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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000.
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 Number 0-25699
P L X T E C H N O L O G Y, I N C.
(Exact name of Registrant as specified in its charter)
Delaware 94-3008334
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
390 Potrero Avenue, Sunnyvale, CA 94086
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 774-9060
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 April 28, 2000, there were 22,097,276 shares of common stock, par value
$0.001 per share, outstanding.
This Report on Form 10-Q includes 19 pages with the Index to Exhibits located
on page 20.
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PLX TECHNOLOGY, INC.
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at March 31, 2000 and
December 31, 1999......................................... 3
Condensed Consolidated Statements of Income for the three
months ended March 31, 2000 and 1999...................... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999................ 5
Notes to Condensed Consolidated Financial Statements........ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.... 19
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds..................... 20
ITEM 6. Exhibits and Reports on Form 8-K.............................. 20
Signature..................................................... 21
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLX TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999(1)
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 20,612 $ 8,636
Short term investments 14,246 20,075
Accounts receivable, net 6,616 5,439
Inventories 2,263 2,504
Deferred tax assets 1,379 1,379
Other current assets 870 447
-------- --------
Total current assets 45,986 38,480
Property and equipment, net 1,430 1,537
Other assets 992 840
Long term investments 11,457 11,198
-------- --------
Total assets $ 59,865 $ 52,055
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,828 $ 1,825
Accrued compensation and benefits 1,527 1,052
Income tax payable 2,124 847
Deferred revenues 1,433 1,001
Accrued commissions 557 320
Other accrued expenses 859 608
-------- --------
Total current liabilities 9,328 5,653
STOCKHOLDERS' EQUITY
Common stock, par value 22 22
Additional paid in capital 37,563 36,828
Deferred compensation (170) (192)
Accumulated other comprehensive loss (63) (66)
Retained earnings 13,185 9,810
-------- --------
Total stockholders' equity 50,537 46,402
-------- --------
Total liabilities and stockholders' equity $ 59,865 $ 52,055
======== ========
</TABLE>
- -----------------
(1) The balance sheet at December 31, 1999 has been derived from the audited
financial statements as of that date.
3
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See notes to condensed consolidated financial statements.
PLX TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
2000 1999
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Net revenues $14,542 $ 8,908
Cost of revenues 4,420 3,252
------- -------
Gross Margin 10,122 5,656
Operating expenses:
Research and development 2,020 1,732
Selling, general and administrative 3,400 2,291
------- -------
Total operating expenses 5,420 4,023
------- -------
Income from operations 4,702 1,633
Interest income and other, net 489 43
------- -------
Income before income taxes 5,191 1,676
Provision for income taxes 1,816 591
------- -------
Net income $ 3,375 $ 1,085
======= =======
Basic net income per share $ 0.16 $ 0.28
======= =======
Shares used to compute basic per share amounts 21,696 3,897
======= =======
Diluted net income per share $ 0.15 $ 0.06
======= =======
Shares used to compute diluted per share amounts 22,981 18,580
======= =======
</TABLE>
See notes to condensed consolidated financial statements
4
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PLX TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,375 $ 1,085
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 244 225
Compensation expense recognized - 144
Amortization of deferred compensation 22 22
Changes in operating assets and liabilities:
Accounts receivable (1,177) (2,531)
Inventories 241 (431)
Other current assets (423) (147)
Other assets (152) (26)
Accounts payable 1,003 552
Accrued compensation and benefits 475 112
Income tax payable 1,277 506
Deferred revenues 432 210
Accrued commissions 237 76
Other accrued expenses 251 63
-------- --------
Net cash provided by (used in) operating activities 5,805 (140)
-------- --------
INVESTING ACTIVITIES
Purchases of short term investments (10,922) -
Sales of short term investments 3,250 -
Maturities of short term investments 13,500 -
Purchases of long term investments (1,260) -
Sales of long term investments 1,005 -
Purchases of property and equipment (137) (275)
-------- --------
Net cash provided by (used in) investing activities 5,436 (275)
FINANCING ACTIVITIES
Proceeds from sale of common stock 735 -
Repayment of stockholder notes receivable - 1
-------- --------
Net cash provided by financing activities 735 1
-------- --------
Increase (decrease) in cash and cash equivalents 11,976 (414)
Cash and cash equivalents at beginning of year 8,636 5,638
-------- --------
Cash and cash equivalents at end of period $ 20,612 $ 5,224
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
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PLX TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of PLX Technology, Inc. and its wholly-owned subsidiary (collectively,
"PLX" or the "Company") as of March 31, 2000 and for the three-month
periods ended March 31, 2000 and 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, the condensed consolidated
financial statements include all adjustments (consisting only of normal
recurring accruals) that management considers necessary for a fair
presentation of our financial position, operating results and cash flows
for the interim periods presented. Operating results and cash flows for
interim periods are not necessarily indicative of results for the entire
year.
