Atheros Communications Announces Q3 2005 Results

25 October 2005

AtherosCommunications, Inc. (Nasdaq: ATHR), a leading developer of advanced wirelesssolutions, today announced financial results for the third quarter of 2005,ended Sept. 30, 2005. Revenue in the third quarter was $45.8 million, up six percent from the$43.4 million reported in the second quarter. Gross margins in the thirdquarter were 43.5 percent, in line with the company's target model, comparedwith 41.6 percent in the second quarter. In accordance with U.S. generally accepted accounting principles (GAAP),the company recorded a third quarter net income of $2.2 million or $0.04 perdiluted share. This compares with a GAAP net loss of $216,000, or $0.00 perdiluted share in the second quarter of fiscal 2005. Total cash and investments increased to $164.6 million at Sept. 30, 2005,compared with $164.1 million at June 30, 2005. Atheros reports net income and basic and diluted net income per share inaccordance with GAAP and additionally on a non-GAAP basis. Non-GAAP netincome excludes the effect of the amortization of stock-based compensation.In the third quarter of 2005, non-GAAP net income was $2.6 million, or $0.05per diluted share, compared with non-GAAP net income of $401,000, or $0.01 perdiluted share, in the second quarter of fiscal 2005. "Our WLAN business was strong and profitable in the third quarter,especially in the enterprise and PC OEM channels," said Craig Barratt,president and CEO of Atheros. "We also gained additional design wins for ourROCm(TM) embedded solutions for the consumer electronics market. These andother new products are increasing our total available market in WLAN, where weremain focused on our goal of being number one. "Shipments of our AR1900 to UTStarcom for the PAS cellular handset marketin China accelerated in the third quarter. We were also very pleased toreport that our overall average selling prices declined only four percent inthe quarter, a significant improvement from previous quarterly declines of 10to 15 percent. "Design win activity remained robust in all product categories, ascustomers continued to adopt our single-chip solutions. We are now seeingmany expected benefits, including operational leverage, from the significantinvestments we have been making in the company's research and developmentprograms over the past two years. Our third quarter results and ourvisibility into the fourth quarter position us well for continued growth andprofitability in 2006 and beyond," he said. "Earlier this month, we announced our leadership in and endorsement of theEnhanced Wireless Consortium (EWC) and its efforts to accelerate adoption ofthe 802.11n standard. Based on the unified specification, we plan to leverageour market-leading technology and CMOS integration expertise to deliverEWC-based 802.11n-based products for high-bandwidth connectivity through thehome, enterprise and mobile environments as early as the first quarter of2006," Dr. Barratt said. Highlights -- On Sept. 19, Atheros and Spansion announced a partnership to deliverinnovative packaging solutions for handset manufacturers, calledPackage-on-Package (PoP). This unique packaging allows a reduction in thesize of today's dual-mode cellular/WLAN mobile phones by vertically stackingAtheros' ROCm(TM) 802.11a/g and 802.11g solutions with Spansion'sMirrorBit(TM) Flash memory. This solution enables handset manufacturers toprovide valuable new services, such as Voice-over-IP (VoIP) and WLAN dataconnectivity for fast download of content such as ring tones, music, videoclips, games, and email, in very small form factors. -- During September, Atheros announced that consumers are purchasing moreMIMO (Multiple Input Multiple Output) wireless networking products based onthe Atheros Super G(R) technology than any other MIMO solutions. According toNPD weekly data, Atheros based MIMO products sold in North America made up amajority of all MIMO based WLAN product sales in the third quarter. -- TRENDnet launched a new WLAN product portfolio featuring Atheros' SuperG, Super A/G(R) and VLocity(TM) MIMO technologies. TRENDnet, a manufacturerof wired and wireless networking solutions, is offering three new highperformance WLAN product lines based on Atheros' performance-improvingtechnologies, which enable users to enjoy throughput and coverage benefits ofnetworking equipment that also interoperates seamlessly with standard 802.11gand 802.11a/g devices. -- Lenovo announced that it has introduced its first notebook computerswith Atheros PCI Express chips, which enhance performance and mobility of itsnew ThinkPad Z60. Introduced in April, the Atheros 802.11a/g AR5006EX and802.11g AR5006EG are the world's first complete single-chip WLAN solutions tosupport the PCI Express interface. -- The company announced its endorsement of the Enhanced WirelessConsortium (EWC) and its efforts to accelerate completion of the 802.11n WLANstandard. Atheros, a founding member of the EWC, plans to deliver chipsetsbased on the new WLAN specification introduced by the EWC as early as thefirst quarter of 2006. The group's proposal is a blueprint for semiconductormanufacturers to develop chipsets for interoperable, high performance WLANproducts. Other EWC members include Airoha, Apple, Azimuth, Broadcom, Buffalo,Cisco, Conexant, D-Link, Gateway, Gemtek, Intel, Lenovo, Linksys, LitePoint,Marvell, Metalink, Mitsubishi, NETGEAR, Nvidia, Ralink, Realtek, SANYO, Sony,Symbol Technologies, Toshiba, USRobotics, WildPackets, Winbond and ZyDAS, withadditional members expected to join. -- Earthlink, using equipment from Tropos Networks, was chosen as the WiFiequipment vendor for the city of Philadelphia's free network. Tropos'equipment is based on Atheros 802.11g technology. Conference Call Atheros will broadcast its third quarter 2005 financial results conferencecall