GSI Technology Inc
NASDAQ:GSIT
GSI Technology Inc
NASDAQ:GSIT
Price:
3.4 USD
-7.86%
Market Closed
Updated:
May 4, 2024
Section:
Earnings Call Analysis
Summary
Q3-2024
Q3-2024
Revenue Hits Guidance, Margins Sustain
In the third quarter, the company achieved revenue of $5.3 million, aligning with the midpoint of its guidance and reported a stable gross margin of 56%. Looking ahead to the fourth quarter of fiscal 2024, the company expects revenue to be between $4.8 million to $5.4 million with a gross margin forecasted between 55% to 57%.
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Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Third Quarter Fiscal 2024 Results Conference Call. [Operator Instructions]
Before we begin today's call, the company has requested that I read the following safe harbor statement. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI Technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I've been asked to advise you that this conference call is being recorded today, January 25, 2024, at the request of GSI Technology.
Hosting the call today is Lee-Lean Shu, the company's Chairman, President and Chief Executive Officer. With him are Douglas Schirle, Chief Financial Officer; and Didier Lasserre, Vice President of Sales. I would now like to turn the conference over to Mr. Shu. Please go ahead, sir.
Good afternoon, and thank you for joining us. I am pleased to share several key updates from an eventful third quarter. Starting with the product development, we achieved 2 major milestones that will keep us on track to advance the Gemini APU family. First, in November, we successfully complete the radiation harbor testing on the Gemini-I APU for compute in-space applications. The test results confirm that Gemini-I has met [catalystic] to be a radiation tolerant processor. We are actively engaged with several satellite companies that meet radiation total on APUs, and we are encouraged by their strong interest.
Moving to our late generation APU. We complete the table of Gemini-II in the third quarter. In May-February, we will evaluate the initial spins and expect to begin sampling Gemini-II chip in the second half of calendar 2024. Gemini-II has 8x of internal memory and 10x better performance than Gemini-I at a loadable [indiscernible] lower cost. This dramatically improve in cost performance allow us to target a much broader range of applications. The 96 megabytes of internal memory in Gemini-II can fit many AI models entirely on the chip, enabling in-place data processing without accessing external memory that cannot be used. This should give Gemini-II tremendous advantage from compact edge applications like Zone and ADAS. We anticipate starting initial offer deployment with select customers in the second half of calendar 2024.
Lastly, in the third quarter, we shipped radiation hardened [issuance] to 2 customers for 2 new programs, and we received a second SBIR [indiscernible] Phase II contract in the amount of $1.1 million.
Looking ahead, we are in the early stage of developing the architecture for our late innovation Gemini suite chip. We had a discussion with several hyperscalers about APU design options to best address their emerging markets lead in the data center. In addition to help, helping hyperscalers lower data center power consumption, the APU can also provide significant benefit to Gen AI end users by reducing influence costs. We initiated preliminary discussion with 2 major hyperscalers who have expressed interest in our technology and continue to work with internal teams on various early-stage concepts.
Turning to our financial performance. The third quarter revenue of $5.3 million make our guidance with a gross margin of 56% was at the midpoint of our guidance. A sequential improvement in gross margin reflects product mix this quarter. Our operating expenses, which increased both year-over-year and sequentially, including a onetime expense of $2.4 million for preproduction mark for Gemini-II. We view this as an investment in future growth as Gemini-II will greatly extend APU market reach.
In parallel, we continue discussing with potential strategic partner to support Gemini-II launch and assist with Gemini suite development. As our most ambitious chip today, we anticipate the Gemini suite will require significant capital investment and partnership to help mitigate our funding lease. We remain focused on prudent financial management to fuel our product road map and extension into new markets.
Recently, Cornell University published a research paper spotlighting the unique efficiency of our Gemini-I APU to accelerate location [indiscernible] map. Didier will discuss the details of the paper and its implication for GSI in his comments.
