ATI Reports Fourth Quarter Financial Results Above Guidance

by Anton Shilov
10/05/2003 | 12:41 AM

ATI Technologies announced its financial results for the fourth quarter of its 2003 fiscal year ended August 31, 2003. The company delivered yet another strong quarter and is ready for more.

Revenues for the fourth quarter were – above guidance – $380.7 million compared to $355.7 million in the third quarter of fiscal 2003 and 70.8% higher than the same quarter a year ago. Gross margin was 35.6%, rising 3.0 percentage points from 32.6% in the third quarter. Operating expenses, excluding amortization of intangible assets and other charges, increased $9.7 million to $99.5 million compared to the third quarter.

Net income for the fourth quarter was $22.3 million or $0.09 per share compared to net income of $15.0 million or $0.06 per share for the third quarter of 2003 and a net loss of $34.6 million or $0.15 per share for the same period a year ago.

Adjusted net income for the fourth quarter was $29.0 million or $0.12 per share compared to $20.1 million or $0.08 per share for the previous quarter, and an adjusted net loss of $0.1 million or $0.00 per share for the same period a year ago.

During fiscal 2003, ATI Technologies reviewed its revenue recognition accounting policy as it is applied to the shipment of products to its customers. Following this review, the company corrected its revenue recognition accounting policy by revising the timing of when revenue is recognized to more clearly identify the point in the shipping process when the risk and rewards of ownership have been transferred to the customer. This change and the related income tax effect have been applied retroactively. The financial statements of all prior periods presented for comparative purposes have been restated to give effect to this change.

ATI continues to be optimistic about its outlook for fiscal 2004, and anticipates traditional seasonality, whereby the strongest quarter is the first quarter, followed by a relatively constant to slightly weaker revenue and profit profile until the fourth quarter.

Highlights of the fourth quarter, product, design wins announcements:

• ATI launched two new workstation products the FireGL X2-256 and FireGL T2-128.
• ATI unveiled the ALL-IN-WONDER 9600 PRO.
• The first notebooks using ATI’s MOBILITY RADEON 9600 VPU hit the market.
• ATI announced an agreement with Microsoft for future XBOX related products, technologies and services. ATI now has future technology agreements with two of the three major console makers.
• A major cell phone manufacturer moved into volume production of cell phones using ATI IMAGEON graphics processor.
• ATI started shipping its RADEON 9100 IGP at the end of the quarter to some of the world’s largest mainboard manufacturers.
• Both Apple notebooks announced during the quarter are powered by RADEON VPUs.

Highlights of the fourth quarter, financials:

• Gross margins were up 3% to 35.6%.
• Inventory level is also up $40 million to $176 million and is representing 60 days of sales; According to the management, the quality of inventory mix is “good”.
• All product segments “did well”, according to ATI.

Product mix notes for the fourth quarter:

• Chips accounted for “mid-90%” of sales, boards – less than 10%, putting aside consumer products.
• Graphics products for desktop PCs accounted for roughly 55% of revenues, mobile solutions accounted for 45% (the numbers obviously do not reflect performance of consumer division as well, editor);
• Mobile integrated products accounted 10% - 20% of total sales;
• Consumer products, primarily lead by handheld chips, contributed revenues in the “high-single digit” range as a percentage of sales (less than 10% indicated by the management during Q3’s conference call, obviously, because of revenue exceeding expectations, editor).
• Among consumer products, chips for handhelds account for 60% of revenue;
• The company claims the company has signed a number of contracts with Sony in HDTV field.
• ATI Technologies noted MSI as one of its AIB partners during conference call.
• The management says RADEON 9600 XT is produced using 300mm wafers using low-k process at TSMC, but claims that margins for the RADEON 9800 XT are the same as for RADEON 9600 PRO.

Expectations for the future, financials:

• ATI expects revenues in the first quarter of fiscal 2004 to be between $400 and $430 million.
• Gross margin for the first quarter, as a percentage of revenues, is expected to be within ATI’s target range of 32 - 35% because of pressures from competitors. In general, the management noted during conference call that it maintains its conservative position regarding the margins, as “price pressure from competition” is possible;
• Operating expenses, excluding amortization of intangibles and other charges, are expected to be about the same as the fourth quarter.
• As a result of the above, adjusted net income should be flat to marginally higher in the first quarter of fiscal 2004 relative to the fourth quarter of fiscal 2003.

Expectations for the future, products:

• ATI expects sales of products for Nintendo GAMECUBE to uptick in Q1 fiscal 2004.
• PCI Express transition will happen “in three quarters from now”, according to the company’s top officials (rather bold claim, I should say, Editor);
• ATI pins lots of hopes on PCI Express and supporting core-logic products;
• The executives said during the conference call that the market of desktop integrated graphics is new for the company and we should not expect breakthroughs there.
• RADEON 9100 IGP to first emerge in channel and notebooks, OEM contracts with desktop PC makers may follow afterwards, but nothing is clear at this point.
• The management believes products with integrated graphics to account 15% to 25% of revenue by the end of fiscal 2004, including both mobile and desktop products.
• They anticipate desktop integrated to account less than 10% of sales in fiscal 2004.
• Consumer products to account from 10% to 20% of sales in fiscal 2004.
• The management projected ATI’s chips for mobile phones with support for 3D, but with very low power consumption. The products to be demonstrated at “nearest trade-shows”.

Interesting statements:

• The company has 10 design teams for various products (e.g. consumer-handhelds, consumer-DTV, north bridge-Intel, north bridge-AMD, south bridges, etc, management).