Add
SIRF to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SIRF > SEC Filings for SIRF > Form 10-Q on 5-Nov-2008 | All Recent SEC Filings |
5-Nov-2008
Quarterly Report
This report on Form 10-Q contains forward-looking statements, including, but not limited to, statements about the expected growth of the our product development, the impact and success of our acquisitions or investments, the impact and success of our restructuring, the impact of current and potential legal proceedings, the impact of weakening demand, increased competition and a weak macroeconomic environment on our business, the demand for and our ability to meet market demand for low power and small size Global Positioning Systems functionality products, the anticipated benefits of our products, our leadership position, the decline in average selling prices, our expectations regarding the amount of our net revenue from sales to the Asia-Pacific region, our belief that a significant amount of the systems designed and manufactured by customers in the Asia-Pacific region are subsequently sold to original equipment manufacturers outside of that region, our anticipated growth, our anticipated cash needs, our estimates regarding our capital requirements, our needs for additional financing, the impact from changes in interest rates and foreign currency rates, our tax liability, our inventory and potential write-offs, our critical accounting policies, our disclosure controls and procedures, our expectations on competition, our dependency on establishing and maintaining relationships with established providers and industry leaders, our successful integration of acquired businesses, our acquisitions of or investments in complementary technologies, our expectations regarding our dependency on future sales of the SiRFstarIII and SiRFAtlas product lines, our revenue and sources of revenue, our international operations, our stock price volatility, the fluctuation of our revenue and operating results, our gross margins, our operating expenses, our successful implementation of our new ERP system, our dependency on relationships with and concentration of our customers, potential price reductions, our dependency on qualified personnel, our ability to qualify a new foundry or process, global economic environment, our intellectual property, including our ability to obtain patents in the future and protection of intellectual property in foreign countries. These forward-looking statements may be identified by such terms as "anticipate," "believe," "may," "might," "expect," "will," "intend," "could," "can," or the negative of those terms or similar expressions intended to identify forward-looking statements.
These forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied by the forward-looking statements, such as, without limitation, the development of the market for GPS-based location awareness technology, factors affecting our quarterly results, our sales cycle, price reductions, our dependence on and qualification of foundries to manufacture our products, production capacity, our ability to adequately forecast demand for our products, our customer relationships, our ability to compete successfully, our ability to successfully integrate acquired businesses, our ability to successfully implement our restructuring plan, our product warranties, the impact of our legal proceedings, the impact of our intellectual property indemnification practices and other risks discussed in "Risk Factors" in this report. These forward-looking statements represent our estimates and assumptions only as of the date of this report. Unless required by law, we undertake no responsibility to update these forward-looking statements.
All references to "SiRF," "we," "our," or the "Company" mean SiRF Technology Holdings, Inc. and its subsidiaries, except where it is clear from the context that such terms mean only this parent company and excludes subsidiaries.
SiRF®, SiRFstar ®, SiRFXTrac®, SiRFDRive®, SiRFLoc ®, SiRFNav®, SiRFSoft®, SoftGPS®, Centrality®, Atlas®, the SiRF name and orbit design logo and Multimode Location Engine ® are our registered trademarks. The following are trademarks of SiRF Technology, Inc., some of which are pending registration as intent-to-use applications: SiRFstarIII™, SiRFstarII™, SnapLock™, SnapStart™, FoliageLock™, SingleSat™, TricklePower™, Push-to-Fix™, SiRF Powered™, SiRFLink™, SiRFSoftGPS™, SiRFDiRect™ LocativeMedia™, SiRFDemo™, SiRFDemoPPC™, SiRFecosystem™, SiRFFlash™, SiRFFlashEngine™, SiRFFlashEngineEP™, SiRFFlashMulti™, SiRFGetEE™, SiRFInstantFix™, SiRFInstantFixII™, SiRFLocDemo™, SiRFsandbox™, SiRFstudio™, SiRFView™, Locations; Because Life Moves™ and The Power of Location Now™, Titan™, SiRFprima™, SiRFatlas™, SiRFtitan™, Go Ahead, Explore™,, iBTStack™, iWaltz™, iWiND™, and iWiSH™. This quarterly report on Form 10-Q also includes trade names, trademarks and service marks of other companies and organizations.