In closing, it was an eventful third quarter with tremendous progress on our Gemini roadmap, prudent expense management and actions to increase our financial flexibility to support our growth. We remain laser focused on bringing our innovative APUs to market and driving long-term value creation.
Now I'll hand the call over to Didier, who will discuss our business performance further. Please go ahead, Didier.
Thank you, Lee-Lean. I want to provide some additional context on why we are so confident in the market potential for our APU architecture, especially for inference workloads.
First, the unmatched flexibility of our variable bit processing is key, with 2 million undefined Bit processors that can be toggled from 1 bit to 2 million bits cycle by cycle, our APU can adapt to real time -- I'm sorry, in real time to maximize efficiency.
This dynamic bit-wise configurability can process long strips 1 bit at a time as a deal for an inference since research shows that different bit precisions are more efficient for different models.
Second, our APU architecture breaks the Von Neumann model by removing the data fetch function. This innovative design delivers higher performance with lower power consumption. As Lee-Lean mentioned, these capabilities directly address the critical needs of data centers and emerging applications by lowering data center power consumption and reducing inference costs for Gen AI end users.
Importantly, I want to emphasize that our APU represents true in-memory -- I'm sorry, true compute in-memory architecture. Unlike competing chips that claim compute and memory, they are actually near-memory compute and our APU has logic physically integrated in the memory. This fundamental difference in architecture will ultimately enable our APU to achieve the transformative speed and efficiency gains we anticipate as we scale.
Our true compute and memory architecture gives us a sustained competitive advantage.
To accelerate ecosystem development, we are focusing on getting APU in the hands of key partners in the military, hyperscalers and academia. The real-world deployment and libraries will showcase the benefits, expand use cases and support our go-to-market capabilities. One example of this strategy is helping us promote and monetize Gemini-I as a recently published research paper from Cornell University. We are pleased to announce that the Cornell Paper demonstrates our APU -- I'm sorry, our Gemini-I APU's unique performance benefits for genomic applications.
Leveraging the APU's massively parallel in-memory architecture, Cornell researchers showed up to 6x faster DNA sequencing filtering compared to a 16 core CPU. This showcases our technologies advantage for data-intensive workloads requiring rapid low-precision comparisons. The study also revealed strong potential to accelerate other applications with similar data matching needs, including medical data analysis, search, security and more. With simple scaling, our APU can be packed into cost-effective high-density servers to multiply this performance for real-world deployments that can lower power budgets for hyperscalers compared to GPU solutions.
These results enforce -- I'm sorry, reinforce our significant market opportunities across sectors that rely on efficiently finding patterns and similarities within massive data sets. We remain focused on delivering the game-changing in-memory compute performance to customers across multiple industries. As Lee-Lean mentioned, we anticipate receiving first silicon devices of Gemini-II in February. After initial evaluation and debugging, we will target a second spin this summer and initiate benchmarking shortly after. Our $2.3 million in SBIR funding will support this development. As a reminder, this includes our recently announced second SBIR direct to Phase II 1.1 million contract to create specialized algorithms for the U.S. Air Force Research Laboratory.
The target applications include in-craft applications such as search and rescue, object detection, moving target indication, change detection and SSIM and GPS absent situations. GSI will also develop algorithms using data from the U.S. space force to showcase the performance benefits of its compute and memory APU2 integrated circuit.
In summary, the versatility of architecture hands-on customer engagements and ecosystem partnerships gives us confidence in our market opportunity. We have a robust product road map to deliver continuous innovations that we can -- that we believe will capitalize APU adoption across multiple industries in the coming years.
Let me switch now to customer and product breakdown for the third quarter. In the third quarter of fiscal 2024, sales to Nokia were $807,000 or 15.2% of net revenues compared to $1.3 million or 20% of net revenues in the same period a year ago, and $1.2 million or 20.3% of revenues in the prior quarter.
