The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Condensed Consolidated
Financial Statements and related notes thereto included elsewhere in this
report. This discussion contains forward-looking statements. Please see the
"Cautionary Statement" above and "Risk Factors" below for discussions of the
uncertainties, risks and assumptions associated with these statements. Our
fiscal year-end financial reporting periods are a 52- or 53-week fiscal year
that ends on the Saturday closest to
Impact of COVID-19
A new strain of novel coronavirus which causes a severe respiratory disease
("COVID-19") was identified in 2019, and subsequently declared a worldwide
pandemic by the
Overview
We are a leading provider of silicon, software and solutions for a smarter, more connected world. Our award-winning technologies are shaping the future of the Internet of Things (IoT), internet infrastructure, industrial automation, consumer and automotive markets. Our world-class engineering team creates products focused on performance, energy savings, connectivity and simplicity. Our primary semiconductor products are mixed-signal integrated circuits (ICs), which are electronic components that convert real-world analog signals, such as sound and radio waves, into digital signals that electronic products can process.
As a fabless semiconductor company, we rely on third-party semiconductor
fabricators in
Our expertise in analog-intensive, high-performance, mixed-signal ICs and software enables us to develop highly differentiated solutions that address multiple markets. We group our products into the following categories:
? Internet of Things products, which include wireless connectivity,
microcontroller (MCU) and sensor products; and
Infrastructure and automotive products, which include timing products (clocks
? and oscillators); power products (isolation and Power over Ethernet (PoE)
devices); broadcast products (consumer and automotive radio devices); and
access products (Voice over IP (VoIP) products and embedded modems).
The sales cycle for our ICs can be as long as 12 months or more. An additional three to six months or more are usually required before a customer ships a significant volume of devices that incorporate our ICs. Due to this lengthy sales cycle, we typically experience a significant delay between incurring research and development and selling, general and administrative expenses, and the corresponding sales. Consequently, if sales in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our operating results for that quarter and, potentially, future quarters would be adversely affected. Moreover, the amount of time between initial research and development and commercialization of a product, if ever, can be substantially longer than the sales cycle for the product. Accordingly, if we incur substantial research and development costs without developing a commercially successful product, our operating results, as well as our growth prospects, could be adversely affected.
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Because some of our ICs are designed for use in consumer products, we expect that the demand for our products will be typically subject to some degree of seasonal demand. However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors on our business.
Current Period Highlights
Revenues increased
We ended the first quarter with
Through acquisitions and internal development efforts, we have continued to diversify our product portfolio and introduce new products and solutions with added functionality and further integration. In the first three months of fiscal 2021, we introduced a new 32-bit MCU on our award-winning xG22 platform for IoT edge applications; a new isolated gate driver board designed to simplify the development of systems using power modules; and new SmartClock™ technology for our automotive timing solutions.
During the three months ended
The percentage of our revenues derived from outside of
Results of Operations
The following describes the line items set forth in our Condensed Consolidated Statements of Income:
Revenues. Revenues are generated predominately by sales of our products. Our revenues are subject to variation from period to period due to the volume of shipments made within a period, the mix of products we sell and the prices we charge for our products.
Cost of Revenues. Cost of revenues includes the cost of purchasing finished silicon wafers processed by independent foundries; costs associated with assembly, test and shipping of those products; costs of personnel and equipment associated with manufacturing support, logistics and quality assurance; costs of software royalties, other intellectual property license costs and certain acquired intangible assets; and an allocated portion of our occupancy costs. Our gross margin fluctuates depending on product mix, manufacturing yields, inventory valuation adjustments, average selling prices and other factors.
Research and Development. Research and development expense consists primarily of personnel-related expenses, including stock-based compensation, as well as new product masks, external consulting and services costs, equipment tooling, equipment depreciation, amortization of intangible assets and an allocated portion of our occupancy costs. Research and development activities include the design of new products, refinement of existing products and design of test methodologies to ensure compliance with required specifications.
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Selling, General and Administrative. Selling, general and administrative expense consists primarily of personnel-related expenses, including stock-based compensation, as well as an allocated portion of our occupancy costs, sales commissions to independent sales representatives, amortization of intangible assets, professional fees, legal fees, and promotional and marketing expenses.
Interest Income and Other, Net. Interest income and other, net reflects interest earned on our cash, cash equivalents and investment balances, foreign currency remeasurement adjustments, income or loss on equity method investments, and other non-operating income and expenses.
Interest Expense. Interest expense consists of interest on our short and long-term obligations, including our convertible senior notes and credit facility. Interest expense on our convertible senior notes includes contractual interest, amortization of the debt discount and amortization of debt issuance costs.
Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences.
The following table sets forth our Condensed Consolidated Statements of Income data as a percentage of revenues for the periods indicated:
Three Months Ended April 3, April 4, 2021 2020 Revenues 100.0 % 100.0 % Cost of revenues 41.1 39.9 Gross margin 58.9 60.1 Operating expenses: Research and development 29.9 33.1
Selling, general and administrative 20.3 25.2 Operating expenses
50.2 58.3 Operating income 8.7 1.8 Other income (expense): Interest income and other, net 1.1 1.5 Interest expense (4.4) (2.6) Income before income taxes 5.4 0.7 Provision (benefit) for income taxes 0.1 (0.3) Net income 5.3 % 1.0 % Revenues Three Months Ended April 3, April 4, % (in millions) 2021 2020 Change Change Internet of Things$ 158.2 $ 118.1 $ 40.1 34.1 %
Infrastructure and automotive 97.3 96.8 0.5 0.4 % Revenues
$ 255.5 $ 214.9 $ 40.6 18.9 %
The change in revenues in the recent three-month period was due to:
Increased revenues of
? increased demand for our wireless connectivity products and MCU products and
the addition of revenues from an acquisition.
Increased revenues of
? products, due primarily to increased demand for our access products, offset by
decreased demand for our timing products.
Unit volumes of our products increased by 32.9% and average selling prices
decreased by 10.1% compared to the three months ended
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Gross Profit Three Months Ended April 3, April 4, (in millions) 2021 2020 Change Gross profit$ 150.6 $ 129.2 $ 21.4 Gross margin 58.9 % 60.1 % (1.2) %
Gross profit increased during the recent three month period due primarily to
increased product sales. The change in gross profit in the recent period was due
to an increase in gross profit of
We may experience declines in the average selling prices of certain of our products. This creates downward pressure on gross margin and may be offset to the extent we are able to introduce higher margin new products and gain market share with our products; reduce costs of existing products through improved design; achieve lower production costs from our wafer suppliers and third-party assembly and test subcontractors; achieve lower production costs per unit as a result of improved yields throughout the manufacturing process; or reduce logistics costs.
Research and Development Three Months Ended April 3, April 4, % (in millions) 2021 2020 Change Change Research and development$ 76.5 $ 71.2 $ 5.3 7.4 % Percent of revenue 29.9 % 33.1 % - -
The increase in research and development expense in the recent three month
period was primarily due to increases of
Selling, General and Administrative
Three Months Ended April 3, April 4, % (in millions) 2021 2020 Change Change
Selling, general and administrative
20.3 % 25.2 % - -
The decrease in selling, general and administrative expense in the recent three
month period was primarily due to decreases of
Interest Income and Other, Net
Interest income and other, net for the three months ended
Interest Expense
Interest expense for the three months ended
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Provision (Benefit) for Income Taxes
Three Months Ended April 3, April 4, (in millions) 2021 2020 Change
Provision (benefit) for income taxes
1.5 % (35.4) % -
The increase in the effective tax rate for the three months ended
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