Semiconductor slow-down hits SBS orders

SBS Technologies has published its results for the third quarter of 2005, reporting sales of $37.3 million and net income of $256,000 for the three months to 31st March 2005.

SBS Technologies has published its results for the third quarter of 2005, reporting sales of $37.3 million and net income of $256,000 for the three months to 31st March 2005.

"Although our financial results for this past quarter were below our original expectations, our nine months sales are up 20% over the first nine months of last year and our nine month book-to-bill ratio is 1.02 to 1", said Clarence W Peckham, CEO of SBS Technologies.

"We are executing a sound overall strategy, which we believe will continue to deliver growth in sales and earnings over the next several years".

"Sales for the quarter were below our original expectations due to the decrease in sales from key customers in the semiconductor manufacturing equipment industry, and softness in the company's quick-turn, short lead time business".

"In addition, several government programmes that we anticipated to start production in this fiscal year continue to be delayed".

"The continued sales from lower margin, production business, competitive pricing primarily from commercial and communications customers, and the softness in the company's higher margin, quick-turn business lowered gross margin as a percentage of sales", continued Peckham.

Sales for the third quarter were $37.3 million, an increase of 2% compared with $36.6 million in sales for last year's third quarter.

On a sequential basis, total sales decreased 12%, compared with $42.2 million in sales for the quarter ended 31st December 2004.

Sales for the nine months ended 31st March 2005 were $114.5 million, a 20% increase from $95.7 million in sales for the same period of the prior fiscal year.

By segment, sales for the third quarter by the Americas Group were $22.9 million, a decrease of 13%, and sales by the Europe Group were $14.4 million, an increase of 40%, 7% of which is the result of changes in currency exchange rates, both compared with the third quarter of the previous fiscal year.

On a sequential basis, sales by the Americas Group decreased 15% and sales by the Europe Group decreased 5%, both compared with the quarter ended 31st December 2004.

Sales for the nine months ended 31st March 2005 by the Americas Group were $73.3 million, a 5% increase, and sales by the Europe Group were $41.1 million, an increase of 60%, 10% of which is the result of changes in currency exchange rates, both compared with the nine-month period ended 31st March 2004.

By end market, for the quarter ended 31st March 2005, sales to government customers were $17.4 million, a decrease of 2%, sales to commercial customers were $9.0 million, a decrease of 23%, and sales to communications customers were $10.9 million, an increase of 53%, all compared with the third quarter of the last fiscal year.

On a sequential basis, sales to government customers decreased 7%, sales to commercial customers decreased 25%, and sales to communications customers decreased 5%, all compared with the quarter ended 31st December 2004.

For the nine months ended 31st March 2005, sales to government customers were $51.5 million, an increase of 5%, sales to commercial customers were $31.3 million, an increase of 7%, and sales to communications customers were $31.7 million, an increase of 80%, all compared with the same period of the prior fiscal year.

For the quarter ended 31st March 2005, as a percentage of total sales, sales to one communications customer, Ericsson, represented 17% and sales to one commercial customer, Applied Materials, represented 8%.

No other customer represented more than 5% of sales.

Net income for the quarter ended 31st March 2005 was $256,000, compared with $2.1 million for the same period of the prior fiscal year.

For the nine months ended 31st March 2005, net income was $3.7 million compared with $2.5 million for the nine months ended 31st March 2004.

Net income per common share - assuming dilution, for the quarter ended 31st March 2005, was $0.02, compared with $0.14 reported for the third quarter of the prior fiscal year.

Net income per common share - assuming dilution, for the nine months ended 31st March 2005, was $0.23, compared with $0.16 reported for the same period of the prior fiscal year.

The financial results for the three-month and nine-month periods ended 31st March 2004 included restructuring costs associated with the closure of the Carlsbad, California facility which negatively impacted net income per common share - assuming dilution by approximately ($0.01) and ($0.11), respectively.

