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Executives

Faraj Aalaei – Chief Executive Officer & Director

Linda C. Reddick – Interim Chief Financial Officer & Vice President

Analysts

Michael Coady – B. Riley & Co.

Joel Achramowicz – MDB Capital Group

Centillium Communications, Inc. (CTLM) Business Update Call January 15, 2008 9:00 AM ET

Operator

Good Morning and welcome to the Centillium Communications Conference Call. On the call today are Faraj Aalaei, Co-Founder and CEO and Linda Reddick Vice President and CFO. This conference call is being recorded and all participants are in a listen only mode. Later we will open the call to your questions. I will now turn the call over to Linda Reddick.

Linda C. Reddick

Before we begin I would like to remind you that except for the statements of historical facts, the matters presented in this conference call contains statements that are forward-looking statements within the meaning the US Federal Securities law. Actual results may differ materially from those indicated by the forward-looking statements based on a variety of risks and uncertainties, a partial list of which is listed in today’s press release. Information about potential factors that could affect our financial results is included in our most recent report on Form 10 and our other documents on file with the Securities & Exchange Commission. We undertake no obligation to update forward-looking statements for any reason. Additional information can be found on today’s press release and on our website at www.centillium.com. I will now turn the call over to Faraj.

Faraj Aalaei

Good morning everyone. Today we announced that we entered into a definitive agreement to sell our DSL business to Ikanos Communication for approximately $12 million in cash. The transaction is subject to customary closing conditions and is expected to close during the first quarter of 2008. With this acquisition Ikanos will acquire Centillium DSL business including assets, technology, and a number of employees from its DLS team. Ikanos will also assume the responsibility and continue to support Centillium’s worldwide DSL customer relationship. As a result of the sale and related restructuring we expect to reduce our operating expenses by approximately $18 million per year beginning in the second quarter of 2008.

After much analysis we have determined that Centillium will be better served by focusing our resources and investment dollars on our voice and optical business and by divesting our DSL business to Ikanos we should be in a better position to leverage our products as the industry consolidates. The DSL business requires significant investment to remain competitive. While we continue to believe that we have the best available DSL solutions fully leveraging these products would require significant incremental investments in sales, marketing, and support in Europe, Asia and other parts of the world. Given our size we can no longer effectively invest in the DSL business while also supporting our voice and optical businesses.

Throughout the past year, we have achieved a number of important successes in both our optical and voice business including our multi-million optical contract, the introduction of important new voice products and new design wins and customer wins for our voice-over IP products. Year-to-date the combination of our optical and voice business has grown significantly and we are excited about the expected growth of these businesses in the future.

We also have an update on our outlook for Q4 2007. We expect net revenues to be approximately $8.6 million, compared with our previous guidance of $11 million. The revised Q4 revenue guidance is due to our DSL customer’s inventory and push out. The voice-over IP and optical businesses performed in line with our previous guidance. We anticipate that the non GAAP gross margins will be approximately 62% compared with our previous guidance of 55% to 57%. Our non-GAAP operating expenses will be approximately $10 million in Q4, compared with our previous guidance of $11.5 million. As a result, we expect non-GAAP per share results for the first quarter of 2007 to be a net loss of $0.10 per share, compared with previous guidance of a net loss of $0.11 to $0.12 per share.

Before we move to Q&A, I would like to remark that by selling our DSL business we are setting a new course at Centillium by focusing on our optical and voice-over IP businesses. We have the opportunity to dedicate all of our resources and attention to growing these two very exciting businesses that have solid foundation. With the realignment of our operating expenses we are taking significant steps towards accelerating our path to profitability. We will continue to focus on delivering exceptional products, expanding our worldwide customer base, improving our competitive position and growing our market share. We are excited about our optical and voice businesses and we look forward to updating you on our fourth quarter 2007 earnings conference call.

We would now like to open up the call to your questions. Operator you may open up the line to our first caller.

Question-and-Answer Session

Operator

We will now begin the question and answer session. (Operator Instructions) Our first question comes from Michael Coady of B. Riley, your line is open.

Michael Coady – B. Riley & Co.

Could you talk about where the [inaudible] productions will come from in terms of line items?

