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ATI Technologies yesterday announced its financial results for the third quarter of its 2003 fiscal year, which ended May 31, 2003. The results achieved by ATI Technologies should at least be called excellent since the company not only became profitable, but managed to raise its gross-margins and revenues substantially, continuing the tradition of its great fiscal year.

Revenues for the third quarter were $342.1 million compared to $318.5 million in the second quarter of fiscal 2003 and up 28% compared to the same period last year. Gross-margin was 32.9%, rising 4.0 percentage points from 28.9% in the second quarter. Operating expenses, excluding amortization of intangible assets and other charges, increased $9.1 million to $89.4 million compared to the second quarter. Increase in operating expenses was driven by stronger Canadian dollar ($1.3 million), approximately $1.5 million is primarily from accelerated depreciation on facilities the company plans to vacate, and approximately $3.9 million is associated with increased investment in R&D (including people, engineering support and prototypes). The increased selling and marketing expense is directly impacted by just over $1.0 million from variable expense associated with higher sales levels, as well as $1.7 million in additional advertising to support new product introductions.

Inventory levels increased slightly to $136.4 million at the end of the third quarter compared to the second quarter of 2003, where inventory was $131.3 million, but decreased significantly from inventory levels at August 31, 2002 of $175.3 million. Inventory levels are at an appropriate level to support sales.

The net income for the third quarter was $12.4 million or $0.05 per share compared to a net loss of $8.3 million or $0.04 for the second quarter of 2003 and a net loss of $2.0 million or $0.01 per share for the same period a year ago. Adjusted net income for the third quarter was $17.5 million or $0.07 per share compared to $9.7 million or $0.04 per share for the previous quarter, and $19.2 million or $0.08 per share for the same period a year ago.

Product mix in the third quarter:

  • The company launched RADEON 9200, RADEON 9600 and RADEON 9800 solutions for graphics cards. Additionally RADEON 7000 IGP and RADEON 9100 IGP chipsets were introduced. Sales of all products except the newly announced RADEON 9100 IGP stated during the quarter.
  • All ATI’s products sold well during the quarter.
  • Softness in royalty income for the Nintendo GAMECUBE console continues.
  • ATI Technologies indicated ASP increase in all segments. No word about unit growth. It might be either slight or flat.
  • Sales of products for mobile computers accounted 35-40% of revenue.
  • Roughly 90% of all shipped units are chips.
  • No indications about sales of previous generation products, e.g. RADEON 9000, RADEON 9500 and RADEON 9700. I think they all accounted a substantial part of sales.
  • ATI Technologies top executives said that market acceptance of the RADEON 9600 has been excellent and the company even cannot fulfil the demand. They also pointed out that the yields of the RADEON 9600 are higher than originally planned.
  • $18 million dollars were received on an unannounced contract. Executives declined to reveal which products involved in the contract.

Future Products:

  • The company will refresh its graphics processors family this Fall (presumably, this will be R360 and RV360 products substituting current R350 and RV350 products).
  • Hold on for a sub-$100 product with DirectX 9.0 support from ATI.
  • Another high-end graphics product will come this Winter. This is probably the one we know as R400 or R420.
  • RADEON 9100 IGP is basically intended for all market segments from low-end to high-end. At this time ATI does not want to discuss a discrete chipset.
  • ATI will ship RADEON 9100 IGP in August or September.

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