<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
COMMISSION FILE NO. 0-25298
OAK TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0161486
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
139 KIFER COURT
SUNNYVALE, CALIFORNIA 94086
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 737-0888
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
--- ---
As of September 30, 1997, there were outstanding 41,745,450 shares of the
Registrant's Common Stock, par value $0.001 per share.
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and June 30, 1997. . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the
Three Months ended September 30, 1997 and 1996 . . . . . . . 4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1996 . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 23
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,440 $ 87,609
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 55,349 57,660
Accounts receivable, net of allowance for doubtful accounts of
$663 and $663, respectively. . . . . . . . . . . . . . . . . . . . . . 27,002 24,872
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,520 12,322
Current portion of foundry deposits . . . . . . . . . . . . . . . . . . . . 15,415 15,015
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,350 4,350
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . 4,434 4,107
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 208,510 205,935
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 22,597 19,958
Foundry deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,745 19,145
Investment in foundry venture . . . . . . . . . . . . . . . . . . . . . . . . . 39,618 39,618
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,956 2,939
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292,426 $ 287,595
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt . . . . . . . . . . . . $ 6,619 $ 7,264
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,569 16,144
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,582 9,882
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,660 3,893
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532 584
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 36,962 37,767
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400 2,496
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,151 6,344
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,265 2,291
------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 45,778 48,898
------------ ------------
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized;
none issued and outstanding as of September 30, 1997 and
June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, $0.001 par value; 60,000,000 shares authorized;
41,745,450 and 41,086,754 shares issued and outstanding as of
September 30, 1997 and June 30, 1997, respectively . . . . . . . . . . . 42 41
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 161,658 159,901
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,948 78,755
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 246,648 238,697
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $ 292,426 $ 287,595
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net revenues. . . . . . . . . . . . . . . . . . . . . . $ 43,293 $ 18,926
Cost of revenues. . . . . . . . . . . . . . . . . . . . 20,755 10,216
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . 22,538 8,710
Research and development expenses . . . . . . . . . . . 10,831 8,094
Selling, general and administrative expenses. . . . . . 6,311 4,293
----------- -----------
Operating income (loss). . . . . . . . . . . . 5,396 (3,677)
Nonoperating income . . . . . . . . . . . . . . . . . . 4,131 1,134
----------- -----------
Income (loss) before income taxes. . . . . . . 9,527 (2,543)
Income taxes (benefit). . . . . . . . . . . . . . . . . 3,334 (890)
----------- -----------
Net income (loss). . . . . . . . . . . . . . . $ 6,193 $ (1,653)
----------- -----------
----------- -----------
Net income (loss) per share . . . . . . . . . . . . . . $ 0.15 $ (0.04)
----------- -----------
----------- -----------
Shares used in computing net income (loss) per share. . 42,569 40,297
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 6,193 $ (1,653)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 1,577 1,273
Inventory related adjustments. . . . . . . . . . . . . . . . 1,077 (1,990)
Equity in loss of unconsolidated affiliates. . . . . . . . . - 119
Deferred income taxes. . . . . . . . . . . . . . . . . . . . (2,193) (1,146)
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . (2,130) 4,908
Inventories. . . . . . . . . . . . . . . . . . . . . . . 725 4,726
Prepaid expenses and other current assets. . . . . . . . (429) 534
Accounts payable and accrued expenses. . . . . . . . . . (2,875) (2,018)
Income taxes payable, deferred revenue and other
liabilities . . . . . . . . . . . . . . . . . . . . 3,016 312
----------- -----------
Net cash provided by operating activities. . . . . . 4,961 5,065
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments. . . . . . . . . . . . . (21,401) (11,340)
Proceeds from matured short-term investments . . . . . . . . 23,712 10,182
Additions to property and equipment, net . . . . . . . . . . (4,131) (1,336)
Utilization of foundry deposits. . . . . . . . . . . . . . . - 934
Other assets . . . . . . . . . . . . . . . . . . . . . . . . - (21)
----------- -----------
Net cash used in investing activities. . . . . . . . (1,820) (1,581)
----------- -----------
Cash flows from financing activities:
Issuance of debt. . . . . . . . . . . . . . . . . . . . . . . . . 1,551 10,362
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . (2,292) (12,409)
Issuance of common stock, net . . . . . . . . . . . . . . . . . . 1,431 480
----------- -----------
Net cash provided by (used in) financing activities. 690 (1,567)
----------- -----------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . 3,831 1,917
Cash and cash equivalents, beginning of period. . . . . . . . . . . . 87,609 44,934
----------- -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . $ 91,440 $ 46,851
----------- -----------
----------- -----------
Supplemental information:
Cash paid during the period:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90 $ 107
----------- -----------
----------- -----------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 2,322 $ 20
----------- -----------
----------- -----------
Noncash investing and financing activities:
Benefit related to stock plans. . . . . . . . . . . . . . . . . . $ 327 $ 281
----------- -----------
----------- -----------
Adjustment to foundry commitments . . . . . . . . . . . . . . . . $ - $(14,400)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). In the opinion of management, the
consolidated financial statements reflect all adjustments considered
necessary for a fair presentation of the consolidated financial position,
operating results and cash flows for those periods presented. The results of
operations for the interim periods presented are not necessarily indicative
of the results that may be expected for the full fiscal year or in any future
period. This quarterly report on Form 10-Q should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
year ended June 30, 1997, included in the Oak Technology, Inc. (the
"Company") 1997 Annual Report on Form 10-K filed with the Commission.
2. EQUITY AND NET INCOME PER SHARE
Net income per share has been computed using the weighted average number
of shares of common stock and dilutive common equivalent shares from stock
options and warrants outstanding (using the treasury stock method).
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for
companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997. The
Company expects that basic EPS will be higher than primary earnings per share
as presented in the accompanying consolidated financial statements and that
diluted EPS will not differ materially from fully diluted earnings per share
as presented in the accompanying consolidated financial statements.
3. INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or
market and consisted of the following (in thousands):
September 30, June 30,
1997 1997
-------------- ------------
Purchased parts and work in process . . . $ 4,226 $ 5,521
Finished goods . . . . . . . . . . . . . 6,294 6,801
-------------- ------------
$ 10,520 $ 12,322
-------------- ------------
-------------- ------------
6
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
4. CONTINGENCIES
The Company and various of its current and former officers and Directors
are parties to several lawsuits which purport to be class actions filed on
behalf of all persons who purchased or acquired the Company's stock
(excluding the defendants and parties related to them) for the period July
27, 1995 through May 22, 1996. The first, a state court proceeding
designated IN RE OAK TECHNOLOGY SECURITIES LITIGATION, Master File No.
CV758510 pending in Santa Clara County Superior Court in Santa Clara,
California, consolidates five putative class actions. This lawsuit also
names as defendants several of the Company's venture capital fund investors,
two of its investment bankers and two securities analysts. The plaintiffs
allege violations of California securities laws and statutory deceit
provisions as well as breaches of fiduciary duty and abuse of control. On
December 6, 1996, the state court Judge sustained the Oak defendants'
demurrer to all causes of action alleged in plaintiffs' First Amended
Consolidated Complaint, but allowed plaintiffs the opportunity to amend. The
plaintiffs' Second Amended Consolidated Complaint was filed on August 1, 1997.
The Company and various of its current and former officers and Directors
are also parties to four putative class action lawsuits pending in the U.S.
District Court for the Northern District of California. These actions have
been consolidated as IN RE OAK TECHNOLOGY, INC. SECURITIES LITIGATION, Case
No. C-96-20552-SW(PVT). This action alleges certain violations of federal
securities laws and is brought on behalf of purchasers of the Company's stock
for the period July 27, 1995 through May 22, 1996. This action also names as
a defendant one of the Company's investment bankers. On July 29, 1997, the
federal court Judge granted the Oak defendants Motion to Dismiss the
plaintiffs' First Amended Consolidated Complaint, but granted plaintiffs
leave to amend most claims. The plaintiffs' Second Amended Consolidated
Complaint was filed on September 4, 1997.
Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending in
Santa Clara County Superior Court in Santa Clara, California, entitled IN RE
OAK TECHNOLOGY DERIVATIVE ACTION. This lawsuit, which asserts a claim for
breach of fiduciary duty and a claim under California securities law based
upon the officers' and Directors' trading in securities of the Company, has
been stayed pending resolution of the class actions.
In all of the putative state and federal class actions, the plaintiffs
are seeking monetary damages and equitable relief. In the derivative action,
the plaintiffs are also seeking an accounting for the defendants' sales of
Company stock and the payment of monetary damages to the Company.
All of these actions are in the early stages of proceedings and the
Company is currently investigating the allegations. Based on its current
information, the Company believes the suits to be without merit and will
defend its position vigorously. Although it is reasonably possible the
Company may incur a loss upon conclusion of these claims, an estimate of any
loss or range of loss cannot be made. No provision for any liability that
may result upon adjudication has been made in the Company's Consolidated
Financial Statements.
7
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
4. CONTINGENCIES (CONTINUED)
In connection with these legal proceedings, the Company has incurred, and
expects to continue to incur, substantial legal and other expenses.
Shareholder suits of this kind are highly complex and can extend for a
protracted period of time, which can substantially increase the cost of such
litigation and divert the attention of the Company's management.
5. FOUNDRY AGREEMENTS AND INVESTMENT IN FOUNDRY VENTURE
FOUNDRY AGREEMENTS
In June and November 1995, the Company entered into agreements with TSMC
and Chartered to obtain certain additional wafer capacity through the year
2001. The agreements call for the Company to commit to certain future wafer
purchases and to deposit funds with the suppliers as either a portion of the
price of the additional wafers in advance of their delivery or as a
non-interest bearing deposit to secure the availability of additional wafers.
The price of such wafers will be determined in the future periods in which
specific orders are actually placed. If the Company is not able to use,
assign, or sell the additional wafer quantities, all or a portion of the
deposits may be forfeited.
In October 1996, the Company amended its previous agreement with TSMC
resulting in a reduction of the Company's future wafer purchases required
under the original agreement and the elimination of required future cash
prepayments of approximately $73 million. Under the amended agreement, no
additional prepayment is required; however, the Company must utilize the
entire amount of the prepayment paid to date through a certain committed
amount of wafer purchases in the years 1997, 1998, and 1999 or a portion of
the prepayment will be forfeited. The Company currently believes the terms
and conditions of the agreement as amended will be met although no assurance
can be given in this regard.
In September 1996, April 1997 and September 1997, the Company amended its
agreement with Chartered. The amendments resulted in a reduction of the
Company's future wafer purchase commitments and the elimination of required
future cash deposits under the original agreement of approximately $36
million. Under the amended agreement, the required future cash deposits of
approximately $36 million could be reinstated if certain conditions are not
met. The Company currently believes the terms and conditions of the
agreement as amended will be met and that these commitments will not be
reinstated although no assurance can be given in this regard.
The deposits and prepayments under the amended foundry agreements
described above are recorded at cost and total approximately $34.2 million as
of September 30, 1997. The Company currently anticipates being able to
utilize and fully recover the value of all foundry prepayments and deposits
under the terms of the amended agreements.
8
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
5. FOUNDRY AGREEMENTS AND INVESTMENT IN FOUNDRY VENTURE (CONTINUED)
INVESTMENT IN FOUNDRY VENTURE
In October 1995, the Company entered into a series of agreements with
United Microelectronics Corporation ("UMC") to form, along with other
investors, a separate Taiwanese company, United Integrated Circuits
Corporation ("UICC"), for the purpose of building and managing a
semiconductor manufacturing facility in the Science Based Industrial Park in
Hsin Chu City, Taiwan, Republic of China. In January 1996, the Company made
an initial payment of $13.7 million and in January 1997, the Company made a
second payment of $25.9 million due under this agreement. The final payment
under this agreement of approximately $11.3 million, based on current
exchange rates, is due during the quarter ended December 31, 1997. The
Company has entered into a forward contract which is effectively a hedge
against the final payment. If for any reason the Company does not make all
or a portion of this final payment, a loss may have to be recognized upon
settlement of the forward contract during the quarter ended December 31,
1997. Investment in the foundry venture was approximately $39.6 million as
of September 30, 1997. Upon completion of the final payment of approximately
$11.3 million, the Company expects to have invested a total of approximately
$51 million for 9.3% of the total available shares of the venture. As an
investor in this venture, the Company will have rights to a portion of the
total wafer capacity for the manufacture of its proprietary products. There
can be no assurance that a market will develop for the shares representing
the Company's equity investment at any time in the future.
On October 3, 1997, a fire damaged the UICC facility causing an
undetermined amount of damage to the manufacturing equipment and to the
building. Representations by UICC management indicate that all of the
equipment and a significant portion of the building were completely
destroyed. UICC management and it's insurance carrier are in the process of
determining whether the losses are covered by insurance, and therefore, at
this time, no assurance can be given that the losses are covered by
insurance. Any uninsured losses recorded by UICC as a result of the fire
would have a significant impact on the value of the investment and could have
a material adverse effect on the Company's business, operating results and
financial condition. No charge to reflect any impairment of the investment
has been recorded as of September 30, 1997. Representations have been made by
UICC management that the facility's foundry capacity that has been guaranteed
to the Company will be available through substitute capacity arrangements,
however there can be no assurance that such substitute foundry capacity will
be available to the Company. Additionally, there can be no assurance that a
market will develop for the shares representing the Company's equity
investment at any time in the future.
9
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
6. SETTLEMENT AWARDS
In September 1997, the Company received $2.6 million pursuant to a
Settlement Agreement entered into on July 31, 1997 between the Company and
United Microelectronics Corporation in connection with a complaint the
Company had filed with the International Trade Commission on July 21, 1997
based on the Company's belief that certain CD-ROM controllers infringed one
or more of the Company's patents. Proceeds from this settlement were
recorded as miscellaneous income and are included in nonoperating income for
the period ended September 30, 1997.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q MAY BE CONSIDERED
"FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES ACT OF
1934, AS AMENDED. SUCH STATEMENTS INCLUDE DECLARATIONS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED
BY SUCH FORWARD-LOOKING STATEMENTS. AMONG THE IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH
FORWARD-LOOKING STATEMENTS ARE: (i) THAT THE INFORMATION IS OF A PRELIMINARY
NATURE AND MAY BE SUBJECT TO FURTHER ADJUSTMENT, (ii) VARIABILITY IN THE
COMPANY'S QUARTERLY OPERATING RESULTS, (iii) GENERAL CONDITIONS IN THE
SEMICONDUCTOR INDUSTRY, (iv) RISKS RELATED TO PENDING LEGAL PROCEEDINGS, (v)
DEVELOPMENT BY COMPETITORS OF NEW OR SUPERIOR PRODUCTS OR THE ENTRY OF NEW
COMPETITORS INTO THE COMPANY'S MARKETS, (vi) THE COMPANY'S ABILITY TO
DIVERSIFY ITS PRODUCT AND MARKET BASE BY DEVELOPING AND INTRODUCING NEW
PRODUCTS WITHIN DESIGNATED MARKET WINDOWS AT COMPETITIVE PRICE AND
PERFORMANCE LEVELS, (vii) WILLINGNESS OF PROSPECTIVE CUSTOMERS TO DESIGN THE
COMPANY'S PRODUCTS INTO THEIR PRODUCTS, (viii) AVAILABILITY OF ADEQUATE
FOUNDRY CAPACITY AND ACCESS TO PROCESS TECHNOLOGIES, (ix) THE COMPANY'S
ABILITY TO PROTECT ITS PROPRIETARY INFORMATION AND OBTAIN ADEQUATE LICENSES
OF THIRD PARTY TECHNOLOGY ON ACCEPTABLE TERMS, (x) RISKS RELATED TO USE OF
INDEPENDENT MANUFACTURERS AND THIRD PARTY ASSEMBLY AND TEST VENDORS, (xi)
DEPENDENCE ON KEY PERSONNEL, (xii) RELIANCE ON A LIMITED NUMBER OF LARGE
CUSTOMERS, (xiii) DEPENDENCE ON SALES OF CD-ROM CONTROLLER PRODUCTS, (xiv)
RISKS RELATED TO INTERNATIONAL BUSINESS OPERATIONS, (xv) ABILITY OF THE
COMPANY TO MAINTAIN ADEQUATE PRICE LEVELS AND MARGINS WITH RESPECT TO ITS
PRODUCTS, (xvi) MANAGEMENT OF CHANGING OPERATIONS RELATED TO THE COMPANY'S
ATTEMPT TO DIVERSIFY ITS PRODUCT AND MARKET BASE, (xvii) CURRENT DEPENDENCE
ON SALES TO THE ASIAN MARKETS, (xviii) THE ABILITY TO ATTRACT AND RETAIN
QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL AND (xix) OTHER RISKS IDENTIFIED
FROM TIME TO TIME IN THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997.
