O2Micro Reports Third Quarter Financial Results

Oct 29, 2008
O2Micro Reports Third Quarter Financial Results

O2Micro Reports Third Quarter Financial Results

GEORGE TOWN, Grand Cayman--(BUSINESS WIRE)--Oct. 29, 2008--O2Micro® International Limited (NASDAQ®:OIIM) (SEHK:0457), a leading supplier of innovative power management and security components, will announce its financial results today for the third quarter of fiscal 2008 and for nine months ended September 30, 2008.

Financial results for the third quarter ending 9/30/2008:

Net sales for the third quarter of 2008 were $37.8 million, a decrease of 7.4% from the preceding quarter, and a decrease of 16.3% from the third quarter of the prior year. The GAAP gross margin on net sales was 59.3% in the third quarter, up from 58.2% in the preceding quarter, and 57.5% from the third quarter of the prior year.

The Company recorded a GAAP operating margin of 1.9% in the third quarter, after including the one-time write-off of $2.9 million in prepayments to foundry services. R&D expenditures were $9.8 million, or 26.0% of net sales, including $284,000 of stock-based compensation. SG&A expenses were $8.9 million, or 23.6% of net sales, including $429,000 of stock-based compensation.

During the third quarter, the company also wrote down investment assets related to the bankruptcy of SinoMos. This resulted in a one-time impairment loss on long-term investments of $13.1 million. It is reflected in the Non-operating Loss that was reported in the quarter.

GAAP Net Loss for the third quarter of 2008 was $12.6 million or $0.34 per American Depositary Share (ADS). This loss includes the one-time write-off of $2.9 million in prepayments to foundry services and the impairment loss on long-term investments of $13.1 million.

Financial results for the nine months ending 9/30/2008:

Net sales for the nine months ended September 30, 2008 were $116.1 million, a decrease of 1.9% from the prior year. The GAAP gross margin on net sales was 58.6% in the first nine months of fiscal 2008, up from 56.4% in the first nine months of fiscal 2007.

The Company recorded a GAAP operating margin of 6.4% for the first nine months of fiscal 2008. This compares with a GAAP operating margin of 13.7% in same timeframe of fiscal 2007. The major differences in the year-to-year comparison of operating margin include the one-time $2.9 million charge for the write-off of prepaid foundry services discussed above, as well as lower litigation income during 2008.

For the first nine months of fiscal 2008, R&D expenditures were $29.0 million, or 25.0% of net sales, including $830,000 of stock-based compensation; SG&A expenses were $30.7 million for the same period, or 26.4% of net sales, including $1.3 million of stock-based compensation.



GAAP Net Loss for the first nine months of fiscal 2008 was $5.9 million. GAAP Net Income for the first nine months of fiscal 2007 was $17.3 million. GAAP Earnings per fully diluted ADS declined from $0.45 in the first nine months of fiscal 2007 to GAAP Loss per ADS of $0.16 in the comparable period of fiscal 2008. These year-to-year declines were exacerbated by the write-off and impairment charges in the third quarter of fiscal 2008 that were discussed above, as well as by the higher non-recurring legal income that was recognized in fiscal 2007.

Supplementary data:

As of September 30, 2008, O2Micro had unrestricted cash and short-term investments of $97.1 million, or $2.59 per ADS. Net accounts receivable was $21.3 million, and there were 57 days sales outstanding in accounts receivable at the end of the third quarter of 2008. Inventory was $18.3 million and turned 3.2 times in the same quarterly period.

As of September 30, 2008, O2Micro's headcount consisted of 943 employees, including 628 people working in R&D. This headcount was down 120 employees from the end of last quarter due primarily to the planned divestiture of the OceanOne group.

Management Commentary:

Sterling Du, Chairman and CEO, commented, "O2Micro is facing the same challenges as every other company and we will rely on our commitment to R&D and new product development to see us through this difficult period." Mr. Du continued, "Although some of our customers are retrenching, we continue to be an important partner and expect to fully participate whenever a recovery comes about."



Conference Call: O2Micro will hold its third quarter conference call at 5:00 a.m. PDT, 8:00 a.m. EDT, and 8:00 p.m. Hong Kong time. You may participate using the following dial-in information.

In the US and CANADA:     866-409-1555, pass code #7041539
In HONG KONG:             800-965-503, pass code #7041539
Other INTERNATIONAL       913-312-1444, pass code #7041539
 participants:

A replay of the call will be available by phone until November 5th using the following dial-in information.