Gross profit for the quarter as a percentage of sales was 42.5%, compared with 48.4% for the third quarter of the prior fiscal year, and 45.5% for the preceding quarter.

Continued sales from lower margin production business, competitive pricing primarily from commercial and communications customers, and the softness in the company's quick-turn, higher margin business lowered gross margin as a%age of sales.

Total company backlog as of 31st March 2005 was approximately $45.1 million, compared with $44.4 million at the end of the third quarter of the last fiscal year, and $45.9 million for the preceding quarter.

The total company book-to-bill ratio was 0.99 to 1 for the quarter and 1.02 to 1 for the first nine months of fiscal year 2005.

Total bookings were $36.8 million for the quarter and $116.3 million for the nine months ended 31st March 2005.

The total cash balance at the end of the third quarter increased approximately 9% to $55.0 million, compared with $50.5 million for the quarter ended 31st December 2004, and SBS remains debt free.

During the quarter ended 31st March 2005, SBS achieved five design wins.

Each reported design win represents an initial purchase order of a minimum of $100,000 and is forecasted to produce a minimum of $500,000 in annual sales when in production.

By end market, the design wins included three in the government market, one in the commercial market and one in the communications market.

In the government market, all of the design wins were system solutions.

Two applications were avionics flight systems and the third was a naval sonar system.

The commercial design win consisted of a single board computer for a semiconductor manufacturing equipment application, and the communications design win was a single board computer for a communications analyser.

"We now have a total of 21 design wins for the first three quarters of this fiscal year".

"Our business development efforts in all markets continue to show an increase in opportunities, but these opportunities are taking longer than expected to turn into design wins and then into production", said Peckham.

"We are pleased to be the first in our industry to offer an InfiniBand-based VITA 41 solution".

"This opens up a new market for SBS for high performance VME-based applications".

"We are a solutions company, and we will continue to focus on providing our customers standard products with the latest technology", continued Peckham.

"In summary, we have seen a reduction in sales from the semiconductor manufacturing equipment sector, quick-turn business, and delays in production from government programmes".

"However, we are confident we are taking the right actions to develop our business".

"We are maintaining our strong focus on product and global business development as evidenced by the growth in our European business, our recent investments in Asia, and our aggressive new product introductions".

"We believe that these actions will continue our long term growth", said Peckham.

"In the government market, opportunities continue to be based on upgrade programmes as well as new applications in unmanned vehicles".

"Our systems business is still the majority of our government opportunities, and the delays in production from government programmes we have experienced are primarily a matter of timing of follow-on orders".

"As previously announced, we have invested in additional resources to accelerate growth in this market".

"The commercial market is flat-to-slow growth with the key areas for SBS being semiconductor manufacturing equipment and medical".

"The strength of our company and market diversity enables us to weather the fluctuations of the cyclical semiconductor manufacturing market".

"We remain committed to this market and we continue to work with our customers on their current and next generation systems".

"Advanced medical applications require higher performance data transfer capabilities".

"Our InfiniBand product line is being evaluated for several of these applications".

"Communications sales in the wireless area are strong with Ericsson still being our number one customer".

"To support continued growth in this market, we have extensive development efforts underway for Advanced Mezzanine Card-based products for the emerging ATCA market".

"Feedback from our customers who have reviewed our Advanced Mezzanine products has validated our product plans".

"At Supercomm in June, we will be announcing several new additions to our Advanced Mezzanine Card product family".

"We believe that this product family will be a significant contributor to our long term growth".

"Looking forward, we believe the business conditions we experienced in the third quarter will continue through the balance of our fiscal year".

"Based on our forecasts, current backlog, and timing of new orders, we expect sales for the fourth quarter ending 30th June 2005 to be between $35 million and $37 million".

"For the fiscal year ending 30th June 2005, we expect our sales will be approximately $150 million".

"Since we currently are conducting our annual evaluation of our business plans, we have removed the financial model from our website until this process is completed", continued Peckham.

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