The Company designs, develops and markets high performance integrated
semiconductors and related software to original equipment manufacturers
worldwide that serve the PC, consumer electronics and digital office
equipment markets. The Company provides semiconductor products for these
markets by leveraging its expertise in five core technologies: optical
storage, MPEG imaging, video/graphics, audio/communications and digital
imaging. The Company's products typically consist of hardware, firmware and
software to provide a complete solution for customers.
The Company contracts with independent foundries to manufacture all of
its products, enabling the Company to focus on its design strengths, minimize
fixed costs and capital expenditures and gain access to advanced
manufacturing facilities. Except pursuant to its agreements with TSMC and
Chartered, the Company's foundries generally are not obligated to supply
products to the Company for any specific period, in any specific quantity or
at a specific price.
11
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET REVENUES. The Company's net revenues in the comparison periods were
primarily derived from sales of its CD-ROM controller products which
comprised 86% and 77% of the Company's net revenues in the three months ended
September 30, 1997 and 1996 respectively. Net revenues increased 129% to
$43.3 million in the three months ended September 30, 1997 from $18.9 million
in the comparable period of fiscal 1997. This increase was primarily
attributable to an increase in unit sales of CD-ROM controllers from the
comparable period of fiscal 1997 partially offset by a decline in the average
selling price ("ASP") of the CD-ROM controllers. The increase in unit sales
is primarily the result of the relatively low unit sales in the comparable
period of fiscal 1997 resulting from customer decisions to reduce inventory,
an overall slowdown in the PC market and a shift in the CD-ROM industry from
4x speed drives to 6x and 8x speed drives. Although the Company is attempting
to diversify its revenue product base, it anticipates that CD-ROM controller
sales will continue to account for a substantial majority of its revenue in
the foreseeable future. As the Company has been experiencing continued
pressure on CD-ROM controller ASPs, increased competition and a maturation of
the CD-ROM controller market, the Company does not anticipate year over year
growth to continue at the same rate in the foreseeable future. In the three
months ended September 30, 1997 and 1996, sales to the Company's top ten
customers accounted for approximately 82% and 79%, respectively, of the
Company's net revenues. International sales, principally to Taiwan, Japan,
Korea and Singapore, accounted for approximately 96% and 92% of the Company's
net revenues in each of the three months ended September 30, 1997 and 1996,
respectively. See "Factors That May Affect Future Results" below.
GROSS MARGIN. Cost of revenues includes the cost of wafer fabrication,
assembly and testing performed by third-party vendors and direct and indirect
costs associated with the procurement, scheduling and quality assurance
functions performed by the Company. The Company's gross margin increased to
52.1% in the three month period ended September 30, 1997 as compared to 46.0%
during the comparable period in the prior year. Gross margin in the three
month period ended September 30, 1996 included the impact of a favorable
manufacturing cost adjustment of $1.5 million. Excluding the effect of this
adjustment, gross margin would have been 38.1%. The increase in gross margin,
during the comparison periods, is primarily the result of a product mix shift
to higher margin CD-ROM controllers during the comparison periods. The
Company's overall gross margin is subject to change due to various factors,
including, among others, competitive product pricing, yields, wafer costs,
assembly and test costs and product mix. The Company expects that ASPs for
its existing products will continue to decline over time and that ASPs for
each new product will decline significantly over the life of the product.
The Company is currently experiencing severe price pressure on its CD-ROM
controller and MPEG products and expects such price erosion to continue. A
decline in ASPs that is not offset by a reduction in production costs or by
sales of new products with higher gross margins would decrease the Company's
overall gross margin and could materially adversely affect the Company's
operating results. In addition, the Company believes that gross margins for
new products in all of its core technologies will be lower than historical
levels and that, as a result, gross margins in general will decline in the
future.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are
expensed as incurred. Research and development expenses increased 34% to
$10.8 million in the three months ended September 30, 1997 from $8.1 million
in the comparable period in the prior year. This
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increase was principally the result of the hiring of additional technical
personnel and associated expenses. Research and development expenses
decreased as a percentage of net revenues to 25.0% during the three months
ended September 30, 1997 from 42.8% in the comparable period in the prior
year due primarily to the significant increase in the Company's net revenues
in the current period compared to the comparable period of fiscal 1997. The
Company will continue to invest substantial resources in research and
development, including hiring additional technical personnel, in an effort to
maintain its technological leadership in the CD-ROM controller market and
diversify its product development in its other core technologies:
video/graphics, MPEG imaging, audio/communication and digital imaging. As a
result, the Company expects to incur higher absolute research and development
expenses in the remainder of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 47% to $6.3 million in the three months
ended September 30, 1997 from $4.3 million in the comparable period in the
prior year. This increase was principally the result of the hiring of
additional management and administrative personnel and associated expenses.
Selling, general and administrative expenses decreased as a percentage of net
revenues to 14.6% in the three months ended September 30, 1997 from 22.7%
during the comparable period in fiscal 1997, due primarily to a significant
increase in the Company's net revenues in the comparison periods. As a
result of the continuing efforts to develop the Company's support
infrastructure and hire additional senior management personnel, the Company
expects to incur higher absolute selling, general and administrative expenses
in the remainder of fiscal 1998.
NONOPERATING INCOME. During the three months ended September 30, 1997,
nonoperating income increased to $4.1 million from $1.1 million during the
comparable three months of fiscal 1997. This increase was primarily the
result of the receipt of approximately $2.6 million related to the settlement
agreement between the Company and United Microelectronics Corporation in
connection with a complaint the Company had filed with the International
Trade Commission on July 21, 1997. See ("Legal Proceedings")
INCOME TAXES. The overall effective tax rate for the three months ended
September 30, 1997 as well as the comparable period of fiscal 1997 was 35.0%.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors should be carefully considered in evaluating the
Company and its business.
The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors, including the gain or loss of
significant customers, increased competitive pressures, the timing of new
product introductions by the Company or its competitors and market acceptance
of new or enhanced versions of the Company's and its customers' products.
