On October 24, 2024, GSI Technology (NASDAQ: NASDAQ:GSIT) reported its second quarter fiscal 2025 earnings with revenues of $4.6 million, which aligned with the company's guidance but showed a decline from the $5.7 million reported in the same quarter the previous year. The company is experiencing a resurgence in its SRAM business and is progressing with its product developments, including the Gemini-II L and Plato for AI and large language model applications.
Despite these advancements, GSI Technology faced a net loss of $5.4 million, or $0.21 per diluted share, and a decrease in gross margin, attributed to a changing product mix and severance costs. The company also noted a one-time gain from a real estate transaction in the previous fiscal year and is currently undergoing a strategic review with Needham & Company.
Key Takeaways
- GSI Technology's Q2 fiscal 2025 revenue was $4.6 million, down from $5.7 million year-over-year.
- SRAM business is showing signs of recovery due to customer inventory depletion and new AI chip design demand.
- CEO Lee-Lean Shu confirmed progress on SBIR contracts and APU developments, including Gemini-II L and Plato products.
- Gross margin declined to 38.6%, and the company reported a net loss of $5.4 million, or $0.21 per diluted share.
- Cost-cutting measures are expected to save $3.5 million annually.
- The company's cash and equivalents rose to $18.4 million, with working capital increasing to $21.1 million.
- GSI Technology is conducting a strategic review with Needham & Company.
Company Outlook
- GSI Technology is optimistic about its SRAM business and product pipeline, including the Gemini-II L and Plato.
- The company expects to deliver software algorithms to the U.S. Air Force by Q1 2025.
Bearish Highlights
- Year-over-year revenue decline and a significant net loss indicate current financial challenges.
- Gross margin suffered a notable decrease due to product mix changes and severance costs.
Bullish Highlights
- The resurgence in the SRAM business and new AI chip design demand are positive indicators.
- The company's strategic review could potentially lead to beneficial restructuring or partnerships.
Misses
- GSI Technology's net loss has increased compared to the previous year's quarter.
- The gross margin has fallen substantially from the prior year.
Q&A Highlights
- The discussion included a new SRAM opportunity expected to exceed 10% of sales.
- Management expressed confidence in the upcoming third quarter fiscal 2025 results.
GSI Technology is navigating through a period of both challenges and opportunities as it undergoes a strategic review while advancing its product offerings. The company's financials reflect the difficulties in the market, but its developments in SRAM and AI-related products may pave the way for future growth. Management remains focused on cost-saving initiatives and product innovation as they prepare for the next fiscal quarter.
InvestingPro Insights
GSI Technology's recent earnings report paints a complex picture of the company's financial health, which is further illuminated by data from InvestingPro. Despite the reported revenue decline and net loss, InvestingPro data reveals that GSIT has a market capitalization of $86.52 million, reflecting investor confidence in the company's potential.
An InvestingPro Tip highlights that GSI Technology "holds more cash than debt on its balance sheet," which aligns with the company's reported increase in cash and equivalents to $18.4 million. This strong liquidity position is crucial as the company navigates its current challenges and invests in product development.
Another relevant InvestingPro Tip indicates that GSIT has seen a "strong return over the last three months," with a 20.77% price total return. This positive market performance suggests that investors may be optimistic about the company's strategic review and product pipeline, including the Gemini-II L and Plato for AI applications.
However, it's important to note that InvestingPro data shows a revenue decline of 20.93% over the last twelve months, corroborating the company's reported year-over-year revenue drop. Additionally, the operating income margin stands at -100.68%, reflecting the significant challenges GSIT faces in achieving profitability.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into GSI Technology's financial situation and market position. These additional tips, along with real-time metrics, can be invaluable for making informed investment decisions in the dynamic semiconductor industry.
Full transcript - GSI Technology Inc (GSIT) Q2 2025:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology’s Second Quarter Fiscal 2025 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 have also been asked to advise you that this conference call is being recorded today, October 24, 2024, at the request of GSI Technology. Lee-Lean Shu, the company’s Chairman, President and Chief Executive Officer, will be hosting the call today. 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.
