Q3 2020 Smart Global Holdings Inc Earnings Call
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I would now like to hand, the confidential which yields today.
Suzanne Schmidt Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us on todays earnings conference call to discuss March Global Holdings third quarter fiscal Twentytwenty result.
On the call with me today, our Adrs shot chairman and Chief Executive Officer.
Jack Pacheco, Chief operating and financial Officer.
This call is being webcast from our website at March G.H. Dot com.
In addition, our website contains an accompanying slide presentation and the earnings press release.
We encourage you to go to our website throughout the quarter for the most current information on the company, including information on the various financial conferences, we'll be attending.
Before we begin the call I would like to note that today's remarks and the answers to questions may include forward looking statements.
Any statements that refers to expectations projections or other characterizations of future events.
Including financial projection and the future market conditions is a forward looking statement.
Actual results may differ materially from those expressed in these forward looking statement.
For more information please refer to the risk factors discussed in the documents we file from time to time with the FCC, including our most recent form 10-K and form 10-Q.
We assume no obligation to update these forward looking statements, which speak as of today.
Additionally, during this call our non-GAAP financial measures will be discussed reconciliation to the comparable GAAP financial financial measures are included in today's press release.
With that I will now turn the call over to chairman and CEO Jay Shah.
[music].
Thank you so sad and welcome again to our quarterly call.
Suddenly living in some interesting times.
Despite facing some disruptions to our business early in the quarter.
We're pleased to report strong financial results at the high end up our expectations for the third fiscal quarter.
Thanks to the efforts of our employees around the world.
Oh come together to respond to that that the current challenges.
And also.
You bet dedication to our customer success.
Total net sales in the quarter increased by approximately 19% compared with a year ago corner.
And were driven in particular by strengthening our specialty memory business.
With the operating leverage from our cost efficient business model.
Non-GAAP net income and he P.S., well, even stronger increasing by 116%.
And 106% respectively.
As compared with last years third fiscal quarter.
As we will review in more detail later in this call. We continued to see strong financial performance ahead.
With new products in design wins that existing and new customers.
And with our cost and capital efficiency, we're well positioned to take advantage of opportunities.
This uncertain market environment.
Turning now to review apart from different businesses in the third quarter fiscal 2020, approximately 45% of revenues came from our especially memory products business.
33% from up Brazil business.
22% from especially computing products business.
Starting with the specialty memory products business, which generated.
127.7 million in revenue for the quarter or approximately 45% up the overall revenue.
Revenue this quarter was 15% higher than the previous.
<unk>, despite some headwinds from pandemic related slowdown.
That have impacted some of our industrial customers.
During the quarter, we announced Oh.
Variety of new high performance high density easier for module solutions for space constrained application.
These new module in a package or mid solutions.
Increase memory capacity in the industry like it would be.
Embedded computing broadcast video.
And maybe rubber applications among others.
Maximizing DRAM capacity within springs space constraints, our principal concern.
For example, this summit can be used instead of a standard DRAM marketing or or discrete DRAM.
In order to double the memory density and to use is little is one fifth of space required otherwise.
Feature, which is particularly appealing for certain industrial consumer military and aerospace applications.
We also continues to make great progress against our stated goal of expanding our reach across new geographies and customers.
On the DRAM side during the quarter.
We began production shipments up an application specific DRAM module.
For industrial Pester applications.
As well as a new DDR for based module for its edge computing.
Systems.
That enable secure access to cloud workstations.
We're also seeing good traction for NB didn't modules in the enterprise storage space.
These products provide persistence memory with unlimited insurance and very low latency.
In addition, our Ruggedized products are drawing increased customer interest from the industrial and defense markets.
Maybe recently achieved new design wins.
For an application to be used by the U.S. Navy.
And a boost that product to be used by the U.S. Army.
Moving onto I presume business, which generated 92.7 million in revenues for the quarter or approximately 33% of overall net sales.
And met our expectations.
Despite the issues with the pandemic related economic slowdown.
In the country and the weaker Brazilian currency.
Earlier in this past quarter the work from home phenomenon resulted in stronger demand for our DRAM based margins for notebooks MPC.
At the same time.
We saw lower sales of mobile memory at some of our smartphone customers factories in Brazil.
Well shut down for approximately three weeks.
Since that time however.
We've seen demand for Pcs and notebooks returned back to more normal level.
And Meanwhile, demand in our mobile memory business has recovered.
The Brazilian smartphone market is forecasted to see a unit sales slow down this year similar to other world markets.