Other factors include the availability of foundry capacity, fluctuations in
manufacturing yields, availability and cost of raw materials, the cyclical
nature of both the semiconductor industry, the market for PCs and the markets
addressed by the Company's products, seasonal customer demand, the Company's
ability to diversify its product offerings, the competitiveness of the
Company's customers, the timing of significant orders and order cancellations
or rescheduling, significant increases in expenses associated with the
expansion of operations and development of the Company's support
infrastructure, and changes in pricing policies by the Company, its
competitors or its suppliers, including decreases in ASPs of the Company's
products. In addition, the Company's quarterly operating results could be
materially
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adversely affected by legal expenses incurred in connection with, or any
adverse judgment in, the Company's ongoing shareholder legal proceedings.
The Company's operating results could also be adversely affected by economic
conditions generally in various geographic areas where the Company or its
customers do business, or by order cancellations or rescheduling. These
factors are difficult to forecast, and these or other factors could
materially affect the Company's quarterly or annual operating results. There
can be no assurance as to the level of sales or earnings that may be attained
by the Company in any given period in the future.
The Company currently places noncancelable orders to purchase its
products from independent foundries on an approximately three month rolling
basis and is currently committed with two of its foundries for certain
minimum amounts of capacity for the next several years, while its customers
generally place purchase orders with the Company less than four weeks prior
to delivery that may be rescheduled or under certain circumstances may be
canceled without significant penalty. Consequently, if anticipated sales and
shipments in any quarter are rescheduled, canceled, or do not occur as
quickly as expected, expense and inventory levels could be disproportionately
high and the Company's business, financial condition and results of
operations for that quarter or for the year would be materially adversely
affected.
The semiconductor industry has historically been characterized by rapid
technological change, cyclical market patterns, significant price erosion,
periods of over-capacity and production shortages, variations in
manufacturing costs and yields and significant expenditures for capital
equipment and product development. In addition, the industry has experienced
significant economic downturns at various times, characterized by diminished
product demand and accelerated erosion of product prices. The Company may
experience substantial period-to-period fluctuations in operating results due
to general semiconductor industry conditions.
The Company and various of its current and former officers and Directors
are parties to certain legal proceedings. See "Legal Proceedings." All of
these actions are in the early stages of proceedings and the Company is
currently investigating the allegations. Based on its current information,
the Company believes the suits to be without merit and will defend its
position vigorously. No provision for any liability that may result upon
adjudication has been made in the Company's Consolidated Financial
Statements. In connection with these legal proceedings, the Company has
incurred, and expects to continue to incur, substantial legal and other
expenses. Shareholder suits of this kind are highly complex and can extend
for a protracted period of time, which can substantially increase the cost of
such litigation and divert the attention of the Company's management.
The markets in which the Company competes are intensely competitive and
are characterized by rapid technological change, declining unit ASP's and
rapid product obsolescence. The Company expects competition to increase in
the future from existing competitors and from other companies that may enter
the Company's existing or future markets with solutions that may be less
costly or provide higher performance or additional features. The Company's
existing and potential competitors include many large domestic and
international companies that have substantially greater financial,
manufacturing, technical, marketing, distribution and other resources,
broader product lines and longer standing relationships with customers than
the Company. The Company's competitors also include a number of emerging
companies as well as some of the Company's own customers and suppliers. The
Company is currently attempting to enter several new markets in which the
Company has not previously operated. These markets are intensely competitive
and the Company will have to compete with large domestic and international
companies that have long standing relationships with
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the Company's target customers. Certain of the Company's principal
competitors maintain their own semiconductor foundries and may therefore
benefit from certain capacity, cost and technological advantages. The
Company believes that its ability to compete successfully depends on a number
of factors, both within and outside of its control, including the price,
quality and performance of the Company's and its customers' products, the
timing and success of new product introductions by the Company, its customers
and its competitors, the emergence of new PC standards, the development of
technical innovations, the ability to obtain adequate foundry capacity and
sources of raw materials, the efficiency of production, the rate at which the
Company's customers design the Company's products into their products, the
market acceptance of the Company's customers products, the number and nature
of the Company's competitors in a given market, the assertion of intellectual
property rights and general market and economic conditions. There can be no
assurance that the Company will be able to compete successfully in the future.
The willingness of prospective customers to design the Company's products
into their products depends, to a significant extent, upon the ability of the
Company to have product available at the appropriate market window and to
price its products at a level that is cost effective for such customers. The
markets for most of the applications for the Company's products, particularly
the PC market and the consumer electronics market, are characterized by
intense price competition. As the markets for the Company's products mature
and competition increases, the Company anticipates that ASPs on its products
will decline. If the Company is unable to reduce its costs sufficiently to
offset declines in ASPs or is unable to successfully introduce new higher
performance products with higher ASPs, the Company's operating results will
be materially adversely affected. In addition, if the Company experiences
yield or other production problems or shortages of supply that increase its
manufacturing costs, or fails to reduce its manufacturing costs, the result
would be a material adverse effect on the Company's business, financial
condition and operating results.
The markets for the Company's products are characterized by evolving
industry standards, rapid technological change and product obsolescence. The
Company's performance is highly dependent upon the successful development and
timely introduction of new products at competitive price and performance
levels. Currently, the Company's financial performance is dependent upon the
Company's level of success in the CD-ROM controller market. In an effort to
diversify its product and market base, the Company has invested substantial
resources in optical storage as well as in its other core technologies:
video/graphics, MPEG imaging, audio/communications, and digital imaging.
There can be no assurance that products currently under development in these
core technologies or any other new products will be successfully developed or
will achieve market acceptance, thereby affecting the Company's ability to
achieve diversification of its products and markets. The failure of the
Company to introduce new products successfully or the failure of new products
to achieve market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations. The
success of new product introductions is dependent on several factors,
including recognition of market requirements, product cost, timely completion
and introduction of new product designs, securing sufficient foundry capacity
for volume manufacturing of wafers, quality of new products and achievement
of acceptable manufacturing yields from the Company's contract manufacturers.
Due to the design complexity of its products, the Company has experienced
delays in completing development and introduction of new products, and there
can be no assurance that the Company will not encounter such delays in the
development and introduction of future products. There can be no assurance
that the Company will successfully identify new product opportunities and
develop and bring new products to market in a timely manner, that the
Company's products will be selected for design into the products of its
targeted customers or that products or technologies developed by others will
not render the Company's products or technologies obsolete or
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noncompetitive. The failure of the Company's new product development efforts
or the failure of the Company to achieve market acceptance of its new
products would have a material adverse effect on the Company's business,
financial condition and operating results.
The Company's ability to compete is affected by its ability to protect
its proprietary information. The Company considers its technology to be
proprietary and relies on a combination of patents, trademarks, copyrights,
trade secret laws, confidentiality procedures and licensing arrangements to
protect its intellectual property rights. The Company currently has three
patents granted, fourteen patents pending, twenty-two patents in preparation
in the United States, and two international patents pending. The Company
intends to seek additional international patents and additional United States
patents on its technology. There can be no assurance that additional patents
will issue from any of the Company's pending applications or applications in
preparation, or be issued in all countries where the Company's products can
be manufactured or sold, or that any claims allowed from pending applications
or applications in preparation will be of sufficient scope or strength to
provide meaningful protection or any commercial advantage to the Company.