Lee-Lean Shu: Good afternoon and thank you for joining us to review our second quarter fiscal 2025 financial results. We are starting to see a significant turnaround in our SRAM business this quarter, driven by two key factors. First, existing customers are actively depleting their channel inventories and we anticipate they will resume orders in the upcoming quarters. Second, we have secured a new SRAM design with significant growth potential. Our longstanding partnership with the provider in the semiconductor manufacturing process is using significant demand related to a new AI chip. Didier will cover this exciting development in more detail in his comments. I want to update you on our Phase 1 and 2 SBIR contracts. We are on track to meet the deadline for the Gemini-II benchmarking projects and fulfill our SBIR contract with the U.S. Air Force Research Labs by December 31, 2024, followed by the delivery of the software algorithm in the first quarter of calendar 2025. Didier will expand further on our SBIR opportunities in his comments. Switching now to the APU development. We remain on track to meet our milestones on Gemini-II, including the benchmarking, which will be completed by the end of this year. We are excited that we have software fixes for the bugs in the first spin of Gemini-II. This means we are much further ahead on the Gemini-II software development and the liability building at this stage than we will with Gemini-I. Lastly, on the APU road map, we are in early stage of hardware development of a potential APU for use with LLM which we named Plato. On our third quarter earnings conference call, I will provide more a detailed plan for this product and its potential applications. However, I want to ensure stakeholders now that we have a road map beyond Gemini-I and II for the APU that, we can execute given the company’s resources. In previous call, I discussed our SRAM opportunities – SAR opportunities. Two companies are currently using the APU for SAR applications. And both projects are progressing well. Didier will give an update on the current status of these engagements. For the fiscal second quarter, we reported revenue of $4.6 million, in line with our guidance. Our gross margin was under pressure this quarter due to the mix of products and nonrecurring severance costs related to workforce reductions in manufacturing. During the quarter, we introduced strategic cost-cutting measures to extend our financial runway and capitalize on our immediate and long-term opportunities. This action, including workforce reductions, across all departments and enhanced operational efficiency, a project to generate annualized savings of about $3.5 million, we picked this restructuring initiative and improved as revenue outlook to reduce our cash burn significantly. Now I will hand the call over to Didier, who will discuss our business performance further. Go ahead, Didier.
Didier Lasserre: Thank you, Lee-Lean. Let me start with the new SRAM opportunity that Lee-Lean mentioned earlier. Our customer system is used to manufacture our leading AI chip developers’ top-selling chip in their newly released chip. Volumes – shipments of our 144 megabit SRAM to this customer began at the start of calendar 2024, coinciding with an increase in the forecast for its product used an AI chip that is coming online. Demand for their product has been rising along the rapidly growing need for the top-selling and newly launched chips for the leading AI chip maker, fueled by the growth in high-performance computing hardware. Looking ahead, we anticipate even greater demand due to indications for a newly released chip requiring a higher capacity of this manufacturing product for these next-generation chip production needs. Interest in this new AI chip has been exceptional as leading tech companies compete to deliver the best hardware for their large language model platforms. We expect our collaboration with this customer to drive substantial demand for our SRAM chips. This customer is now positioned to become our number one customer in the near future. In addition, we have two other large existing customers that we have worked – that have worked through excessive inventory, and we anticipate this will increase SRAM orders in the future quarters. Let me switch to recap our SBIR work. We are still working through the milestones of the 2 SBIRs that we previously were granted. As a reminder, these were the $1.25 million and the $1.1 million, respectively. For the $1.1 million grant, we aim to deliver a YOLOv3 and YOLOv5 model within 4 months that can be used for any real-time object detection application. If you are unfamiliar with the acronym YOLO, it stands for you only look once. YOLO models are real-time object detection algorithms that immediately determine where objects are by drawing boxes around them and what those objects are by identifying their types in any image. We are still in contract negotiations on the SBIR we were awarded last quarter by new large division of the DoD for an edge board application. We hope to finalize that contract within the next month and begin working on the project deliverables before calendar year-end. Before I move on to customer and product breakdown, I want to expand on the SAR opportunities that Lee-Lean mentioned. GSI has engaged with two customers on SAR edge applications that have completed evaluations with Gemini-I. Recently, they both began evaluating Gemini-II. Our ongoing SAR engagement with an Asian defense research and development organization is transitioning from evaluating Gemini-I to a Gemini-II L which is a low-power version of our Gemini-II. This is intended for an in-flight application using SAR image generation. The project using Gemini-II L has specific applications that better align with the lower power profile needed for this flight application. Another customer, a U.S. aerospace company specializing in SAR technology, is investigating the possibility of using Gemini-II on a satellite for SAR applications. The company recently requested new benchmarks for a more complex application, which are in the process of – which we are in the process of executing now. As Lee-Lean mentioned, we are using the lessons learned from that experience to advance our timeline for Gemini-II. In both cases, we successfully used Gemini-I to demonstrate the SAR capabilities which paved the way for Gemini-II to be evaluated for use as a real-time edge application – I’m sorry, edge device for these applications. We are also leveraging SBIR opportunities, including ones that we have won to help fund the further development of Gemini-II and Plato. Let me switch now to customer and product breakdowns for the second quarter. In the second quarter of fiscal 2025, sales to Nokia (HE:NOKIA) were $812,000 or 17.8% of net revenues compared to $1.2 million or 20.3% of net revenues in the same period a year ago, and $998,000 or 21.4% of net revenues in the prior quarter. Military/defense sales were 40.2% of second quarter shipments compared to 34.8% of shipments in the comparable period a year ago and 31.9% of shipments in the prior quarter. SigmaQuad sales were 38.6% of second quarter shipments, compared to 55.8% in the second quarter of fiscal ‘24 and 36.3% in the prior quarter. I would now like to hand the call over to Doug. Go ahead, please.