In the US and CANADA:       888-203-1112, pass code #7041539
In HONG KONG:               800-901-108, pass code #7041539
Other INTERNATIONAL         719-457-0820, pass code #7041539
 participants:

A live simulcast will also be available on the company website at www.o2micro.com, and an online replay will be available on the website for one week.

About O2Micro

Founded in April 1995, O2Micro develops and markets innovative power management and security components for the Computer, Consumer, Industrial, and Communications markets. Products include Intelligent Lighting, Battery Management, Power Management, and SmartCardBus® products.



O2Micro International maintains an extensive portfolio of intellectual property with 10,532 patent claims granted, and over 12,000 more pending. The company maintains offices worldwide. Additional company and product information can be found on the company website at www.o2micro.com.

O2Micro, the O2Micro logo, SmartCardBus, and combinations thereof are registered trademarks of O2Micro. All other trademarks are the property of their respective owners.

Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They include statements regarding O2Micro's future growth, long term profitability, increases in shareholder value, introduction of innovative technologies, expansion of O2Micro's product and patent portfolios, legal expenditures, litigation activity and other statements regarding O2Micro's or management's intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Factors that could cause actual results to differ materially include risks and uncertainties such as reduced demand for products of electronic equipment manufacturers which include O2Micro's products due to adverse economic conditions in general or specifically affecting O2Micro's markets, technical difficulties and delays in the development process, and errors in the products. You are also referred to the Form F-1 in connection with the company's initial public offering in August 2000, Form F-3 in connection with the company's public offering in November 2001, and the annual reports on Form 20-F, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. The company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

            O2Micro International Limited and Subsidiaries

   Consolidated Statements of Operations and Comprehensive Income
                              (Unaudited)

         (In Thousand U.S. Dollars, Except Per Share Amounts)

                         Three Months Ended       Nine Months Ended
                            September 30,           September 30,
                       ----------------------- -----------------------
                          2008        2007        2008        2007
                       ----------- ----------- ----------- -----------

NET SALES              $   37,787  $   45,139  $  116,133  $  118,367

COST OF SALES              15,383      19,200      48,040      51,640
                       ----------- ----------- ----------- -----------

GROSS PROFIT               22,404      25,939      68,093      66,727
                       ----------- ----------- ----------- -----------

OPERATING EXPENSES
 (INCOME)
Research and
 development (1)            9,813       8,683      29,026      24,856
Selling, general and
 administrative (1)         8,930      11,765      30,691      34,573
Write-off of
 prepayments to
 foundry services           2,942           -       2,942           -
Litigation income               -      (5,500)     (2,000)     (8,864)
                       ----------- ----------- ----------- -----------
Total Operating
 Expenses                  21,685      14,948      60,659      50,565
                       ----------- ----------- ----------- -----------

INCOME FROM OPERATIONS        719      10,991       7,434      16,162
                       ----------- ----------- ----------- -----------

NON-OPERATING INCOME
Interest income               547         830       1,710       2,458
Foreign exchange loss         (93)        (65)       (522)       (213)
Impairment loss on
 long-term investments    (13,073)          -     (13,073)          -
Other - net                    20         105          29         112
                       ----------- ----------- ----------- -----------
Total Non-operating
 Income (Loss)            (12,599)        870     (11,856)      2,357
                       ----------- ----------- ----------- -----------

INCOME (LOSS) BEFORE
 INCOME TAX               (11,880)     11,861      (4,422)     18,519

INCOME TAX EXPENSE            689         448       1,525       1,265
                       ----------- ----------- ----------- -----------

NET INCOME (LOSS)         (12,569)     11,413      (5,947)     17,254

OTHER COMPREHENSIVE
 INCOME (LOSS)
Foreign currency
 translation
 adjustments                 (820)        511       1,797         835
Unrealized gain (loss)
 on available-for-sale
 securities                (1,623)     (1,318)     (4,715)      2,479
                       ----------- ----------- ----------- -----------
Total Other
 Comprehensive Income
 (Loss)                    (2,443)       (807)     (2,918)      3,314
                       ----------- ----------- ----------- -----------

COMPREHENSIVE INCOME
 (LOSS)                $  (15,012) $   10,606  $   (8,865) $   20,568
                       =========== =========== =========== ===========