However.
Particularly to Brazil, the average mobile memory capacity per phone has continued to increase steadily and so have our is species along with the density increases.
Helping to meet overall revenue expectations and the performance of the business.
Mobile memory capacities in smartphones in Brazil on average still lagging world beverages by a significant margin. So there's more room there.
In our Q3.
In Brazil, we introduced a seven chip based MCP or multi chip package.
With 64 gigabytes of flash and four gigabytes of LPDRAM.
For use by a major smartphone customers.
And that's subsequently seem to steady growth of high density mobile memory sales.
Additionally for the mid to high end smartphone market.
Our customers are now moving towards higher capacity products.
For delivery in the next fiscal year.
These new products will have 128 gigabytes of flash and four gigabytes of LPDRAM.
And we'll utilize.
Backing up 11 die in a package, including for flash devices.
Or LPDRAM devices, and a control that very advanced package.
Leading anywhere any packaging anyway in the world.
R&D team is working diligently on developing and qualifying these products.
And we expect to introduce these high density products over the next few quarters.
In this new environment as we've said before.
The new points based local manufacturing rules are very favorable to memory.
In fact, so much so that they are less favorable for other items such as batteries.
We are therefore revaluating our efforts in the battery market in Brazil.
Moving on to our specialty compute products business, which recorded revenues of 60.9 million in the quarter.
Or representing approximately 22% of overall revenue.
As you recall some of this business is more heavily weighted towards the end of the government's fiscal year.
This year due to the work from home situation.
Federal you and spending looks to be delayed as many program awards are running behind original timeline.
That said, we made significant progress across many aspects of this business.
Earlier in the quarter, we launched a new system on module.
Based on Qualcomm Snapdragon 660 process.
This compact connected computing module called the Inforce 65 or three.
Is designed for rugged displayed devices and enables advance visual computing.
Enhance graphics and on device machine learning capabilities.
I just use cases include applications, such as high and industrial I O T.
Well go.
And portable healthcare devices that require advanced imaging and connected cameras, all of which a fast growing areas that we can address.
With these new powerful connected solutions.
Also during the quarter, we announced that Penguin computing has expanded its partnership with Intel.
And is now joins the Intel Silicon solutions partner program.
So this collaboration.
I wouldn't will empower customers to leverage the potential of high performance computing Nei.
Who reference design.
And deliver a series of verified and quick to deploy infrastructure solutions.
Optimized for high performance computing, and AI slashed machine learning applications.
This expanded relationship follows Intelsat 2020, U.S. partner of the year Award enrich Bank thing when computing was honored for demonstrating excellence in technology platform design and integrated solutions development.
Additionally.
During the quarter Ics Penguin has expanded its partnership with Abbvie to deliver HPC systems to several top tier universities for cobot 19 related research.
And why you MIT and rice.
We'll use a series of it'd be press, a based Penguin computing on premises and cloud based HPC systems.
To help accelerate research across a range of pandemic related topics.
Including genomics.
Vaccine development transmission science in modeling.
We're very proud of our contribution to this research effort and be systems will be offered by us overtime. So even broader community of research and development project.
In summary, we've navigated this initial phase of the global health crisis without business performing very well.
And more importantly.
Without global workforce safe and adapting extremely well to this new work environment.
Both in our own operations.
And also in how we work with our customers an apartment is at a time like this.
We remain well positioned to navigate through this challenging time, and we will emerge stronger as a result of our target and differentiated product offerings.
Our superior operating model and our strong financial performance.
The primary markets that we serve all have growing requirements for additional capacity and more complexity in the memory and compute solutions, which is exactly where we excel.
We also continue to evaluate a number of opportunities.
To further leverage our operations strength with accretive acquisitions.
That both strengthen diversify and continue to drive the future growth in earnings for our company.
I'll now turn the call over to Jack Pacheco, our CFO for more detailed reviews, the financial as well as our forward guidance Jack.
Great. Thank you RJ overall gross revenue for the third fiscal quarter, plus 449.9 million well net sales for 281.3 million.
As a reminder, the difference between gross revenue and net sales is related to our supply chain services business, which is accounted for an agency basis, meaning that we only recognize net sales and net profit of supply chain services transaction.
Our breakdown of net sales by end markets, a third fiscal quarter was as follows mobile and PC, 27%.
Networking and telecom, 25% servers and storage, 15% industrial assess another 33%.
Now moving to the rest of the income statement non-GAAP gross profit for the third quarter, but 55.9 million.