Additionally, competitors of the Company may be able to design around the
Company's patents. The laws of certain foreign countries in which the
Company's products are or may be manufactured or sold, including various
countries in Asia, may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the United States and
thus make the possibility of piracy of the Company's technology and products
more likely. On July 21, 1997, the Company filed a complaint with the
International Trade Commission ("ITC") against certain Asian manufacturers of
optical storage controller devices based on the Company's belief that such
devices infringed one or more of the Company's patents. The complaint seeks
a ban on the importation into the United States of any infringing CD-ROM
controller or products containing such infringing CD-ROM controllers. (See
"Legal Proceedings"). There can be no assurance that the steps taken by the
Company to protect its proprietary information will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technology.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights, which has resulted in significant,
often protracted and expensive litigation. Although there is currently no
pending intellectual property litigation against the Company, the Company or
its foundries may, from time to time, be notified of claims that the Company
may be infringing patents or other intellectual property rights owned by
third parties. If it is necessary or desirable, the Company may seek licenses
under such patents or other intellectual property rights. However, there can
be no assurance that licenses will be offered or that the terms of any
offered licenses will be acceptable to the Company. The failure to obtain a
license from a third party for technology used by the Company could cause the
Company to incur substantial liabilities and to suspend the manufacture of
products or the use by the Company's foundries of processes requiring the
technology. Furthermore, the Company may initiate claims or litigation
against third parties for infringement of the Company's proprietary rights or
to establish the validity of the Company's proprietary rights. The Company
recently initiated such litigation by filing a complaint with the
International Trade Commission (See "Legal Proceedings"). Litigation by or
against the Company could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel,
whether or not such litigation results in a favorable determination for the
Company. In the event of an adverse result in any such litigation, the
Company could be required to pay substantial damages, cease the manufacture,
use and sale of infringing products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes or obtain
licenses to the infringing technology. There can be no assurance that the
Company would be
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successful in such development or that such licenses would be available on
reasonable terms, or at all, and any such development or license could
require expenditures by the Company of substantial time and other resources.
Patent disputes in the semiconductor industry have often been settled through
cross-licensing arrangements. Because the Company has a limited portfolio of
patents, the Company may not be able to settle an alleged patent infringement
claim through a cross-licensing arrangement. If a successful claim is made
against the Company, or its customers, and a license is not made available to
the Company on commercially reasonable terms, or if the Company is required
to pay substantial damages or awards, the Company's business, financial
condition and operating results would be materially adversely affected.
The Company generally enters into confidentiality agreements with its
employees and confidentiality and license agreements with its customers and
potential customers, and limits access to and distribution of the source and
object code of its software and other proprietary information. Under some
circumstances, the Company grants licenses that give its customers limited
access to the source code of the Company's software which increases the
likelihood of misappropriation or misuse of the Company's technology.
Accordingly, despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy certain portions of the Company's
technology or to obtain and use information that the Company regards as
proprietary. There can be no assurance that the steps taken by the Company
will be adequate to prevent misappropriation of its technology or to provide
an adequate remedy in the event of a breach or misappropriation by others.
Certain technology used in the Company's products is licensed from third
parties. Some of the Company's products, particularly those targeted for the
DVD market, require certain types of copy protection software that the
Company must license from third parties. In addition, if the Company is to
successfully design and develop technologically advanced products, it must
license a variety of software design and development tools from third
parties. There can be no assurance that such licenses, or licenses of other
third party technology, will be available on terms acceptable to the Company,
if at all. The inability of the Company to enter into such license
arrangements on acceptable terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company contracts with independent foundries to manufacture all of
its products, enabling the Company to focus on its design strengths, minimize
fixed costs and capital expenditures and gain access to advanced
manufacturing facilities. Certain of the Company's foundry agreements
require up-front, nonrefundable prepayments or deposits and these fixed costs
could affect the Company's operating margins if the Company is unable to
utilize the minimum number of wafers required under the agreements. The
Company is dependent on its foundries to allocate to the Company a portion of
their foundry capacity sufficient to meet the Company's needs to produce
products of acceptable quality and with acceptable manufacturing yields and
to deliver products to the Company in a timely manner. These foundries
fabricate products for other companies and some manufacture products of their
own design. The Company has recently experienced a decrease in the supply of
available foundry capacity which in turn has created an increase in the lead
time required to manufacture the Company's products. If the Company is
unsuccessful in getting its customers to place orders on a longer lead time,
the Company may be unable to fulfill customer demand. In addition, the
Company had anticipated that it would be able to satisfy a small portion of
its manufacturing requirements from UICC; however due to the recent fire at
UICC the Company will not be able to utilize this foundry in the foreseeable
future. UICC management has indicated that capacity will be available
through substitute capacity arrangements, however no assurance can be given
as to the availability of such capacity. The loss of any of these foundries
as a supplier, the
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inability of the Company in a period of increased demand for its products to
expand the foundry capacity of its current suppliers or qualify other wafer
manufacturers for additional foundry capacity, any inability to obtain timely
and adequate deliveries from the Company's current or future suppliers or any
other circumstances that would require the Company to seek alternative
sources of supply could delay shipments of the Company's products, which
could damage relationships with its current and prospective customers,
provide an advantage to the Company's competitors and have a material adverse
effect on the Company's business, financial condition and operating results.
The Company's reliance on independent manufacturers and third party
assembly and testing vendors involves a number of additional risks, including
the unavailability of, or interruption in access to, certain process
technologies and reduced control over delivery schedules, quality assurance
and costs. In addition, as a result of the Company's dependence on foreign
subcontractors, the Company is subject to the risks of conducting business
internationally, including foreign government regulation and general
political risks, such as political and economic instability, potential
hostilities, changes in diplomatic and trade relationships, currency
fluctuations, unexpected changes in, or imposition of, regulatory
requirements, tariffs, import and export restrictions, and other barriers and
restrictions, potentially adverse tax consequences, the burdens of complying
with a variety of foreign laws and other factors beyond the Company's control.
The manufacture of semiconductors is a highly complex and precise
process. Minute levels of contaminants in the manufacturing environment,
defects in the masks used to print circuits on a wafer, difficulties in the
fabrication process or other factors can cause a substantial percentage of
wafers to be rejected or a significant number of die on each wafer to be
nonfunctional. Many of these problems are difficult to diagnose and time
consuming or expensive to remedy. The Company's products are particularly
complex and difficult to manufacture. There can be no assurance that the
Company's foundries will not experience irregularities or adverse yield
fluctuations in their manufacturing processes. Any yield or other production
problems or shortages of supply experienced by the Company or its foundries
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Sales of the Company's CD-ROM controller products comprised 86% and 77%
of the Company's net revenues in the three months ended September 30, 1997
and 1996, respectively. Sales of CD-ROM controller products are expected to
continue to account for a substantial portion of the Company's total revenues
for the foreseeable future. The market for CD-ROM controller products
continues to mature and therefore, it is expected that sales of such products
will not necessarily continue to grow at historical rates and will be
influenced by the traditional seasonality associated with the PC market. In
addition, given the continued maturation of the CD-ROM controller market, the
Company will continue to experience increased price pressure for such
products. In addition, there can be no assurance that the Company will be
able to sustain the current level of such product sales or current operating
margins. There can be no assurance that the market for CD-ROM controller
products in general, or the Company's CD-ROM controller products in
particular, will support the Company's planned operations in the future. It
is anticipated that the introduction of DVD-ROM drives will impact the demand
for CD-ROM controller products. Any decrease in the overall level of sales
of, or the prices for, the Company's CD-ROM controller products, due to
introductions of products by present or future competitors, a decline in
demand for CD-ROM controller products, product obsolescence or any other
reason would have a material adverse effect on the Company's business,
financial condition and results of operations.
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International sales, principally to Taiwan, Japan, Korea and Singapore,
accounted for approximately 96% and 92% of the Company's net revenues in each
of the three months ended September 30, 1997 and 1996, respectively. A
substantial portion of the Company's international revenues in the comparison
periods were derived from Japanese, Taiwanese and Korean and Singapore
manufacturers of CD-ROM drives. Accordingly, the Company is subject to the
risks of conducting business outside of the United States. These risks
include unexpected changes in, or impositions of, legislative or regulatory
requirements, delays resulting from difficulty in obtaining export licenses
for certain technology, tariffs, quotas and other trade barriers and
restrictions, longer payment cycles, greater difficulty in accounts
receivable collection, potentially adverse tax rates, the burdens of
complying with a variety of foreign laws and other factors beyond the
Company's control. The Company is also subject to general geopolitical risks
in connection with its international operations, such as political, social
and economic instability, potential hostilities and changes in diplomatic and
trade relationships. There can be no assurance that such factors will not
adversely affect the Company's operations in the future or require the
Company to modify its current business practices. In addition, the laws of
certain foreign countries in which the Company's products are or may be
developed, manufactured or sold, including various countries in Asia, may not
protect the Company's products or intellectual property rights to the same
extent as do the laws of the United States and thus make the possibility of
piracy of the Company's technology and products more likely. Most of the
Company's foreign sales are negotiated in U.S. dollars; however, invoicing is
often done in local currency. As a result, the Company may be subject to the
risks of currency fluctuations. There can be no assurance that one or more of
the foregoing factors will not have a material adverse effect on the
Company's business, financial condition or results of operations or require
the Company to modify its current business practices.
