x, down from 5.0x in Q2. Q3, ending deferred revenue balance, increased slightly to $7.2 million from approximately $6.9 million as of the end of Q2, which relates to inventory at our distributors. Overall, our inventory including the distributors, remains well managed. In terms of lead times from our foundry partners, they have remained stable and we have adequate way for supply to meet forecasted demand.

Now I will turn to outlook for the fourth quarter of 2013. As Greg mentioned, we expect Q4 revenues to be flat to down 8% from the third quarter, in the range of $118.5 million to $129 million. This takes into account current levels of demand and our expectation of booking rates throughout the balance of the quarter. Judged backlog at the end of Q3 was approximately $93 million. This implies turns of 25% from the beginning of the quarter to reach the midpoint of our revenue outlook. This level of quarterly turns would be consistent with the rate realized over the past 5 quarters, which have ranged from 24% to 30%.

On a non-GAAP basis, we expect our overall gross margin percentage in Q4 to remain in the range of 70% to 71%. Non-GAAP operating expenses in Q4 are expected to be in the range of $69 million to $71 million, roughly flat with Q3. We expect other income in Q4 to be approximately nil, with reduced interest income on lower cash balances largely offset by financing costs related to our line of credit. We expect our non-GAAP tax provision in Q4 to be approximately nil.

As a reminder, tax expense can be impacted by a number of variables associated with our ASC 740 liabilities, including, but not limited to, a change in foreign income and product mix. Non-GAAP earnings per share for Q4 are projected to be $0.08 based on the midpoint of our outlook range and assuming a diluted share count of 204 million.

Finally, a few comments regarding our stock repurchase activity. In the third quarter, we repurchased 2.7 million shares for $17 million. In the coming quarters, we will continue to assess the best use of our capital resources and may continue to repurchase shares opportunistically, up to the full amount of the outstanding authorization previously approved by our board, which, as of the end of the third quarter, stood at approximately $92 million.

With that, we'd like to open the call up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jim Schneider with Goldman Sachs.

James Schneider - Goldman Sachs Group Inc., Research Division

I guess, first of all, Greg, starting on the outlook for a second. Clearly, the flat to down 8% outlook you provided, you talked about that being driven mainly by the PON and access areas. Are there any other areas you expect to be materially weaker, or is Q4 being driven entirely by the PON space?

Gregory S. Lang

It's primarily in the -- as I mentioned, it's just 2 Areas, PON and SONET legacy communication area. Yes, that's it. And we expect at the moment, with -- given today's backlog, we expect the storage to be up a bit and the increase is really kind of due to the quarter-to-quarter increase on the Flash Controller Business. It's not a huge number, but it is an increase. So that really represents the increase. So call it, the traditional flat storage business is going to be roughly flat quarter-to-quarter if we get the terms we believe we'll get throughout the quarter and given today's backlog.

James Schneider - Goldman Sachs Group Inc., Research Division

I understand it. And is the -- I think in previous quarters, you talked about $2 million to $4 million is kind of the range maybe to expect with the bulk of that being in Q4 for IDT business. Is that still a good assumption for Q4? And is $20 million to $40 still a good assumption to use for 2014?

Gregory S. Lang

Basically, yes, and yes. But just to clarify, it was $2 million to $4 million for the year. So that -- and we have said that it was back-end loaded. And that seems to be coming in about as we expected in that range. And then for next year, yes, I think $20 million to $40 million is still kind of the right range. And I think as we start getting into the year and see some of the production ramps of our major customers, we'll, hopefully, be able to tighten that up a bit. But right now, I think $20 million to $40 million a good baseline.

James Schneider - Goldman Sachs Group Inc., Research Division

And just lastly for me. Can you maybe comment on where you expect the China mobile backhaul deployments to start? I mean, obviously, we've seen some pushouts across the supplier base. So I'm wondering any sense on what quarter we could expect those to start to show up meaningfully?