Compared with last quarter 62.9 million.
As we transitioned to our embedded computing manufacturing to our newer to California, Tempe, Arizona location.
As well as managing expense extremely well in Brazil during a turbulent quarter.
Non-GAAP operating expenses were 35.5 million compared with 35.6 millions in the previous quarter.
Non-GAAP net income for third quarter was 17.1 billion or 70 cents per diluted share compared with 12.8 million.
52 cents per diluted share in the previous quarter.
Adjusted EBITDA totaled 25.4 million compared with 22.39 in the prior quarter.
Turning to working capital.
Our net accounts receivables totaled 223.2 million.
Compared with 217.4 million last quarter.
Our days sales outstanding decreased to 45 days for this quarter compared with 47 days last quarter.
And then story totaled 180.6 million at the end of the third quarter compared with $161.4 million at the end of the second quarter.
As we now have a fully transferred all of our embedded computing manufacturing from U.S. contract manufacturer to our new work in Tempe location.
As a fully aligned with our forecasts for the quarter.
Inventory turns remained flat around nine for both quarters.
Consistent with past practice accounts receivable days outstanding and inventory turnover are calculated on a gross sales and cost of goods sold basis.
Which were 449.9 million and 395.7 million respectively for the third quarter.
We ended the third quarter with 131.89 of cash cash equivalents compared with 141.9 billion at the in the prior quarter.
Despite actually increasing cash in Brazil by 60 million Brazilian real in the quarter due to the currency exchange headwinds. Our overall cash balance was reduced by 70.9 million US dollars after translation back to use the for the Brazilian Riyadh.
Third quarter cash flow from operations totaled 30.6 million compared with 23.3 million in the prior quarter.
On a trailing 12 month basis cash flow from operations totaled 111.2 million.
We exited our third quarter, but a very strong balance sheet as well the vastly improved capital structure. Thanks to the convertible note to supplement restructuring and repayment of debt that we executed last quarter.
For those are you tracking capex depreciation Capex was 7.5 million for the quarter and depreciation was 5.4 million.
Now, let me touch on some of the financial and operational dynamics. We're currently facing.
All of our manufacturing facilities across the globe can you can that continue to operate the service our customers.
We're still seeing strong demand from our customers for our fourth fiscal quarter and our guidance reflects as current view of the quarter.
As we discussed on our last call. We continue to close the analyze and assess our customers and their end markets for weakness or strength.
In Brazil is Haji mentioned earlier, we call qualified a seven died multi chip package during the quarter and are working on 11 die multitude package, which are higher density products may have a higher average selling price that are lower density solution.
These products will help to drive higher density demand by our customers and our future quarters.
With that as a backdrop, let me now turn to our guidance for the fourth quarter fiscal 2020.
We currently estimate that are fourth quarter net sales will be in the range of $290 million to 310 million.
Gross margin for the quarter is estimated to be approximately 20% to 22%.
GAAP earnings per diluted share expected to be approximately 34 cents per share plus or minus eight cents.
On a non-GAAP basis, excluding share based compensation expense intangible asset amortization fence and convertible debt discount I'd and feed we expect non-GAAP earnings per diluted share will be in the range of 78 cents plus or minus eight cents.
The midpoint of which represents an increase of 11% sequentially.
The guidance for the fourth fiscal quarter does not include any view on the foreign exchange gains and includes the income tax provision expected to be in the range of 16% to 20%.
The number of shares used to estimate earnings per diluted share for the fourth fiscal quarter is 24.5 million.
Capital expenditures for the fourth fiscal quarter are expected to be in the range of 6 million to 10 million.
Please refer to the non-GAAP financial information section and the reckon reconciliation of non-GAAP financial measures to GAAP results and reconciliation of GAAP net income to adjusted EBITDA tables earnings press release for further detail.
Operator, we're now ready to take questions.
Thank you.
As a reminder to ask a question you will need to press star wanting your telephone to withdraw your question press the pound.
Again that star one in your telephone to ask a question. Please standby, while we compile the culinary roster.
My first question comes from a line of Blayne Curtis of Barclays.
Your question please.
Hey, guys. Thanks, taking my question in a nice results.
Please just told me I just when you look at the segment in August.
It seems like you're expecting a recovery in Brazil, just trying to understand the other segment you were looking I believe last quarter, some pretty strong growth, especially if you said it pushed out is that business still going to be up and I guess second part of it is it just pushed one quarter or they're going to.