today, Monday, Oct. 24, 2005, at 2 p.m. Pacific time (5 p.m. Easterntime). To listen to the call, please dial 630-395-0018 approximately 10 minutesprior to the start time. The pass code is Atheros. A taped replay will beavailable approximately one hour after the conclusion of the call and willremain available for one week. To access the replay, dial 203-369-3287. The Atheros financial results conference call will be available via a livewebcast on the investor relations section of the Atheros web site athttp://www.atheros.com. Please access the web site approximately 15 minutesprior to the start of the call to download and install any necessary audiosoftware. An archived webcast replay of the call will be available on the website for one year. About Atheros Communications, Inc. Atheros Communications is a leading developer of semiconductor systemsolutions for wireless communications products. Atheros combines its wirelesssystems expertise with high-performance radio frequency (RF), mixed signal anddigital semiconductor design skills to provide highly integrated chipsets thatare manufacturable on low-cost, standard complementary metal-oxidesemiconductor (CMOS) processes. Atheros technology is being used by a broadbase of leading customers, including personal computer, networking equipmentand handset manufacturers. For more information, please visithttp://www.atheros.com or send email to info@atheros.com. NOTE: Atheros, the Atheros logo, Super G, Super AG, ROCm and VLocity aretrademarks of Atheros Communications, Inc. Note on Forward-Looking Statements Except for the historical information contained herein, the matters setforth in this press release, including Atheros' goal of being number one inthe WLAN market; the anticipated future results of Atheros, including expectedgrowth and profitability in 2006 and beyond; the plans of Atheros to deliver802.11n-based products based on the EWC's specification as early as the firstquarter of 2006; the timing of the adoption of an 802.11n standard and whetherthe specification promoted by the EWC will be adopted as the standard; andAtheros' design wins and the introduction of Atheros' products into variouscustomers' products, are forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. These forward-lookingstatements are subject to risks and uncertainties that could cause actualresults to differ materially, including, but not limited to, the impacts ofcompetition, technological advances and pricing pressures; general economicconditions; variability in the quarterly operating results of Atheros and itscustomers; the rate of growth of wireless telecommunications markets; whetherand in what form the EWC specification is adopted as the 802.11n standard; thetiming of adoption of an 802.11n standard; difficulties in the development ofnew products and technologies, including Atheros' anticipated 802.11nproducts; manufacturing difficulties; whether Atheros is successful inmarketing its products; and other risks detailed in Atheros' Quarterly Reporton Form 10-Q for the quarter ended June 30, 2005 as filed with the Securitiesand Exchange Commission, and in other reports filed with the SEC by Atherosfrom time to time. These forward-looking statements speak only as of the datehereof. Atheros disclaims any obligation to update these forward-lookingstatements. ATHEROS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Net revenue $45,800 $38,262 $130,407 $127,954 Cost of goods sold 25,893 20,800 74,089 68,215 Gross profit 19,907 17,462 56,318 59,739 Operating expenses: Research and development 11,657 10,404 34,121 30,625 Sales and marketing 4,262 3,824 12,715 11,484 General and administrative 2,627 2,139 7,200 6,432 Stock-based compensation 441 918 1,512 3,058 Total operating expenses 18,987 17,285 55,548 51,599 Income from operations 920 177 770 8,140 Interest income, net 1,262 658 3,360 1,281 Income taxes (30) (68) (525) (753) Net income $2,152 $767 $3,605 $8,668 Basic earnings per share $0.04 $0.02 $0.07 $0.21 Diluted earnings per share $0.04 $0.01 $0.07 $0.17 Shares used in computing basic earnings per share 48,984 46,762 48,582 41,345 Shares used in computing diluted earnings per share 53,617 52,428 53,499 51,486 Non-GAAP net income (*) $2,593 $1,685 $5,117 $11,726 Shares used in computing non-GAAP basic earnings per share (*) 48,984 46,762 48,582 41,345 Shares used in computing non-GAAP diluted earnings per share (*) 53,617 52,428 53,499 51,486 Non-GAAP basic earnings per share (*) $0.05 $0.04 $0.11 $0.28 Non-GAAP diluted earnings per share (*) $0.05 $0.03 $0.10 $0.23 Reconciliation of GAAP Net Income to Non-GAAP Net Income Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 GAAP net income $2,152 $767 $3,605 $8,668 Stock-based compensation 441 918 1,512 3,058 Non-GAAP net income $2,593 $1,685 $5,117 $11,726 (*) To supplement our consolidated financial statements presented in accordance with GAAP, we have shown above a non-GAAP measure of net income, which is adjusted from results based on GAAP to exclude stock-based compensation. This non-GAAP measure is provided to enhance the user's overall understanding of our historical financial performance. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding stock-based compensation expenses. ATHEROS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September 30, December 31, 2005 2004 ASSETS Current assets: Cash, cash equivalents and marketable securities $164,577 $154,485 Accounts receivable, net 29,522 29,750 Inventory 21,685 15,215 Prepaid expenses and other current assets 4,842 3,611 Total current assets 220,626 203,061 Property and equipment, net 5,260 2,757 Other assets 583 545 $226,469 $206,363 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $43,956 $33,022 Long-term liabilities 1,139 301 Stockholders' equity 181,374 173,040 $226,469 $206,363

Source: PR Newswire