A limited number of customers historically has accounted for a
substantial portion of the Company's net revenues. In the three months ended
September 30, 1997 and 1996, sales to the Company's top ten customers
accounted for approximately 82% and 79%, respectively, of the Company's net
revenues. The Company expects that sales to a limited number of customers
will continue to account for a substantial portion of its net revenues for
the foreseeable future. The Company has experienced significant changes from
year to year in the composition of its major customer base and believes this
pattern will continue. The Company does not have long-term purchase
agreements with any of its customers. Customers generally purchase the
Company's products pursuant to cancelable short-term purchase orders. The
loss of, or significant reduction in purchases by, current major customers
would have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurances that the
Company's current customers will continue to place orders or that existing
orders will not be canceled. If sales to current customers cease or are
reduced, there can be no assurance that the Company will be able to continue
to obtain the orders from new customers necessary to offset any such losses
or reductions.
The Company's future performance depends, to a significant degree, on the
continued retention and contribution of members of the Company's senior
management as well as other key personnel. The Company is in the process of
recruiting additional senior managers and technical personnel. Competition
for these persons is intense and there can be no assurance that the Company
will be able to attract and retain qualified managers and other personnel.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, in less than three years,
computer systems and/or software used by many companies may need to be
upgraded to comply with such "Year
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2000" requirements. The Company has no way of determining whether its
customers will be affected by these Year 2000 requirements. Therefore, the
Company can give no assurance that the Year 2000 will not result in a
material adverse effect on the Company's business, operating results and
financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its cash requirements from
cash generated from operations, the sale of equity securities, bank lines of
credit and long-term and short-term debt. The Company's principal sources of
liquidity as of September 30, 1997 consisted of approximately $146.8 million
in cash, cash equivalents and short-term investments, approximately $25.0
million in lines of credit with two Japanese financial institutions, of which
$19.2 million was available as of September 30, 1997 and approximately $12.6
million in lines of letters of credit with Taiwanese financial institutions
of which approximately $11.0 million was available as September 30, 1997.
During the three months ended September 30, 1997, operating activities
provided net cash of approximately $5.0 million. This cash resulted
primarily from net income of $6.2 million and non-cash adjustments to net
income of $0.5 million, partially offset by net changes in operating assets
and liabilities of $1.7 million. Net income includes the impact of the
receipt of approximately $2.6 million recorded during the three months ended
September 30, 1997 related to the settlement agreement between the Company
and United Microelectronics Corporation in connection with a complaint the
Company had filed with the International Trade Commission on July 21, 1997.
Investing and financing activities utilized cash of approximately $1.1
million consisting primarily of purchases of property and equipment of $4.1
million and net repayment of debt of $0.7 million, partially offset by net
proceeds from matured short term investments of $2.3 million and proceeds
from issuance of common stock of $1.4 million.
The Company believes that its existing cash, cash equivalents, short-term
investments and credit facilities will be sufficient to provide adequate
working capital and to fund necessary purchases of property and equipment
through at least the next twelve months. Capital expenditures for the
remainder of fiscal 1998 are anticipated to be approximately $8.3 million.
The Company may also utilize cash to acquire or invest in complementary
businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, the
Company evaluates potential acquisitions of such businesses, products or
technologies. However, the Company has no present understandings,
commitments or agreements with respect to any material acquisition of other
businesses, products or technologies.
In June and November 1995, the Company entered into agreements with TSMC
and Chartered to obtain certain additional wafer capacity through the year
2001. The agreements call for the Company to commit to certain future wafer
purchases and to deposit funds with the suppliers as either a portion of the
price of the additional wafers in advance of their delivery or as a
non-interest bearing deposit to secure the availability of additional wafers.
The price of such wafers will be determined in the future periods in which
specific orders are actually placed. If the Company is not able to use,
assign, or sell the additional wafer quantities, all or a portion of the
deposits may be forfeited.
In October 1996, the Company amended its previous agreement with TSMC
resulting in a reduction of the Company's future wafer purchases required
under the original agreement and the elimination of required future cash
prepayments of approximately $73 million. Under the amended
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agreement, no additional prepayment is required; however, the Company must
utilize the entire amount of the prepayment paid to date through a certain
committed amount of wafer purchases in the years 1997, 1998, and 1999 or a
portion of the prepayment will be forfeited. The Company currently believes
the terms and conditions of the agreement as amended will be met although no
assurance can be given in this regard.
In September 1996, April 1997 and September 1997, the Company amended its
agreement with Chartered. The amendments resulted in a reduction of the
Company's future wafer purchase commitments and the elimination of required
future cash deposits under the original agreement of approximately $36
million. Under the amended agreement, the required future cash deposits of
approximately $36 million could be reinstated if certain conditions are not
met. The Company currently believes the terms and conditions of the
agreement as amended will be met and that these commitments will not be
reinstated although no assurance can be given in this regard.
The deposits and prepayments under the amended foundry agreements
described above are recorded at cost and total approximately $34.2 million as
of September 30, 1997. The Company currently anticipates being able to
utilize and fully recover the value of all foundry prepayments and deposits
under the terms of the amended agreements.
In October 1995, the Company entered into a series of agreements with
United Microelectronics Corporation ("UMC") to form, along with other
investors, a separate Taiwanese company, United Integrated Circuits
Corporation ("UICC"), for the purpose of building and managing a
semiconductor manufacturing facility in the Science Based Industrial Park in
Hsin Chu City, Taiwan, Republic of China. In January 1996, the Company made
an initial payment of $13.7 million and in January 1997, the Company made a
second payment of $25.9 million due under this agreement. The final payment
under this agreement of approximately $11.3 million, based on current
exchange rates, is due during the quarter ended December 31, 1997. The
Company has entered into a forward contract which is effectively a hedge
against the final payment. If for any reason the Company does not make all
or a portion of this final payment, a loss may have to be recognized upon
settlement of the forward contract during the quarter ended December 31,
1997. Investment in the foundry venture was approximately $39.6 million as
of September 30, 1997. Upon completion of the final payment of approximately
$11.3 million, the Company expects to have invested a total of approximately
$51 million for 9.3% of the total available shares of the venture. As an
investor in this venture, the Company will have rights to a portion of the
total wafer capacity for the manufacture of its proprietary products.
However, due to the recent fire in the UICC foundry in which the Company has
invested, the Company will be unable to utilize its guaranteed capacity until
sometime in the future, if at all. Representations have been made by UICC
management that the facility's foundry capacity that has been guaranteed to
the Company will be available through substitute capacity arrangements,
however there can be no assurance that such substitute foundry capacity will
be available to the Company. Additionally, there can be no assurance that a
market will develop for the shares representing the Company's equity
investment at any time in the future.