Kind of you dealt in any bit into just how long these pushed out to be.
Oh, I see a less apart first which is unfortunately.
We're not be.
We're not able to figure out exactly how long the delays are going to be I mean, there are projects in their projects that have been defined and even have.
From what we understand a signed funding I'm speaking, particularly of government programs and I think Thats, what you were asking but let blaine.
Yes.
And so I have to admit that we don't have a clear idea of exactly when.
These programs will will be.
Finally, released however enough in our third quarter and our fourth quarter, we have had.
Pretty strong commercial.
Sales and in all of it.
High performance computing business.
So overall the business continues but yes the yearend.
Federal.
Spend which is often linked to the human budget.
Is.
Not clear as to exactly how it's going to materialize this year and win.
You know because many of these contracts have.
Many of these.
Projects have a high security clearances and.
People can work from home on on some of them.
What we understand.
Got you.
And then maybe I guess given that answered just the first part of the question is.
Just looking at the three segments. If you have any color just directionally, what you're expecting in that 300 million dollar the midpoint guidance. It sounds like Brazil, what were your thoughts there segment.
This is mark is up very modestly, especially computers out.
And so while we're not predicting a.
As we said we are not predicting a significant number of federal ordered releases in this quarter.
This quarter being the Q4 period, we ran right now.
We are continuing to see other projects and so.
Especially computing does.
Continued to.
Improve actually.
You know meaningfully.
Brazil.
Steps up but not significantly.
And our specialty memory business continues to.
Perform well that's.
The forecast, we're working with right now.
It could be thinking low low double digits light on especially acute gross orders.
Yes, so why and then just maybe delayed it's OK overall.
And then just finally on gross margins I know your deal to shutdown. The gross margins were a bit lower than I guess of modeling for May is there any other factors and then as you look the August it grows a bit what are you what's driving that.
Yes, I mean, I think what's driving increasing gross margins I mean, you have a little bit.
You have the return of the.
Especially gives up a little bit that absent.
Gross margin percent to us.
In Brazil, we have a higher mix back to mobile a little bit I think you'll see from gross margins I think gross margins are up mainly because especially compute.
In Q4 from Q3.
Okay. Thanks.
Thank you. Our next question comes on the line of Sidney Ho.
What's your bank your line is open.
Great. Thank you Mike My first question is you guys talked about the memory content.
Is there is increasing and the may quarter and expect to continue to increase can you quantify for us what the impact on the average selling price.
Was in the last quarter I think.
Previous quarter into May and the February quarter, resetting ASP was up 60% and how do you think this trend in terms of nimbly content will go golf into to let's say the next six to 12.
Okay. So I think Q3, I think brazils ASP, you're pretty flat Q to Q2, two entities roads, there, but income down right, but I think we're looking.
We're probably looking for.
Some kind of probably looking maybe 2015, 20% growth maybe.
Q4, and Sps isn't what we're seeing right now.
And that that south.
And as we believe that new products and we've got some really high density products being released right. So those those products release.
I would expect to see a at fees.
Still moderately increased probably next year, even if memory prices do fall.
Oh.
Got it got it maybe a follow up question I know, you'll disclose isn't your 10-Q, but how was that gross margin by segment in the quarter and relate to that maybe I just ask the rest of the question. If I look back at the previous quarter gross margins for specialty compute has gone up a lot yield a year, which is what you guys expected but.
Reverse was truthful, especially memory, which I thought will be more stable I also don't recall Brasil margin being in the mid teens in the past I always thought is probably closer to 20%.
I assumed darrin higher logistics costs in operational cost, but my question is what needs to happen to get margins back to kind of normalized range for those businesses, which is what I'll call I'll call 20% of war.
Okay, well for Brazil, then you're at near normalized margins. So we ended up about 21% in Q3 for Brazil.
Okay specialty compute came down to 24% Jay mentioned that have higher makes a commercial and federally on commercial margins are lower so that business dropped down to 24% in the specialty drop.
Roughly 16% in the quarter in specialty work, we've been talking about couple things when we've been going out aggressively going to get share. So we are losing but a margin. There and then we introduced new products, which have 10 typically have a higher sales value, but a lower.
Gross margin percent in the quarter, so that impacted margins, a little bit, but yes, I think overtime specialty we'll get back to where it needs to be.
That results already kind of there in Q3.
Okay, maybe if I can squeeze in one last one last quarter you talk about DRAM lead time stretching to 12 to 15 weeks customers, placing orders early to get it gets to make sure they get their parts and backlog exiting the quarter pretty healthy can you give us an update on dose metrics in the current quarter. Thanks.