Military defense sales were 28.2% of third quarter shipments compared to 26.2% of shipments in the comparable period a year ago and 34.8% of shipments in the prior quarter. SigmaQuad sales were 46.9% of third quarter shipments compared to 45.2% in the third quarter of fiscal 2023 and 55.8% in the prior quarter.
On one last note, on product sales in the third quarter, we shipped over $600,000 of a prototype radiation-hardened SRAM to 2 different customers. These will be deployed in 2 separate satellite programs.
I'd like to hand the call over to Doug. Doug, go ahead, please.
Thank you, Didier. We reported a net loss of $6.6 million or $0.26 per diluted share net revenues of $5.3 million for the third quarter of fiscal 2024 compared to net losses of $4.8 million or $0.20 per diluted share on net revenues of $6.4 million for the third quarter of fiscal 2023 and a net loss of $4.1 million or $0.16 per diluted share on net revs of $5.7 million in the second quarter of fiscal 2024.
Gross margin was 55.9% compared to 57.5% in the prior year period at 54.7% in the preceding second quarter. The changes in gross margin were primarily due to changes in product mix and volume sold in the 3 periods.
Total operating expenses in the third quarter of fiscal 2024 were at $9.7 million compared to $8.5 million in the third quarter of fiscal 2023 and $7.2 million from the prior quarter. Research and development expenses were $7 million compared to $5.5 million in the prior year period and $4.7 million in the prior quarter.
Selling, general and administrative expenses were $2.7 million in the quarter ended December 31, 2023, compared to $3 million in the prior year quarter and $2.5 million in the previous quarter. Third quarter fiscal 2024 operating loss was $6.7 million compared to $4.8 million in the prior year period and an operating loss of $4.1 million in the prior quarter.
Third quarter fiscal 2024 net loss included net interest and other income of $155,000 and a tax provision of $71,000, compared to net interest and other income of $61,000 and a tax provision of $84,000 for the same period a year ago.
In the preceding second quarter, net loss included net interest and other income of $71,000 and a tax provision of $33,000. Total third quarter pretax stock-based compensation expense was $649,000 compared to $655,000 in the comparable quarter a year ago and $676,000 in the prior quarter. At December 31, 2023, we had $21.6 million in cash and cash equivalents compared to $30.6 million in cash, cash equivalents and short-term investments at March 31, 2023. Working capital was $23.1 million as of December 31, 2023, versus $34.7 million at March 31, 2023. With no debt, stockholders' equity as of December 31, was $39.6 million compared to $51.4 million as of the fiscal year ended March 31, 2023.
For the fourth quarter of fiscal 2024, we anticipate net revenues in the range of $4.8 million to $5.4 million, with gross margin of approximately 55% to 57%.
Operator, at this point, we'd like to open the call to Q&A.
[Operator Instructions] Our first question is from Brett Reiss with Janney Montgomery Scott.
Gentlemen, you can talk to me like I'm 6 years old. Could you just explain what is in an infrequent $2.4 million charge for a preproduction mask? I'm not an engineer, just if you can give me some more clarity on that.
Yes. So every time we have a product, we have to have a mess set prepared to run in the fab to manufacture the wafers. Now typically, when we incur charges for mess set for production product, we will capitalize that into prepaids and amortize it over a 12-month period.
However, the 1 exception to that is when we have a mass set prepared on a new process technology that we've never run before, what charge that expensed to R&D expense. So in this quarter -- well, last quarter, we taped out Gemini-II on a process technology we've never used. It's a 16-nanometer process at TSMC.
Now since we've never used that process before, we charge that $2.4 million to R&D expense.
All right. So this is 1 shot. It's not going to be reoccurring?
No, no, no. It will recur in the future when we have another product that tapes out on the process technology that we've never used before. So it's infrequent. It doesn't happen every year, so it's at most every 2 or 3 years.
Okay. Okay. The cash, which was my margin of safety in my investment here keeps dwindling down. I'm a little concerned about that. Some of these initiatives with bringing in other joint venture partners. What's the timetable on that? And how long do we have before we burn through the remaining cash?