The following discussion of our financial condition and results of operations should be read together with the unaudited Condensed Consolidated Financial Statements and accompanying notes in this report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.
Overview
We are a leading semiconductor supplier of Global Positioning System, or GPS, based location technology solutions designed to provide location awareness capabilities in high-volume mobile consumer and commercial systems. Our products have been integrated into mobile consumer devices such as mobile phones, automobile navigation systems, personal digital assistants, portable navigation devices and GPS-based peripheral devices, and into commercial systems such as fleet management and road-tolling systems.
We market and sell our products to original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, in four major markets: wireless handheld devices, such as mobile phones; automotive electronics systems, including navigation and telematics systems; consumer electronics products such as recreational GPS handhelds, mobile gaming machines, digital cameras and wearable devices; and mobile computing systems, including personal digital assistants, notebook computers, universal mobile personal computers and mobile internet devices. As we supply products that support multiple applications within these four major markets, we do not have the ability to discretely track separate financial information for each of these markets. Additionally, we market and sell our products to value-added manufacturers, or VAMs, which typically provide GPS modules or sub-systems to certain OEMs, and through intellectual property partners, which integrate our core technology into their products. Intellectual property partners are typically large semiconductor companies.
In addition to the sale of chip sets, our business depends on the volume of production by our technology licensees, which in turn depends on the current and anticipated market demand for semiconductors and products that use semiconductors.
Our operations are directly impacted by cyclicality in the semiconductor industry, which is characterized by wide fluctuations in product supply and demand. This cyclicality could cause our operating results to decline dramatically from one period to the next. Additionally, our results are impacted by our customers' ability to predict end-user (i.e. consumer) demand for the devices they sell utilizing our products, as well as the consumer demand. Continuing uncertainties in the global economic environment, which affect consumer demand, coupled by intensifying market competition, have negatively impacted our result of operations in the recent quarters (as further described below under "Assets Impairment"), and may continue for the near future and beyond.
Assets Impairment
Beginning in February 2008, we continued to experience a significant decline in our stock price, resulting in our market capitalization falling below our net book value. In addition, during the second quarter of 2008, our demand outlook rapidly deteriorated due to increased competitive pressure within certain of our markets, as well as macroeconomic uncertainty which translated to general softness in the demand for devices utilizing our technology. In addition, litigation has continued to be a significant expense in the first nine months of 2008 at $18.0 million. Refer to Item 1, Legal Proceedings, under Part II, Other Information, in this report for further information. As a result, in the second quarter of 2008, we significantly reduced our forecasted revenue, gross margin and operating profit.
These factors outlined above triggered an impairment analysis of our goodwill and acquisition-related intangible assets in the second quarter of 2008. We also performed impairment analyses of our deferred tax assets and note receivable. Based upon the impairment analyses in the second quarter of 2008, we recorded the following non-cash charges in the first nine months of 2008:
• Acquisition-related intangible assets impairment of $42.9 million, $12.5 million of which was recorded under cost of revenue and the remainder under operating expenses of our condensed consolidated statement of operations. Refer to Note 11, Goodwill and Intangible Assets, to the Condensed Consolidated Financial Statements in Item 1 of this report for further information, as well as further discussion under the Results of Operations included elsewhere within Management's Discussion and Analysis of Financial Condition and Results of Operations section.
• Goodwill impairment of $215.7 million, which was recorded under operating expenses of our unaudited condensed consolidated statement of operations. Refer to Note 11, Goodwill and Intangible Assets, to the Condensed Consolidated Financial Statements in Item 1 of this report for further information, as well as further discussion under the Results of Operations included elsewhere within Management's Discussion and Analysis of Financial Condition and Results of Operations section.