Gregory S. Lang

A great question. I think we all felt like it was getting pushed late in the year. It feels like it's maybe getting pushed a little further than that. But we're still kind of thinking it's late in the year. The impact for us, I think, in the short-term is -- and this is probably more on the OTN side, because we did see an uptick in the OTN sales actually have 4 straight growth quarters in OTN, which is good to see some of these finally getting into production. But this quarter, in Q4, we expect that to be down a little bit because I think the -- our customers got a little bit ahead of the actual deployments. We do expect now to tick back up as the deployment starts because they need to have basically the wired infrastructure to support the wireless capacity expansion as well. So I think, in short, your question is really around timing. We think it's the end of the year, beginning of next year, in that time frame. But it's -- that's our best take at this time.

Operator

Our next question comes from the line of Ruben Roy with Mizuho Securities.

Ruben Roy - Mizuho Securities USA Inc., Research Division

Greg, first of all, when you look out into 2014, I'm wondering if given what you know now with what's going on with the PON pause in Japan, et cetera, if you could just comment on sort of where you're thinking now the biggest drivers of incremental growth will come from? I know, previously, you guys were talking about data centers being something kind of more near-term than perhaps the radio stuff, and I know the Flash controller is starting to get into the model. So are those the 2 areas that you're expecting to see some incremental growth in 2014?

Gregory S. Lang

Yes, and great question. And you started with PON. I wouldn't put PON in the category of something that we're expecting to drive growth for next year. So that's kind of not on my list. It's been sluggish for years there. So we had a decent year this year, a little bit of a correction now. But for growth in 2014, I think the first 2 things I would highlight is data center design wins -- the data centers are going through -- you might call it kind of the second phase of evolution and how they're deploying platforms and they're looking at substantially increasing the densification of their systems, which means more CPUs and more drives in the same amount of space. And we have the densest product offering. We enable a lot of that densification by just basically doubling up the amount of -- the number of ports you can get in a given amount of space. So we're getting a lot of traction there, and I think that's going to be a key part of our growth in 2014. And that'll contribute in the first half. The other thing that will contribute in the first half is the Flash Controller side. The size and speed of that ramp, I think, is not entirely clear. I think the PCI Express base is a very exciting space, a lot of people are interested. But it's new, and sometimes new things are kind of hard to predict how they ramp up. So we're going to keep an eye on our big customers there and see how they go. Now the good news part of it is some of the bigger customers on this side are actually data center end users themselves, and they could actually move fairly rapidly there, the end-users. So that really depends on how they deploy. So I would expect it to see, as you said, work into our model in the first half -- actually in the first quarter of next year. Just the size and magnitude is TBA at this stage. Now the third area that I would point you in -- for 2015 -- excuse me, 2014 is 12-gig SAS. But that's going to start, we think, fairly coincident with the Intel-Grantley launch, primarily because I think the eco system is not quite ready right now. There are a couple of product of offerings out there today at 12-gig, but we don't have all the drives. In fact, I don't think there's any real SSD shipping in production at this stage, which -- that's the only thing that leverages 12-gig. And we don't have the kind of integration in the server or storage system platforms. We think that starts in the second half of next year. We'll see it first in the server side, then followed by the storage system guys. But it's further out than we thought when we started this year, but still in the pipeline. And then last but not least, for next year, I think the other thing to keep an eye on is just the OTN ramp. We do have with our latest generation of products, this is the DIGI 120 generation that I mentioned. This is the first generation of OTN product, where we have design wins at all of the top tier suppliers. We did not have that traction in our first 2 shots to try and get back into this market. We do now. They are literally racing to get to market. We expect people to be putting products out in carrier trials as soon as the end of this year, early part of next year. And then the question will be how quickly the carriers kind of stamp those for approval and then get into production. So I do expect to see the OTN part of our business grow substantially again in 2014. So those are the major areas.

Ruben Roy - Mizuho Securities USA Inc., Research Division

Great. Just quickly, to follow up on that. In terms of just getting out of the gate in 2014, I guess for right now, with your expectations for 12-gig in the second half of next year and sort of this gradual incremental growth and Flash Controllers, there shouldn't been any reason that we shouldn't see the normal seasonality in that storage business for Q1, right?