Right any flash is still you know we didn't flash is still out there for 16 weeks I mean DRAM.
Lead times have come down a little bit, but backlog is still very strong for this quarter everybody. We've got the worst need so I mean people still placing orders out in the right amount of time, and we're still expediting certain customers parts credit for them either quarter, though.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from a line of Kevin Cassidy of Rosenblatt Securities. Your question. Please.
Hi, Thank you and congratulations.
Make it through a tough time, Kevin I Wonder if you could be going a little more details on the significance of the seven died device.
Will this be.
I guess it increases your density will there be more phones manufactured using this and one of those phones do if they're not manufactured in in Brazil, what module with the youth.
So.
Let me try and that take Thats on the the seven died device is 64 gig flash and for gig LTV Bam.
And that's going into some phone probably started shipping this quarter.
11 died devices.
Probably the most complex product to be the manufactured.
In Brazil.
And is one of the leading.
We updated with anything being shipped anywhere in the world.
That's 128 gigabytes of flash.
And four gigabytes of we view them. So these products are going into sort of the mid to upper a range of smartphone.
The Super high end of smartphones may well be imported but that's.
Primarily we're talking what the iPhone.
The Super High end of it you know Samsung or Motorola or else. These phones.
Mostly made in country. So we do supply all of them.
Okay, Great and Oh, I'm, the specialty compute business.
You've been saying that you're seeing a lot of opportunities and good bookings can you describe how that the bookings are.
The contract scheduled over time and released against the forecast or I guess, you know how much visibility do get with both not just the Penguin portion of it but also some of the embedded compute and the wireless products.
Sure.
And you're right to point out there a little bit different Penguin computing is more in the project oriented business any.
No it could be a a project.
Lap or.
Often isn't a research department within.
Company or an analytics departments within the financial services organizations those are the kinds of applications where.
I phones computing systems go modeling weather.
So on those are the prime applications.
And they tend to be more project driven.
And as I was saying our commercial business is actually held up pretty.
Pretty well.
You know our.
Some of our government related business.
Which frankly tends to have this yearend.
Burst.
It's not seen the bush just yet.
We are hoping that some of these projects that have been.
Lined up for for a while will eventually.
Come out into.
Backlog, but they haven't yet.
Thats kind of what we were trying to explain.
Meanwhile, our embedded computing business is pretty good it's doing well and we have.
Opportunities that emerging in new areas and that business tends to get somewhat longer backlog.
And our wireless computing business, which has had its a relatively narrow our customer base.
Because it's a young company that is growing fast you know that.
Business is growing fast.
That business is.
A lot more design wins over the last couple of quarters.
And so as we look forward to fiscal 21.
We were looking at you know much more backlog driven business.
Similar to our embedded computing or specialty memory business.
I hope I am I answering the question you have.
Yeah that helps a lot. Thank you.
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Yes.
Thank you. Our next question comes from Rajvindra Gill of Needham and company. Your question. Please.
Thank you and I Echo my congrats on a tough environment.
In terms of the upside in the specialty memory market a you'd mentioned comes in these new perform or new products on module and packaged solutions.
Has that led to and outsize kind of market share gain I think you hinted that there were some share gains there basically kind of aggressive pricing, but I just wanted to get a little more clarity there.
It do you intend to kind of or do you feel very confident that this kind of new solution for high performance DDR for modules for space could trick or treating applications going to be the norm and some of these applications over the next several years, you see kind of a healthy attach rate.
I'm, just curious about that and the overall end markets within specialty memory with the kind of thoughts are there in terms of networking and enterprise server, how that's tracking.
Thank you right.
We try it and Jack can enhance.
The.
So first of all we don't look at it our specialty memory business in the same way as sort of market share oriented it's a big design win oriented.
Because you know the bye bye definitions, especially memories is working on applications, which I'm not in your main street.
So if someone is looking for standard DDR for module, our specialty memory business is not a good fit for that.
And we're not we're not trying to compete with that kind of a business.
We in fact Weve focused on all kinds of.
No.
Different all the way from very so you should think about the entire business like on a normal core.
We focus on the left side of the curve on the rightsize the because we don't focus on the mill I don't know that yep.
Engineers answer but.
The point is a we tend not to be focused on the very high boggy mainstream product.
And so when we find applications, which can use something particularly differentiated like the products I was talking about earlier than the.
You know module in a package.