• Deferred tax assets valuation allowance of $38.0 million, which was recorded as part of the provision for income taxes of our unaudited condensed consolidated statement of operations. Refer to Note 14, Income Taxes, to the Condensed Consolidated Financial Statements in Item 1 of this report for further information, as well as further discussion under the Results of Operations included elsewhere within Management's Discussion and Analysis of Financial Condition and Results of Operations section.
Additionally, we evaluated the recoverability of our note receivable and determined it was no longer probable that the principal amount under the note receivable was fully recoverable based on information received related to the business prospects of the noteholder. Accordingly, we recorded impairment charges of $11.8 million in the first nine months of 2008. Refer to Note 15, Note Receivable, to the Condensed Consolidated Financial Statements in Item 1 of this report for further information, as well as further discussion under the Results of Operations included elsewhere within Management's Discussion and Analysis of Financial Condition and Results of Operations section.
While it is difficult to determine whether deteriorating demand outlook, increased competitive pressure and the macroeconomic uncertainty will continue, we believe that these factors will continue to negatively impact our business.
New Product Offerings and Developments
Our ability to develop and deliver new products successfully depends on a number of factors, including our ability to predict market requirements, anticipate changes in technology standards, and develop and introduce new products that meet market needs in a timely manner. We believe there is significant demand in the market for low power and small size GPS functionality. Our ability to meet these market requirements is a key element for our revenue growth.
In 2007, we announced the following new products: SiRFstarIII GSD 3t, our first 90 nm RFCMOS single die SiRFstarIII architecture-based product, and SiRFDiRect, a premium software offering that achieves navigation accuracy and coverage previously available only in costly, permanently installed in-car systems. Employing sophisticated algorithms that take advantage of closely coupled GPS and dead-reckoning sensor measurements, SiRFDiRect technology will deliver high quality positioning, even in locations with limited GPS signals, without the installation inconvenience and high cost of traditional in-dash navigation systems. In 2007, we also hosted the first Location 2.0 summit for location industry leaders. The first of its kind event brought together key leaders from across the location industry ecosystem: operators and service providers, device manufacturers and enabling platform providers as well as content and application developers. At the summit we unveiled our SiRFecosystem™ strategy and introduced SiRFstudio™, a standards-based, end-to-end location services enabling platform. We also announced that SiRF was a founding member of the Open Handset Alliance, and that we will rapidly implement key end-to-end location awareness features to enable mobile platforms powered by the Android™ platform, the Alliance's open and comprehensive platform for mobile devices, to provide an optimal location experience for consumers. In 2007, we joined with Google Inc. and thirty other companies worldwide to develop and deploy Android™.
In 2008, we introduced SiRFInstantFixII™ technology, an autonomous version of SiRF's original SiRFInstantFix technology that is designed to improve the start-up times of portable navigation devices, or PNDs, and other mobile navigation devices without needing any network connectivity for assistance or updates. SiRFInstantFixII is designed to reduce warm starts, the typical PND start-up mode, from over half a minute to as little as five seconds. In addition, we began shipping the GSC3e/LPx and GSC3f/LPx, the latest versions of the SiRFstarIII™ architecture that are manufactured utilizing 65nm process technology. The GSC3e/LPx and GSC3f/LPx deliver the flagship SiRFstarIII technology at lower power consumption than the previous generation products, GSC3e/LP and GSC3f/LP. We also launched our SiRFprima™ multifunction platform to enable the next generation of location-aware mobile devices that significantly enhance the consumer experience for location applications and media rich content. The SiRFprima platform combines an industry leading GPS and Galileo, the European equivalent to GPS, location engine, powerful application processor, rich audio and video recording and playback capabilities, high-resolution 3D graphics and a host of peripheral interfaces - all tuned to operate concurrently. Supporting both WinCE and Linux operating system environments, the SiRFprima platform will give manufacturers greater flexibility to create in a timely and cost-effective manner unique, full-featured products that meet consumers' high expectations for performance, affordability and portability.