Gregory S. Lang

Seasonality, I mean, we're coming off of -- it's a good question how do you read seasonality for Q1. I think some of the variables that we'll take a look at is -- we're coming off and this for the server and the storage base. We're coming off a weak year. So some of this will depend on, "do we start to pick up momentum in Q4? Is it a last-minute budget flush in Q4, which doesn't necessarily bode well for Q1?" But if we start to see some momentum build, I think that could bode well for Q1 because both of those market segments, the server and storage space, have been down year-over-year 3 quarters in a row. And I don't think anyone -- any of us really necessarily peg that as the expectation for this year. But at some point, I believe people will be back and need to fill in their capacity for storage and fill in their CPU needs. So I do expect that business to recover. And perhaps, that could be in Q1, but I think we have to wait and see how Q4 plays out. The counter seasonal product cycle that we have is really in the Flash Controller space. That will give us some uplift that we'll have nothing to do with seasonality, and the size and speed of that is also TBD. But I think that should help us do something better than seasonal in Q1, in my estimation.

Ruben Roy - Mizuho Securities USA Inc., Research Division

Okay, that makes sense. And then just finally for me. Steve, with the OpEx, good work on bringing that down. Do you think $70 million now is sort of a baseline that we could think about for 2014. Previously, it's at low to mid-70s.

Steven J. Geiser

Yes. Well, of course, we haven't provided operating expense outlook for 2014 at this time. That said, it is reasonable to expect that you're going to see a bit of an uptick in expense in the first half of '14, consistent with prior years, as certain benefit-related expenditures are tied to plans and contribution limits, which reset at the start of each year. So I think it's reasonable to assume that you're going to see a bit of an uptick in the first half, but structurally, we are a little lower.

Operator

[Operator Instructions] Our next question comes from the line of Kevin Cassidy with Stifel, Nicolaus.

Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Last quarter, you had mentioned that non-HP was more than 50% of your storage. Was that true again this quarter? And do you expect that next quarter?

Gregory S. Lang

I was trying to -- sorry, I was trying to recall the reference. That is -- that was basically talking about our server. The server part of our storage business, or the non-HP portion was greater than the HP portion. And actually, they kind of flipped. They reversed roles this quarter. HP had a nice strong quarter with us, and the non-HP part of the business, in particular, the data center part of the business, was weak. So no, that is not true this quarter. I think we'll probably get back in that position over the next couple of quarters, but it kind of reversed roles this quarter in Q3.

Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And so it's the data center that -- and their giving you some visibility in the first quarter? Is it where you think you'll start seeing some pickup again from the data center?

Gregory S. Lang

Yes. The magnitude is not clear, but we do think that the data center business will pick up in the first quarter, based on what we're being told today.

Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. And on your Remote Radio Head, what's the exposure there? Is it more in the U.S., with the LTE expansion, or is it in China?

Gregory S. Lang

It really is going to depend on where we win major designs. The China market is really driven -- or excuse me, it's -- there's a different mix of OEMs that serve that market, from a market share perspective. And so if we win designs at the big China OEMs, that will get more share there. Right now, we're active in -- I would say, we're very active in evaluation phases in 5 of the 6 top guys. And if we're able to get meaningful design win traction at all or most of them, we'll participate worldwide. Now having said that, there is maybe an underlying point to what you're asking, which is, I do think some of the aggressiveness of the rollout in China could be a catalyst to drive new platforms faster, some TD [ph] LTE platforms into the market. So in practice -- or the practical reality may be that we see newer more aggressive platform roll outs because there's such a large rollout plan there. We would clearly not be participating in this first round, the first couple 100,000 that people have been talking about for a couple of quarters. We're not in productions systems yet. Those systems are already baked. But perhaps, the next round of -- whatever it ends up being, $400,000, $600,000, we could participate in some of that. So that's the long answer. Short answer is that really depends on where we win sockets, and we're not -- I don't think we're far enough through that design win cycle right now to be able to give you a better guidance on that.