21
<PAGE>
In November 1995, the Company acquired Pixel Magic, a privately-held
company based in Andover, Massachusetts for $10.5 million in cash, of which
$5.0 million was contingent upon the achievement of certain performance
criteria over a three-year period. Approximately $4.8 million of the initial
cash payment was allocated to in-process research and development and was
charged to operations in fiscal 1996. In June 1997, the Company waived
certain of the performance criteria and agreed to pay the contingent amount
of $5.0 million in two installments during calendar 1998. The first payment
of $3.0 million is due in January 1998 and the second payment of $2.0 million
is due in December 1998.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and various of its current and former officers and Directors
are parties to several lawsuits which purport to be class actions filed on
behalf of all persons who purchased or acquired the Company's stock
(excluding the defendants and parties related to them) for the period July
27, 1995 through May 22, 1996. The first, a state court proceeding
designated IN RE OAK TECHNOLOGY SECURITIES LITIGATION, Master File No.
CV758510 pending in Santa Clara County Superior Court in Santa Clara,
California, consolidates five putative class actions. This lawsuit also
names as defendants several of the Company's venture capital fund investors,
two of its investment bankers and two securities analysts. The plaintiffs
allege violations of California securities laws and statutory deceit
provisions as well as breaches of fiduciary duty and abuse of control. On
December 6, 1996, the state court Judge sustained the Oak defendants'
demurrer to all causes of action alleged in plaintiffs' First Amended
Consolidated Complaint, but allowed plaintiffs the opportunity to amend. The
plaintiffs' Second Amended Consolidated Complaint was filed on August 1, 1997.
The Company and various of its current and former officers and Directors
are also parties to four putative class action lawsuits pending in the U.S.
District Court for the Northern District of California. These actions have
been consolidated as IN RE OAK TECHNOLOGY, INC. SECURITIES LITIGATION, Case
No. C-96-20552-SW(PVT). This action alleges certain violations of federal
securities laws and is brought on behalf of purchasers of the Company's stock
for the period July 27, 1995 through May 22, 1996. This action also names as
a defendant one of the Company's investment bankers. On July 29, 1997, the
federal court Judge granted the Oak defendants Motion to Dismiss the
plaintiff's First Amended Consolidated Complaint, but granted plaintiffs
leave to amend most claims. The plaintiffs' Second Amended Consolidated
Complaint was filed on September 4, 1997.
Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending in
Santa Clara County Superior Court in Santa Clara, California, entitled IN RE
OAK TECHNOLOGY DERIVATIVE ACTION. This lawsuit, which asserts a claim for
breach of fiduciary duty and a claim under California securities law based
upon the officers' and Directors' trading in securities of the Company, has
been stayed pending resolution of the class actions.
In all of the putative state and federal class actions, the plaintiffs
are seeking monetary damages and equitable relief. In the derivative action,
the plaintiffs are also seeking an accounting for the defendants' sales of
Company stock and the payment of monetary damages to the Company.
All of these actions are in the early stages of proceedings and the
Company is currently investigating the allegations. Based on its current
information, the Company believes the suits to be without merit and will
defend its position vigorously. Although it is reasonably possible the
Company may incur a loss upon conclusion of these claims, an estimate of any
loss or range of loss cannot be made. No provision for any liability that
may result upon adjudication has been made in the Company's Consolidated
Financial Statements.
In connection with these legal proceedings, the Company has incurred, and
expects to continue to incur, substantial legal and other expenses.
Shareholder suits of this kind are highly complex and can extend for a
protracted period of time, which can substantially increase the cost of such
litigation and divert the attention of the Company's management.
23
<PAGE>
On July 21, 1997, the Company filed a complaint with the International
Trade Commission ("ITC") based on the Company's belief that certain CD-ROM
controllers infringed one or more of the Company's patents. The complaint
seeks a ban on the importation into the United States of any infringing
CD-ROM controller or product containing such infringing CD-ROM controller. A
formal investigative proceeding was instituted by the ITC on August 19, 1997,
naming as respondents: Winbond Electronics Corporation; Winbond Electronics
North America Corporation; Wearnes Technology (Private) Ltd.; and Wearnes
Electronics Malaysia Sendirian Berhad. Discovery proceedings are now ongoing
and a full hearing of the matter has not yet been scheduled, but is expected
to occur in 1998. In connection with this legal proceeding, the Company
expects to incur substantial legal and other expenses.
As originally filed with the ITC, the Company's complaint also identified
as proposed respondents: United Microelectronics Corporation ("UMC"); Lite-On
Group; Lite-On Technology Corp.; Behavior Tech Computer Corp.; and Behavior
Tech Computer (USA) Corp. The Company and UMC entered into a settlement
agreement, effective July 31, 1997, pursuant to which UMC agreed to cease and
desist manufacture of its specified CD-ROM controllers, except under certain
limited conditions which expire on January 31, 1998. The settlement
agreement additionally provided for the withdrawal of the Company's ITC
complaint against UMC and the above-named Lite-On and Behavior Tech companies.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Pursuant to Item 701 of Regulation S-K, during the period
5/14/97 (the date of the Company's Form SR previously filed) through 9/30/97,
the Company used proceeds from the sale of securities from its initial public
offering (Registration number 2-87518, effective 2/13/95) as follows:
$510,823 payment to others relating to research and development.
The Company has now completely used all the proceeds from the offering.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated by reference
herein.
Exhibit
Number Exhibit Title
------ -------------
3.01 The Company's Restated Certificate of Incorporation, as
amended (1)
3.02 The Company's Restated Bylaws (2)
3.03 Certificate of Correction to the Restated Certificate of
Incorporation of the Company (16)
4.01 Form of Specimen Certificate for the Company's Common Stock
(3)
4.02 Amended and Restated Registration Rights Agreement dated as of
October 15, 1993 among the Company and various investors (3)
4.03 The Company's Restated Certificate of Incorporation, as
amended (See Exhibit 3.01)
4.04 The Company's Restated Bylaws (See Exhibit 3.02)
4.05 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of the Company dated August 18,
1997 (16)