Litigation
We are currently involved in material litigation. Refer to Item I, Legal Proceedings, under Part II, Other Information, in this report for further information. See also Item IA, Risk Factors, under Part II, Other Information, specifically the risk factors titled, "Any potential dispute involving our patents or intellectual property or third party patents or third party intellectual property could be costly, time-consuming and may result in our loss of significant rights" and "We have been named as a party in several putative shareholder class action and derivative lawsuits, which could cause our business, financial condition, results of operations and cash flows to suffer".
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and, if different, estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur, that could materially change the financial statements. Our critical accounting policies include: (1) revenue recognition, which impacts the recording of revenue; (2) valuation of inventories, which impacts cost of revenue and gross margin; (3) stock-based compensation expense, which impacts cost of product revenue, gross margin and operating expenses, as well as our footnote disclosures; (4) the assessment of recoverability of long-lived assets including goodwill and other intangible assets, the potential impairment of which impacts cost of product revenue and operating expenses; and (5) income taxes which impacts provision for income taxes and the valuation of our deferred tax assets and liabilities. We also have other key accounting policies that are less subjective, and therefore, their application would not have a material impact on our reported results of operations. The following is a discussion of our critical accounting policies, as well as the estimates and judgments involved.
Revenue Recognition. We derive revenue primarily from sales of semiconductor chip sets and, to a lesser extent, from licenses of our intellectual property and premium software products.
Revenue from sales of semiconductor chip sets is recognized when persuasive evidence of a sales arrangement exists, transfer of title and acceptance, where applicable, occurs, the sales price is fixed or determinable and collection is probable. We record reductions to chip set revenue for expected product returns based on our historical experience and other known factors. Customer purchase orders are generally used to determine the existence of an arrangement. Transfer of title and risk of ownership occur based on defined terms in customer purchase orders, and generally pass to the customer upon shipment, at which point goods are delivered to a carrier. There are no formal customer acceptance terms or further obligations, outside of our standard product warranty, related to the sale of chip sets. Further, we have had no incidences of formal customer acceptance terms or further obligations to date. We assess whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Collectibility is assessed based primarily on the credit worthiness of the customer as determined through ongoing credit evaluations of the customer's financial condition, as well as consideration of the customer's payment history.
We defer the recognition of revenue and the related cost of revenue on shipments to distributors that have rights of return and price protection privileges on unsold products until the products are sold by the distributor to its customers. Price protection rights grant distributors the right to a credit in the event of declines in the price of SiRF's products. Also, several of our distributors purchase products at a standard gross price and receive price reductions for sales to certain end customers. In these circumstances our accounts receivable and deferred revenue balances represent the gross invoice price of shipments to those distributors. Upon product sell-through, these distributors may receive a credit to adjust the gross price to the applicable net price for those sales.
We enter into co-branding rebate agreements with and provide incentive rebates to certain direct customers and indirect customers (for products sold through distributors). We record reductions to revenue for commitments related to such incentive programs in accordance with Emerging Issues Task Force, or EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). Co-branding agreements allow certain direct customers to receive a per-unit rebate for product purchased, provided the customer participates in our co-branding program. The co-branding program typically consists of placing our logo on the customer's website or otherwise including it in marketing collateral or documentation. Incentive rebates are offered from time to time at our discretion to both direct and indirect customers and are also provided in the form of a per-unit rebate for product purchased. Accruals for the actual costs of these incentive programs are recorded at the time the related revenue is recognized and are recorded based on the contractual or agreed upon per-unit rebate of product purchased by direct customers or sold through by distributors. Commitments related to incentive programs to both direct and indirect customers are presented in the consolidated balance sheets as rebates payable to customers.
We license rights to use our intellectual property to allow licensees to utilize our technology. We also license rights to use our premium software products to licensees to enable SiRF chip sets to provide enhanced functionality in specific applications. We recognize revenue from standalone license rights to use our intellectual property in accordance with the Securities and Exchange Commission, or SEC, Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition. Revenue from standalone rights to use our premium software products is recognized in accordance with American Institute of Certified Public Accountants Statement of Position Software Revenue Recognition. Subsequent to the sale of our premium software products, we have no obligation to provide any level of post-contract customer support, including modification, customization, upgrades or enhancements. The cost of revenue associated with licenses is insignificant.