Operator

Our next question comes from the line of Sundeep Bajikar with Jefferies & Company.

Sundeep Bajikar - Jefferies LLC, Research Division

Can you share with us some of the progress you're making on the channel side in storage? What kind of opportunities do you see? And did they require doing things a little differently going forward? How much success do you have with second-tier OEMs that may be supplying more into the cloud buildout, and that applies to both storage adapters, as well as SSD controllers?

Gregory S. Lang

We are -- let's see. I think that the best way to describe this is to go back to some of the comments I made earlier about the densification of data centers. And basically, that is cramming more drives and stuff in a given amount of space and trying to do it for lower power. But it's all about driving a smaller footprint. And because we have parts that are double the density of any other solution, we're getting a lot of traction there. We've won new designs at Tier 1 social data center customers associated ODMs that supply them, we've won sockets there. So we're getting very good traction. Our latest count is there is easily over $100 million of revenue potential that's out there, and we're out trying to get our unfair share of that. But that's really the, I think, the key growth opportunity for us. Some of it will get served direct, some of it will get served through some of our key partners like HP, some of it will get served through other big OEMs that sell in this market, like Dell. They've been able to hold their own pretty well in the space, and we work quite closely with them. And then some will be served through the ODMs coming out of Taiwan, and even some of the integrators, some of the larger integrators in the channel as ET systems is an example of that. Those are all kind of avenues to serve this market. But our position and our play here is that highest density, lowest power per IOP and best performance for SSD applications.

Sundeep Bajikar - Jefferies LLC, Research Division

Okay, great, very helpful. And then on the Wintegra side, how would you characterize the opportunities in hybrid backhaul versus just a pure bucket backhaul going forward? Which do you think would be the bigger driver?

Gregory S. Lang

Well, for us, I think, clearly, we have a very unique value proposition in the hybrid backhaul space because we handle the complexities of multiservice backhaul very well with the network process, kind of how we entered into the market and where people kind of place the most value around our network processor family. Now having said that, we believe that we have a competitive solution on the packet-only backhaul space, but I would think our first and foremost opportunities for us is going to be participating on -- in the hybrid space.

Operator

[Operator Instructions] Our next question comes from the line of Srini Pajjuri with CLSA securities.

Srini Pajjuri - CLSA Limited, Research Division

I have a quick question on the cash use. Steve, you mentioned that you still have about $90 million or so in authorization. Could you tell us how much of your cash is on-shore versus off-shore? And also there's a minimum amount that you'd like to have on the balance sheet. And also if you can touch upon your M&A strategy going forward.

Steven J. Geiser

Yes, so we don't typically break out the amount of cash on-shore versus off. In terms of the overall liquidity position, I think we'd ideally like to maintain at least a couple of quarters worth of operating expenses, kind of a reasonable guideline. So we don't have a huge excess position now, with close to $200 million of total liquidity position available. That said, there is the opportunity for us, as we said, to buy back additional shares. We do anticipate that we could be active in the current quarter against that authorization, and we certainly have adequate liquidity to execute against that. I'll remind you that we put in place, in the third quarter, a revolving debt facility, which is available to our U.S. entity. So we certainly have adequate liquidity to execute against that authorization as we deem appropriate.

Srini Pajjuri - CLSA Limited, Research Division

And then any thoughts on the M&A strategy going forward?

Steven J. Geiser

Yes, our views on M&A haven't really changed. We're always mindful of new opportunities. We're always keeping a lookout, but -- anything that's a reasonably good strategic fit for us. But obviously, nothing in particular to speak about.

Operator

Ladies and gentlemen, this concludes the PMC third quarter 2013 Earnings Conference Call. If you'd like to listen to a replay of today's conference, please dial (303) 590-3030 or 1 (800) 406-7325, with access number 4641853. We'd like to thank you for your participation. 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 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!

PMC-Sierra (PMCS): Q3 EPS of $0.10 in-line. Revenue of $128.9M misses by $1.34M. (PR)