And some of the you know.
Rugged solutions and so on.
Sometimes.
So to fit into the customers applications will be aggressive to two when the business and design.
And what we need then is for that business to come back to our normal margins overtime.
Do you know cost improvements and so on which is typical for our business. We will sometimes a forward price. If you know what I mean to be able to get.
You know the design win.
And yes, you know it's not something we are.
Particularly encouraging but on the other half for a big opportunity, we will do that and there's been a couple of large opportunities that we've been able to.
When as a result, and we're pretty confident that we will get out margins backup.
Two you know to levels that that makes sense.
Or consistent with our historical levels.
Good very good and my follow up in terms of seasonality in the business its.
It's been a bit volatile given the acquisitions and also given some of the external events trade war and obviously kogut.
So I'm curious to see how you in the management team, we're thinking about seasonality as we kind of progress throughout the year.
We have these kind of delays in government spending programs.
Where there is uncertainty whether that will come back or when it will hit how commercial strong.
Brazil, Sps could be going up and so I'm just curious how you how is everyone thinking about seasonality.
Yes so.
It's used to work seasonality and cyclicality.
Cyclicality as as you know many of you know a on the call, but following the memory business.
As a essential almost a feature off the memory marketplace.
We actually so far less cyclicality compared to let's say a.
Classic semiconductor memory companies that I'm sure many of you quite familiar with.
So our cyclicality is considered to be muted in fact, we're much more consistent.
The only place where we do suffered the cyclicality of memory prices.
Is Brazil, it's I think we've explained before we don't really see that much of it in our specialty memory business and certainly not in especially compute business.
We do see some seasonality or call it I'm, even this across the year.
In our especially compute business, particularly in the project oriented high performance computing business.
The other businesses may see a little.
For example, Brazil might see a little dip in in Q.
Well, one our fiscal Q1 because of ER.
The holidays and because of this.
Festivals and so on.
But overall our business is not that.
That.
You know.
Seasonal except.
To the extent in.
HPC high performance.
Jack.
Absolutely not me I think you know not typically rates our APC business has a good Q4 because of the budget flush.
That ends I'd mentioned earlier, that's getting a move download that so I mean, maybe.
Maybe we don't get a budget flush this year. So maybe are yeah, we would rule our Q1 might drift down we're not sure right now but.
I think that that's the one part of the business Thats getting affected the most.
Okay, with what's going out to cope with 19.
Issues out there, it's really the thing when the fed government business right now.
Okay, great. Thank you.
Thank you on next question comes from Brian Chin of Stifel. Your line is open.
Hi, good afternoon, nice nice job on the quarter and thanks for letting us ask the question.
Maybe to start off with especially memory Sars, there's feedback here.
Revenues back to what then I guess about 10% of your people struggle quarter and mall you know the broader canady my memory market is obviously down a lot more submit speak.
Was curious for your perspective. It is your design and sales momentum also reflecting the positive revenue synergies with the specialty embedded compute business.
I mean, we already world vendor to them before we acquired them.
So maybe we're getting a little bit extra memory, but I don't think it is that noticeable.
In the number and we would actually be ought to de lever that wouldn't get reported through specialty embedded computing anyway.
So our memory, especially memory guys wouldn't get the revenue on that way we reported.
Okay got it I understood the.
Terms and maybe some of the Brazilian currency effects on the P. an hour kind of business I guess, one Jack can you quantify that yes benefit the opex from your local operations in Brazil also.
Given that devaluation of the local currency I might expect a negative yes in device next locally but here you are expecting obviously, a meaningful asked detail. When I think you mentioned in fiscal Fourq you just to be clear this mainly reflect your strategic shift to support the higher density products.
Lobbyists.
It's not really strategic shift right I mean, we follow the roadmap the guys in Brazil, Samsung LG, Lenovo, Brazil, and so when they start saying we're going to go phones now on Brazil, where we need to hire.
You know density.
Product and we will develop those products in Brazil to meet the demand for Sally We decided we're going to go after that market in Brazil. Our customers have said, we're going to start to build phones in Brazil that need more memory and so we're going to support them with the products.
In Brazil, which which will be higher density product PSP should go up so even if you lost some units your should still be a positive on revenue and things in Brazil.
Fiscal 21.
So that that question you asked a few questions. So.
I think on specialty memory, I mean were.
As I said, we're we're winning design wins, especially memory. This interesting products that are that we're winning.
In that business, you know to our new we does take a long time to go from a design win to ramp.