Certain sales of our chip sets to direct customers are bundled with our premium software products. In such arrangements, both the premium software and chipsets are delivered simultaneously and post-contract customer support is not provided. We apply the guidance in EITF No. 00-21, Revenue Arrangements with Multiple Deliverables, and recognize revenue from such bundled arrangements generally upon delivery of the chip sets, assuming all other basic revenue recognition criteria are met, as both the chip sets and software are considered delivered elements and no undelivered elements exist. We recognize license revenue from sales of our premium software at the time a reliable estimate can be made of the actual usage that has occurred of the premium software, provided collectibility is probable.
We earn royalties on licensees' sales of their products incorporating the licensed intellectual property or premium software based upon the specific criteria included in the associated royalty agreements. We recognize all royalty revenue based solely on actual royalties reported by licensees during such quarter.
Inventories. Inventory costs are determined using standard costs that approximate actual costs under the first-in, first-out method. Our standard cost policy is to continuously review and set standard costs at current manufacturing costs. Manufacturing overhead standards for product cost are calculated assuming full absorption of projected spending over projected volumes. We record a reserve for inventories that have become obsolete or are in excess of anticipated demand or net realizable value. We perform a detailed review of inventory each period that considers multiple factors including demand forecasts, market conditions, product life cycle status, product development plans and current sales levels. Demand forecasts involve estimates, such as customer product demand projections based on our historical experience, timing of new product introductions, timing of customer transitions to new products and sell through of products at different average selling prices. If future demand or market conditions for our products are less favorable than forecasted or if unforeseen technological changes negatively impact the utility of component inventory, we may be required to record additional write-downs which could negatively impact gross margins in the period when the write-downs are recorded. If actual market conditions are more favorable, we may have higher gross margins when products incorporating inventory that was previously reserved are sold.
Stock-Based Compensation. The fair value of our employee stock options and purchase rights is estimated using a Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of subjective assumptions, as disclosed in Note 6, Stock-Based Compensation, to the Condensed Consolidated Financial Statements in Item 1 of this report, including the price volatility of the underlying stock and the option's expected term. With the exception of certain options assumed in connection with business combinations, our options are considered "plain vanilla" as defined by SAB No. 107, as modified by SAB No. 110. Accordingly, upon adoption of Statement of Financial Accounting Standard, or SFAS No. 123R, Share-Based Payment, we elected to use the simplified method as prescribed by SAB No. 107, to estimate the option's expected term, which assumes that all options will be exercised midway between the vesting date and the contractual term of the option. Beginning in the fourth quarter of 2007, we no longer use the simplified method for estimating the expected term. The expected term for option grants and for options assumed in connection with acquisitions is estimated based on a consideration of among other things, historical exercise patterns, the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. We utilize our own historical volatility in valuing our stock option grants and purchase rights under our 2004 Employee Stock Purchase Plan, or Purchase Plan. In addition, we estimate forfeitures at the time of grant and, revise if necessary, in subsequent periods if actual forfeitures differ from those estimates. Our estimate of expected forfeitures considers historical termination behavior, as well as retention related incentives. We elected to use the straight-line attribution method for awards granted after the adoption of SFAS No. 123R, and continue to use a multiple option valuation approach for awards granted prior to the adoption of SFAS No. 123R that were unvested as of the effective date. Actual volatility, our options' actual lives, interest rates and forfeitures may be different from our assumptions, which would result in the actual value of the stock options and purchase rights being different than estimated.
Assessment of Long-Lived Assets, Identified Intangible Assets and Goodwill. Identified intangible assets consist of acquired developed and core technology, patents, assembled workforce, trade names, non-compete agreements and intellectual property assets. These intangible assets are amortized using the straight-line method over their estimated useful lives. Acquired developed and core technology, patents, assembled workforce, trade names, non-compete . . .
|
|