Douglas Schirle: We reported net revenues of $4.6 million for the second quarter of fiscal 2025 compared to $5.7 million for the second quarter of fiscal 2024 and $4.7 million for the first quarter of fiscal 2025. Gross margin was 38% – 38.6% in the second quarter of fiscal 2025 compared to 54.7% in the second quarter of fiscal 2024 and 46.3% in the preceding first quarter of fiscal 2025. The decrease in gross margin in the second quarter of 2025 was primarily due to a shift in product mix and non-recurring severance costs associated with manufacturing workforce reductions. Total operating expenses in the second quarter of fiscal 2025 were $7.3 million compared to $7.2 million in the second quarter of fiscal 2024 and $1.1 million in the prior quarter. Prior quarter operating expenses included a gain of $5.7 million related to the sale and leaseback of the company’s headquarters. Research and development expenses were $4.8 million compared to $4.7 million in the prior year period and $4.2 million in the prior quarter. Selling, general and administrative expenses were $2.6 million in the quarter ended September 30, 2024, compared to $2.5 million in the prior year quarter and $2.6 million in the previous quarter. Second quarter fiscal 2025 operating loss was $5.6 million compared to an operating loss of $4.1 million in the prior year period and operating income of $1.1 million in the prior quarter. Second quarter fiscal 2025 net income included interest and other income of $149,000 and a tax provision of $23,000 compared to $71,000 in interest and other income and a tax provision of $33,000 for the same period a year ago. In the preceding first quarter, net loss included interest and other income of $55,000 and a tax provision of $57,000. Net loss in the second quarter of fiscal 2025 was $5.4 million or $0.21 per diluted share compared to a net loss of $4.1 million or $0.60 per diluted share for the second quarter of fiscal 2024 and net income of $1.1 million or $0.04 per diluted share, inclusive of one-time gain of $5.7 million on the sale leaseback transaction related to the sale of the company’s headquarters for the first quarter of fiscal 2025. Total second quarter pretax stock-based compensation expense was $663,000 compared to $676,000 in the comparable quarter a year ago and $658,000 in the prior quarter. At September 30, 2024, the company had $18.4 million in cash and cash equivalents compared to $14.4 million at March 31, 2024. Working capital was $21.1 million as of September 30, 2024 versus $19.1 million at March 31, 2024. Stockholder’s equity as of September 30, 2024, was $33.3 million compared to $36 million as of the fiscal year ended March 31, 2024. On a prior earnings call this year, we announced that the company had initiated a comprehensive strategic review and established a special committee of the Board to evaluate specific strategic alternatives. We continue to work with Needham & Company as our strategic and financial advisor to assist in this process. Operator, at this point, we will open the call to Q&A.
Operator: [Operator Instructions] Our first question comes from Jeff Bernstein with Silverberg Bernstein. Please proceed with your question.
Jeff Bernstein: Hi. Good afternoon. Question on the SRAM opportunity, so are you saying that’s for semi equipment wafer fabrication equipment customer, or is there semi test equipment customer?
Didier Lasserre: Along those lines, yes, we don’t want to give too much detail because right now, we don’t want to name our customer. I mean it’s been a customer we have had for many years, but they have never been a 10% customer. So, we haven’t identified them specifically. That will certainly change in the quarters coming up, because they will exceed that.
Jeff Bernstein: Got it. Okay. But it’s associated with manufacturing. Okay. And then just on the various APUs now. So, there was a mention of something called Plato. Is that like a low-power version of Gemini-II, or what’s Plato and what’s the L that you referred to, the low-power Gemini-II?
Didier Lasserre: Sure. So, we have – Gemini, as you know, Gemini-II L is a derivative of Gemini-II. It’s not a new design. It’s just a way that we can configure the die to make it work with 1 core or 2 core. If you recall, our Gemini-II, in fact, Gemini-I for that matter, have four cores. And so it’s a way for us to limit which – what’s working inside the chip. And so people can use kind of a smaller variable of the device, which in turn, gives them a very low power part. And so that’s – the Gemini-II L is just a derivative of our existing Gemini-II. Plato, however, is a new design. And it’s going after a different market. It’s going after the LLM market specifically on the edge. And so it will be very low power as well. If you are familiar with the LLM market today, some of the folks going after are going after with very, very large GPUs that require water cooling, what have you. And so in this case, this is more for edge LLMs and it will be a low-power solution.
Jeff Bernstein: Got it. And that’s for inference?
Didier Lasserre: Yes, correct.
Jeff Bernstein: Got it. Okay. That’s great. Thanks. I will let somebody else.
Operator: [Operator Instructions] There were no further questions. At this time, I would like to turn the call back over to management for any closing comments.
Lee-Lean Shu: Thank you all for joining us. We look forward to speaking with you again when we report our third quarter fiscal 2025 results. Thank you.
Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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