In the revenue we've had some programs that we've been working on for a year year and half that were finally ramping into revenue and so that's having some of that impact on the remnant you're seeing there in the numbers.
For us and.
I, Yeah, Yeah, and I think that's that's a.
You know I think we're performing well with new design wins and one of the things that drives our specialty memory business is the need for customers to have something different I.
I know that sounds like an overly simplified statement, but that's really the bottom line I mean, if customers want it just the middle of the road standard DDR for DRAM module.
We wouldn't you know have a you know they would buyout firms have somewhat micron or someone like that.
We offer something different for specific applications and that's why we've been designs.
And that's where we win design and now if you look at the plethora of memory technologies out there today not just.
In vivo like DDR TVD, our four but look at the varieties of applications that are out there and consumer and industrial in defense.
And of course are more traditional markets networking and telecom and and so on and storage enterprise storage.
We are seeing just a tremendous variety of applications.
And the tremendous variety of technologies memory technologies.
Including emerging ones like Threed Cross point and of course, the queue of see flash and.
And so.
Our our Roadmaps are now much followed with a variety of application oriented products.
Which.
You know gives us the opportunity to increase our design wins and are attached that's really.
Underlying this business is a a need by specific customer.
Usage cases for something different something that's not supported by the mainstream middle of the vote memory module that comes from typically from the large semiconductor vendors.
Great Great makes sense that thanks, so much.
Thank you thanks Brent.
Thank you again to ask your question. Please press star wanting it touched on telephone again, that's star one on your test some telephone to ask your question.
My final question comes from a line of Mark faces of Jefferies. Your line is open.
Hi, Thanks for taking my question I had a few if I may.
On specialty memory odd.
Very impressive growth and I'm wondering if you know the products you know it sounded like a lot of new products that you're introducing and I wonder if this is.
Kind of of a result of they have an increased R&D effort or increase cadence.
Or is this just it seems to be.
Products hitting coincidentally at one time and can you talk about the nature of this business like how can any of these new products be.
10, or 20% of this business ultimately or is this you know what is the lifecycle or is this are these new products that are layered onto they have very long lifecycles a short life cycles is this the cadence that you need in order to do you know just to tread water growth. If you could kind of give us a characterization of the.
The especially memory business.
Well not be out the.
Diversity standpoint, and then size a potential business.
Try my best Mark and thank you for the question.
The investment in R&D started.
I don't know four to six quarters ago. So.
So.
As usual.
What you're seeing now is products that introduced today or in the last few months.
But were you know the investment in the team from an R&D standpoint.
Started.
Would you say, Jack five or six quarters ago, My easy that's another beefing up.
And so.
You know these costs are run rate cost already I mean, you've seen them in our cost structure over the life you or more.
The these new products I mean look we are.
You know spending our resources not expertise on identifying.
These kinds of opportunities both proactively as in we designed the product and and marketed.
And Reactively, if you will meaning some customers come and tell US you know, we really need a very low profile device.
Recently, we introduced in that says the in this E B F F F form factor.
I'm not sure if you're familiar with any of you might be familiar FFF, but it's a very low profile form factor.
For storage or you know boxes going forward.
And so we introduced a ssds for that application that we believe.
Has as a long legs because people are looking for.
More efficient footprint for many of the storage.
You know boxes.
And or many of these products are these all these products I mean by definition everything we do isn't each product.
Uh huh.
It's a I know it's.
Exactly counter to what you would hear from a large semiconductor company, we're not in the middle of trying to find the sweet spot at the highest density in the largest volume of let's say ssds.
We're really looking for.
That particular product, which gives you a differentiation.
And is a and we can engineer for that particular that set of applications and that's really where we are focused.
No. Each of these will have a different sort of market opportunity I have to admit so it's hard for me to give you a easy answer on well this product has a market opportunity of X hundred million or whatever.
But that's you know each of them internally, it's justified based on a certain you know revenue expectation.
And the certain margin contribution.
And then that justification is what drives our product a roadmap and eventually.
The revenue.
Sure enough.
And then more yeah Swiss river products are long lifecycle products I mean, the reason they byproduct.
The long lifecycle right. So and also some of these products and we're now getting revenue on they've been they've been undergoing customer qualification for over a year and something else somebody's got to your to qualify a product.
So they're just they're just getting out there now with are starting to buy them kind of volume.
Gotcha. Okay. That's that's very helpful and then on on this business.