Faraj Aalaei

I’ll comment and then Linda wants to add something. Obviously, divesting the DSL business means that several of those resources will go to the acquirer and so people is one area the investment in tape outs and the NRE expenses associated with the R&D in the DSL business is another. And then, of course, G&A and support organizations that can be scaled down to respond to the divestiture of the DSL business.

Michael Coady – B. Riley & Co.

And the gross margin pick up in the December quarter, had DSL been weighing on the gross margin? Would you anticipate that your long term gross margin guidance changed as a results as the transaction?

Faraj Aalaei

The gross margin guidance long term for the remaining business is low 50s.

Michael Coady – B. Riley & Co.

The Fujitsu lawsuit that’s been ongoing, does this transaction affect that?

Faraj Aalaei

Well, I’m happy to report that we have prevailed in that lawsuit and that’s no longer an issue for us.

Michael Coady – B. Riley & Co.

Previously you had provided an expectation of reaching a breakeven by a certain point in time that was a while back before the DSL really deteriorated further. Now that you have better visibility potentially because you’re down to VOIP and optical. Will you be willing to have an estimate of reaching breakeven?

Faraj Aalaei

I am not at this point going to give guidance for specific time frame for profitability or breakeven point for the new business. I think what is safe to say is that in 2007 to 2006 we had growth primarily coming from frankly, voice-over IP business because the optical are still very small. Looking forward to 2008 we think that we will have significant growth with the combined voice-over IP and optical business relative to 2007. The primary reasons and driver for that is of course growth in the voice business itself, we see that business growing nicely, but we see that the optical business will have basically hyper growth in 2008 relative to 2007. So, the outlook in 2008 looks very good, very nice growth for these two businesses combined.

Michael Coady – B. Riley & Co.

Any update of the ME300 and getting it qualified with another OEM?

Faraj Aalaei

It’s still in the pipeline, and I believe that the products are to, according to what they tell us, it’s going to be delivered to the operators this quarter. Then they’ve got to go through their process.

Operator

(Operator Instructions) Our next question comes from Joel Achramowicz of MDB Capital Group. Your line is open.

Joel Achramowicz – MDB Capital Group

Do you have any indication at least preliminarily how this might affect the accrued liabilities on the balance sheet?

Faraj Aalaei

Really no update on that at this point.

Joel Achramowicz – MDB Capital Group

Might you have considered the merging of two companies when you were contemplating this particular transaction in the DSL area?

Faraj Aalaei

We had formed a strategic committee of the Board that met and went through frankly, a lot of different options and we believe that the option of divesting the DSL business on its own was the best way we could improve to the shareholders, a true benefit to the shareholders. We think this is the proper path to doing it. But yes, it was considered and discussed significantly.

Joel Achramowicz – MDB Capital Group

You feel obviously, your visibility in the optical area. Would you say your gross margins overall in the optical area were superior to the other DSL sector?

Faraj Aalaei

Not really. Because, as a whole DSL was a geographic thing and there were some areas that had better and some areas that had worse but, overall I think it’s pretty similar.

Joel Achramowicz – MDB Capital Group

You obviously have this one high volume deal you talked about recently and hopefully you’ll see some more opportunities consummate here shortly, but do you feel relatively [inaudible] about the outlook going forward both in the optical as well as VOIP gateway areas? Is that correct?

Faraj Aalai

We feel these two areas, to be honest with you, give us not only strength in the markets that we are, in terms of competitive strength, we have the technology it’s unique, it’s accentuated and its quite complex to master. As we discussed the margins would be in the low fifties but we think that’s kind of what the industry can stand because these after all in particularly in the optical side are access products so cost points are very important. With the business in the low fifties it’s typical with this type of business.

Joel Achramowicz – MDB Capital Group

Well, certainly the cost structure has streamlined significantly now and should be further diminished. You can grow the top line and sustain those margins. You should eventually be able to see some profitability here.

Faraj Aalai

That’s precisely what we’re thinking.

Operator

(Operator Instructions) At this time we are showing no further questions.

Faraj Aalai

Thanks again to all of you for joining us today. If you have any questions or would like to set up a meeting please call our Investor Relations line at (510) 771-3611. Thank you all very much.

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