Well, we're currently looking at various opportunities, and Didier mentioned talking to hyperscalers and others. To come out with our next product, it's going to require significant investments. So we're looking for partners or other sources of funding. In addition to that, we have a building that we own, that's worth quite a bit of money and we'll be looking at potentially selling that building in the near future.
Right. What is the building appraise that? And on a base case scenario, what do you think you could sell it for?
We think we can probably get somewhere in the range of $10 million to $13 million.
Right.
And there's no debt tied to that because it's fully paid for.
Right, right. Could you just give me a broad outlines of what the structure of a joint venture partners' capital investment in GSIT would take? Would they pay an upfront milestone payment with other payments to follow, would it be an equity investment? What do you think the structure of that would look like?
So it could be either of those. And what I mean is when Lee-Lean was talking about a partner for funding the Next program, that's specifically for Gemini-III. So Gemini-II was fully funded internally. But for Gemini-III, we are looking for a partner for that, most likely a customer funding partner. But aside from that, that would be more of an NRE type of funding. So there would be milestones associated with that. But aside from that, we are also open to equity investments in the company as well.
[operator instructions] Our next question is from Jeff Bernstein with Silverberg, Bernstein Capital.
So just a question on the -- and congratulations on placing those rad-hard SRAM parts for valuation. If you were to win those programs about how much revenue and over what time period might you be able to gain from those 2 satellite programs.
Sure. So one of the programs was -- and again, this is just a prototype quantity for demonstration purposes. One of them was just over 500,000 and the other one was about $150,000. And it totaled 41 parts that we shipped, you can do a quick calculation of what the ASPs are on those.
And so those are just the, again, prototype quantities. So obviously, you can multiply by something. We don't have the quantities yet. These are programs that they're looking to launch within the next year. And so it would be some time second half of 2025 at the soonest before they release production. But certainly, it would be north -- if the prototype is 500,000, you can imagine what a production might be.
And so these would be like GEO satellites. So those aren't satellite networks. These are going to be individual larger satellites?
So these ones are x, 1 is GEO, 1 is actually LEO.
Okay. And Will you get automatic with these evaluation parts, are you going to get a ride into space on one of these and actually get sort of providence from that? Or are we still looking to get that somewhere else?
No. So certainly, we have -- as we've spoken in the past, we have other prototype devices we've shipped out already in the last couple of years. And so it could be any of the programs we said in the past or these 2. One of these looks like is fairly accelerated in their time table. So there's a chance 1 of the ones we just hit this last quarter could get up fairly quickly.
Okay. And then -- just on Nokia lowest revenue from them in forever, what's the story on Nokia and the outlook for that router that you sell into?
So their contract manufacturers because we send these parts to 2 separate contract manufacturers and they were -- both had a little bit of inventory, so they were burning through some inventory. As far as the -- we get -- I think we've talked in the past a 12-month rolling forecast from Nokia and those still are coming in around the run rate we've been seeing for the last couple of quarters. So just a little bit north of what we did this past quarter, somewhere in the $1 million, $1.1 million kind of range a quarter.
Okay. And at Needham, I think you also mentioned in addition to looking for a partner, potentially a financial partner, potentially a development partner, possibly a hybrid of both of those for Gemini-III. I think you also mentioned something about potentially licensing IP. It sounds like for what would probably be an edge kind of case for semiconductor IP for doing in memory processing. Can you just talk about that? Would that be sort of an upfront license and then a royalty stream? Or just give some color around that.
Yes. IP -- Well, we are more focused on the Gemini-III. So it could be IP or it could be the product development for the customer. So basically, I think we have -- as we mentioned in the conference call, I mean, we made pretty good progress over the quarter. So yes, we're still working on it.
There are no further questions at this time. I'd like to hand the call back to Lee-Lean Shu for any closing comments.
Thank you all for joining us. We look forward to speaking with you again when we report our fourth quarter and the full year fiscal 2024 results.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.