You know a lot of times, who need here the kind of sequential growth that you put up you know up you know the cynic might say well, there's going to there's there's probably double ordering and so what what do you say to that people, who voice that concern like is there any way to track that what how would you care.
Tries inventories in the channel or you're at your end customers.
We know we have the supply chain business, where we know some are big customer inventory they have and I know we've been fall in Italy tightly our customers right. We've been really worked hard and ensure that it doesn't look like they have over inventory. So weve worked for the contract manufacturers.
No we're not seeing.
At least over inventory the contract manufacturers I made a lot of contract manufacturers, who are screaming that they're short apart right. So they are asking for parts now with.
If you know if they're buying too many from the contract manufacturers and their stuff in the channel. After that we don't have visibility of that but we don't we don't believe the contract manufacturers have been buying a bunch of parts for inventory holding onto them.
Got you that's fair and then a question on the government business a lot of times you you know at least historically you might afford the expression use or lose.
Coming from that segment is is that still the case is that a characteristic of that.
Don't use it by the ended the fiscal their fiscal year, then it goes away and is there any talk from that.
Summer segment about you know to avoid that like pre paying for systems, where.
You May you see a deferred revenue or something like this is there is there talk on that or is this still kind of up a black box in terms of that what happens at the ended the the budget flush.
I guess the short answer is we don't know.
HM.
Really I.
I think we'll all agree quite easily the this is not a normal year.
Yeah and.
You know, we just really no.
Luckily, it's not the biggest segment of our business.
And we still are getting I mean, let's just be clear that it's not that it's gone to zero. Its just that there are many projects that have been <unk>. You know these projects emerge over a nine to 12 month period, it's not like they suddenly show up.
And then they get defined we work with them to architect that solution to quota solutions together. The budget then it goes through an internal process within the government departments to sign it budgets are to it.
And that eventually.
Our gets a war.
Through a competitive process. It's the government. So you always have to have a competitive process.
And you know that whole process.
Extremely well defined no.
Question question is whether and your question is whether the yearend flush.
Somehow not happening this year.
And I really just don't know.
[laughter] spare [laughter] I completely understandable to and last question.
If I may on the you had how she had mentioned.
Hey, you know M&A, it's important part.
Of smart strategy and what has what has the.
What is the dependent make done for the you know that the target the environment for M&A targets. Yeah. You know if you look at that.
Yeah, you look at the stock market things seem to be valuation seem to be good but I'm wondering what on the private side what.
What's going on in the target environment or the businesses are our company's more willing to top conversations just to target environment get richer.
During a pandemic.
Yeah, I I think so I think that the target environment is a more active.
My initial thought as we went through March April was that this would kill transactions meaning.
That would be.
Sort of a freeze.
As you as you kind of saw in 2008 nine.
But it's been the most surprising year in many ways and this is certainly one of them.
In that there's been a very active set of Oh you know.
Not only transactions I mean, everyone on the call is quite familiar with ipos its been an active and pretty good year for ipos in the.
We would have thought.
And we're also seeing an act is a set of facts you know opportunities around M&A.
No you know.
With the stock market being where it is.
Overall, you know there's there's a question of how valuations are and expectations work.
But with the right opportunity said, where we can bringing a lot of our synergies, which is frankly, what we look for ways, but not just looking to be a financial buyer we own our.
Strategic buyer in a way because we are able to bring our operational and.
And and other synergies to bear.
And.
That would have to be part of the equation to make sense of any acquisition that we make.
And I think that those opportunities exists and you know we continue to evaluate them.
And the other good news is that you know in February we completed a a really.
Structuring off our balance sheet.
Where we took out.
Uh huh.
200 odd million of relatively shorter maturity debt and certainly much more expensive debt.
And replaced it with a convert that he's got a six year maturity. This happened just this February now it's extremely meaningful because we have a strong balance sheet.
We have very little in terms of short term debt our debt service costs have gone way, though.
And including amortization.
And Meanwhile.
No.
There are a numbers I was saying earlier of a number of interesting targets. So this is actually.
Time, when we are not only are.
Seeing some interesting opportunities, but also able to do something about.
Okay.
Great.
Oh, that's very helpful. Thanks for taking my questions.
Thank you.
Thank you at this time I'd like to turn the call back over to engage shop for closing remarks, Sir.
Thank you and thank you all for your interest in our company and we look forward to.
Speaking with you all again as we do a next quarter.
We're pleased to have reported strong results and be able to guide strongly forward as well.
And we look forward to your support and your interest. Thank you all very much for attending our call today.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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