EARNINGS (LOSS) PER
 SHARE:
Basic                  $  (0.0068) $   0.0060  $  (0.0032) $   0.0091
                       =========== =========== =========== ===========
Diluted                        NA  $   0.0058          NA  $   0.0089
                       =========== =========== =========== ===========

EARNINGS (LOSS) PER
 ADS
Basic                  $    (0.34) $     0.30  $    (0.16) $     0.45
                       =========== =========== =========== ===========
Diluted                        NA  $     0.29          NA  $     0.45
                       =========== =========== =========== ===========

SHARES USED IN
 EARNINGS PER SHARE
 CALCULATION:
Basic (in thousands)    1,845,031   1,902,278   1,872,860   1,904,506
                       =========== =========== =========== ===========
Diluted (in thousands)  1,848,713   1,960,613   1,880,790   1,931,983
                       =========== =========== =========== ===========

ADS UNITS USED IN
 EARNINGS PER ADS
 CALCULATION:
Basic (in thousands)       36,901      38,046      37,457      38,090
                       =========== =========== =========== ===========
Diluted (in thousands)     36,974      39,212      37,616      38,640
                       =========== =========== =========== ===========

(1) INCLUDES STOCK-
 BASED COMPENSATION
 CHARGE AS FOLLOWS:
Research and
 development           $      284  $      273  $      830  $      803
Selling, general and
 administrative        $      429  $      362  $    1,277  $    1,066

            O2Micro International Limited and Subsidiaries
                     Consolidated Balance Sheets
           (In Thousand U.S. Dollars, Except Share Amounts)

                                          September 30,  December 31,
                                               2008          2007
                                           ------------   -----------
ASSETS                                     (Unaudited)
-----------------------------------------

CURRENT ASSETS
Cash and cash equivalents                 $      38,538  $     52,597
Restricted cash                                   1,156         6,830
Short-term investments                           58,594        28,650
Accounts receivable - net                        21,297        24,600
Inventories                                      18,319        22,127
Prepaid expenses and other current assets         2,747         7,476
                                          -------------- -------------
Total Current Assets                            140,651       142,280
                                          -------------- -------------

LONG-TERM INVESTMENTS                            13,320        26,715
                                          -------------- -------------

PROPERTY AND EQUIPMENT - NET                     35,410        43,148
                                          -------------- -------------

OTHER ASSETS
Restricted assets - net                           2,251        12,393
                                          -------------- -------------
Other Assets                                     13,701         3,876
                                          -------------- -------------

TOTAL ASSETS                              $     205,333  $    228,412
                                          ============== =============

LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------------
CURRENT LIABILITIES
Notes and accounts payable                $       5,923  $     10,841
Income tax payable                                  977         1,065
Accrued expenses and other current
 liabilities                                     11,365        11,597
                                          -------------- -------------
Total Current Liabilities                        18,265        23,503
                                          -------------- -------------

OTHER LONG-TERM LIABILITIES
Accrued pension liabilities                         457           520
FIN 48 tax liabilities                              225           210
Other liabilities                                    24             -
                                          -------------- -------------
Total Long-Term Liabilities                         706           730
                                          -------------- -------------

Total Liabilities                                18,971        24,233
                                          -------------- -------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Preference shares at $0.00002 par value
 per share
   Authorized - 250,000,000 shares                    -             -
Ordinary shares at $0.00002 par value per
 share
   Authorized - 4,750,000,000 shares
   Issued - 1,875,740,250 and
    1,911,868,150 shares as of September
    30, 2008 and December 31, 2007,
    respectively                                     37            38
Additional paid-in capital                      144,403       144,944
Retained earnings                                46,003        56,847
Accumulated other comprehensive income              728         3,646
Treasury stock - 46,813,450 shares and
 5,000,000 as of September 30, 2008 and
 December 31, 2007, respectively                 (4,809)       (1,296)
                                          -------------- -------------
Total Shareholders' Equity                      186,362       204,179
                                          -------------- -------------

TOTAL LIABILITIES AND SHAREHOLDERS'
 EQUITY                                   $     205,333  $    228,412
                                          ============== =============

CONTACT: O2Micro

Gary E. Abbott, 408-987-5920 ext. 8888 Director of Investor Relations


gary.abbott@o2micro.com

SOURCE: O2Micro International Limited