4.06 Rights Agreement between the Company and BankBoston, N.A.
dated August 19, 1997 (16)
10.01 1988 Stock Option Plan, as amended and related documents (3)*
10.02 1994 Stock Option Plan and related documents (3) and amendment
thereto dated February 1, 1996 (4)*
10.03 1994 Outside Directors' Stock Option Plan and related
documents (3)*
10.04 1994 Employee Stock Purchase Plan (3)*
10.05 401(k) Plan and related documents (3) and Amendment Number One
and Supplemental Participation Agreement thereto (5)*
10.06 Lease Agreement dated August 3, 1988 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Separate Property Trust) as amended and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended, and
Justin Jacobs, Jr., dba Siri-Kifer Investments, a joint
venture, and the Company, as amended June 1, 1990, and Consent
to Alterations dated March 26, 1991 (lease agreement for 139
Kifer Court, Sunnyvale, California) (3), and amendments
thereto dated June 15, 1995 and July 19, 1995 (5)
25
<PAGE>
10.07 Lease Agreement dated August 22, 1994 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Separate Property Trust) as amended and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended, and
Justin Jacobs, Jr., dba Siri-Kifer Investments, a joint
venture, and the Company (lease agreement for 140 Kifer Court,
Sunnyvale, California) (3), and amendment thereto dated June
15, 1995 (5)
10.08 Form of Indemnification Agreement, between the Company and
each of its Directors and executive officers (14)
10.09 VCEP Agreement dated July 30, 1990 between the Company and
Advanced Micro Devices, Inc. (3)
10.10 Product License Agreement dated April 13, 1993 between the
Company and Media Chips, Inc., as amended September 16, 1993
(3)
10.11 Resolutions of the Board of Directors of the Company dated
July 27, 1994 setting forth the provisions of the Executive
Bonus Plan (3) (12)*
10.12 Employee Incentive Plan effective January 1, 1995 (3)*
10.13 Option Agreement between Oak Technology, Inc., and Taiwan
Semiconductor Manufacturing Co., Ltd. dated as of August 8,
1996 (14)**
10.14 Foundry Venture Agreement between the Company and United
Microelectronics Corporation dated as of October 2, 1995 (6)
(12)
10.15 Fab Ven Foundry Capacity Agreement among the Company, Fab Ven
and United Microelectronics Corporation dated as of October 2,
1995 (7) (12)
10.16 Written Assurances Re: Foundry Venture Agreement among the
Company, United Microelectronics Corporation and Fab Ven dated
as of October 2, 1995 (8) (12)
10.17 Lease Agreement dated June 15, 1995 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Separate Property Trust) as amended and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T.Peery Separate Property Trust) as amended, and the
Company (lease agreement for 130 Kifer Court, Sunnyvale,
California) (9), and amendments thereto dated June 15, 1995
and August 18, 1995 (10)
10.18 Deposit Agreement dated November 8, 1995 between Chartered
Semiconductor Manufacturing Ltd. and the Company (11), and
Amendment Agreement (No. 1) thereto dated September 25,1996
(13)**
10.19 Amendment Agreement (No. 2) dated April 7, 1997 to Deposit
Agreement dated November 8, 1995 between Chartered
Semiconductor Manufacturing Ltd. and the Company(15) and
addendum thereto dated September 26, 1997**
10.20 First Amendment to Plan of Reorganization and Agreement of
Merger dated October 27, 1995 among the Company, Oak
Acquisition Corporation, Pixel Magic, Inc. and the then
shareholders of Pixel dated June 25, 1996 and Second Amendment
thereto dated June 13, 1997 (16)
26
<PAGE>
10.21 First Amendment to Non-Compete and Technology Transfer
Agreement by and among the Company, Pixel Magic, Inc. and
Peter D. Besen dated June 13, 1997 (16)**
10.22 Agreement of Termination of Employment Agreement between Pixel
Magic, Inc. and Peter D. Besen dated June 13, 1997 (16)
10.23 Agreement of Termination of Employment Agreement between Pixel
Magic, Inc. and Don Schulsinger dated June 13, 1997 (16)
10.24 Release and Settlement Agreement between the Company and
United Microelectronics Corporation dated July 31, 1997 (16)**
11.01 Statement regarding computation of net income (loss) per share
27.01 Financial Data Schedule
- --------------------------
(1) Incorporated herein by reference to exhibit 3.01 of the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(2) Incorporated herein by reference to exhibit 3.05 filed with the
Company's Registration Statement on Form S-1 (File No. 33-87518)
declared effective by the Securities and Exchange Commission on
February 13, 1995 (the "February 1995 Form S-1").
(3) Incorporated herein by reference to the exhibit with the same number
filed with the February 1995 Form S-1.
(4) Incorporated herein by reference to Exhibit 10.1 filed with the
Company's Registration Statement on Form S-8 (File No. 333-4334) on
May 2, 1996.
(5) Incorporated herein by reference to the exhibit with the same number
filed with the Company's Annual Report on Form 10-K for the year ended
June 30, 1996.
(6) Incorporated herein by reference to Exhibit 2.1 filed with the
Company's Form 8-K dated October 2, 1995
(the "October 1995 form 8-K").
(7) Incorporated herein by reference to Exhibit 2.2 filed with the October
1995 Form 8-K.
(8) Incorporated herein by reference to Exhibit 2.3 filed with the October
1995 Form 8-K.
(9) Incorporated herein by reference to Exhibit 10.08 filed with the
Company's Annual Report on Form 10-K for the year ended June 30, 1995.
(10) Incorporated herein by reference to Exhibit 10.08 filed with the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996.
(11) Incorporated herein by reference to Exhibit 10.04 filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995.
(12) Confidential treatment has been granted with respect to portions of
this exhibit.
(13) Incorporated herein by reference to Exhibit 10.17 filed with the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
(14) Incorporated herein by reference to the exhibit with the same number
filed with the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.
(15) Incorporated herein by reference to the exhibit with the same number
filed with the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
(16) Incorporated herein by reference to the exhibit with the same number
filed with the Company's Annual Report on Form 10-K for the year ended
June 30, 1997.
- --------------------------
* Indicates Management incentive plan.
** Confidential treatment granted and/or requested as to portions of the
exhibit.
27
<PAGE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OAK TECHNOLOGY, INC.
(Registrant)
Date: November 11, 1997
/S/ SIDNEY S. FAULKNER
-----------------------
Sidney S. Faulkner
Vice President, Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
29
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------ -------------
10.19 Amendment Agreement (No. 2) dated April 7, 1997 to Deposit
Agreement dated November 8, 1995 between Chartered Semiconductor
Manufacturing Ltd. and the Company(15) and addendum thereto dated
September 26, 1997**
11.01 Statement regarding computation of net income (loss) per share
27.01 Financial Data Schedule
30
<PAGE>
* CONFIDENTIAL TREATMENT - EDITED COPY
CHARTERED 1450 McCandless Drive
SEMICONDUCTOR MANUFACTURING, INC. Milpitas, CA 95035. USA
Tel: (408) 941-1100
Fax: (408) 941-1101
EXHIBIT 10.19
September 26, 1997
Mr. David D. Tsang
President
Oak Technology, Inc.
139 Kifer Court
Sunnyvale, California 94086
Subject: Addendum to CSM LTD and Oak Technology agreement dated April 7, 1997
Amendment Agreement (No. 2) to Deposit agreement dated 8 November 1995
Re: Page 2 of the above agreement
Changes to Section 3 (Condition Precedent)
Paragraph 3.3
- -------------------------------------------------------------------------------
Section 3. CONDITION PRECEDENT
Paragraph 3.3 By * , Customer shall tape out a * Logic product
(" * Logic product") at CSM's wafer fabrication facilities
situated in Singapore.
Amended to:
Section 3. CONDITION PRECEDENT
Paragraph 3.3 BY * , Customer shall tape out a * Logic product
(" * Logic product") at CSM's wafer fabrication facilities
situated in Singapore.
Approved by: Approved by:
/s/ Pam Preston Date: 9/26/97 /s/ David D. Tsang Date: SEP. 28, 97
- ---------------- --------- ------------------- ------------
Pam Preston David D. Tsang
Managing Director President
CSM, Inc. Oak Technology, Inc.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
REDACTED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
[address] [logo]
<PAGE>
EXHIBIT 11.01
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1997 1996
-------- ----------
<S> <C> <C>
Statement of operations data:
Net income (loss). . . . . . . . . . . . . . . . . . $ 6,193 $ (1,653)
-------- ----------
-------- ----------
Weighted average number of common and
dilutive common equivalent shares used
in computations:
Common stock. . . . . . . . . . . . . . . . . . . 41,321 40,297
Stock options and other common stock equivalents. 1,248 -
-------- ----------
Shares used in computing net income (loss) per share . . 42,569 40,297
-------- ----------
-------- ----------
Net income (loss) per share (1). . . . . . . . . . . . . $ 0.15 $ (0.04)
-------- ----------
-------- ----------
</TABLE>
(1) The difference between the primary and fully diluted shares used in
computing net income (loss) per share is not material.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AS FOUND
ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 91,440
<SECURITIES> 55,349
<RECEIVABLES> 27,665
<ALLOWANCES> 663
<INVENTORY> 10,520
<CURRENT-ASSETS> 208,510
<PP&E> 35,085
<DEPRECIATION> 12,488
<TOTAL-ASSETS> 292,426
<CURRENT-LIABILITIES> 36,962
<BONDS> 0
0
0
<COMMON> 42
<OTHER-SE> 246,606
<TOTAL-LIABILITY-AND-EQUITY> 292,426
<SALES> 43,293
<TOTAL-REVENUES> 43,293
<CGS> 20,755
<TOTAL-COSTS> 20,755
<OTHER-EXPENSES> 17,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 9,527
<INCOME-TAX> 3,334
<INCOME-CONTINUING> 6,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,193
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