This financial data should be read in conjunction with the audited
consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates
and such differences may be material to the financial statements.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 requires that
all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements. The Company's comprehensive net income for the three months
ended March 31, 2000 and March 31, 1999 was as follows:
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
<S> <C> <C>
2000 1999
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(IN THOUSANDS)
Net income $3,375 $1,085
Accumulated other comprehensive gain 3 -
------ ------
Comprehensive income $3,378 $1,085
====== ======
</TABLE>
Accumulated comprehensive income on the accompanying Consolidated
Balance Sheets is comprised entirely of unrealized losses on
investments.
6
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RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "SAB 101", "Revenue Recognition",
which provides guidance on the recognition, presentation and disclosure
in the financial statements files with the SEC. SAB 101 outlines the
basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies.
Management believes that the Company's revenue recognition policy is in
compliance with the provisions of SAB 101 and the impact of SAB 101 will
have no material affect on its financial position or results of
operations.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company invests its excess cash in high quality, short-term and
long-term debt and equity instruments. The following is a summary of the
Company's investments by major security type at amortized cost which
approximates fair value:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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(IN THOUSANDS)
<S> <C> <C>
Operating cash $ 2,279 $ 274
Money market 5,950 1,070
Certificates of deposit 1,500 1,500
Commercial paper 9,814 14,759
Municipal bonds 23,288 18,814
Corporate debt securities 1,496 1,500
U.S government and agency securities 1,988 1,992
------- -------
$46,315 $39,909
======= =======
Amounts included in cash and cash equivalents $20,612 $ 8,636
Amounts included in short-term investments 14,246 20,075
Amounts included in long-term investments 11,457 11,198
------- -------
$46,315 $39,909
======= =======
</TABLE>
The Company classifies all securities as either cash and cash
equivalents or available for sale.
3. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market (net realizable value). Inventories were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------------
2000 1999
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(IN THOUSANDS)
<S> <C> <C>
Work in Process ........ $ 75 $ 193
Finished goods ......... 2,188 2,311
------ ------
Total .............. $2,263 $2,504
====== ======
</TABLE>
7
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4. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
-------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net income ..................................... $ 3,375 $ 1,085
======== ========
Weighted average shares of common stock
outstanding ................................ 21,986 4,602
Less weighted average shares of common
stock subject to repurchase ................ (290) (705)
-------- --------
Shares used in computing basic net income
per share .................................. 21,696 3,897
-------- --------
Net income per share -- Basic .................. $ 0.16 $ 0.28
======== ========
Shares used in computing basic net income
per share .................................. 21,696 3,897
Effective of dilutive securities:
Employee stock options ..................... 995 239
Unvested restricted stock .................. 290 705
Redeemable convertible preferred stock ..... -- 13,739
-------- --------
Shares used in computing diluted net
income per share (denominator) ............. 22,981 18,580
-------- --------
Historical net income per share -- diluted ..... $ 0.15 $ 0.06
======== ========
</TABLE>
5. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company has one operating segment, the sale of semiconductor
devices. The President has been identified as the Chief Operating
Decision Maker (CODM) because he has final authority over resource
allocation decisions and performance assessment. The CODM does not
receive discrete financial information about individual components of
the Company's business.
Revenues by geographic region were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
2000 1999
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(IN THOUSANDS)
<S> <C> <C>
Revenues:
North America $ 9,318 $ 6,379
Europe 3,151 1,881
Asia 2,073 648
------- -------
Total $14,542 $ 8,908
======= =======
</TABLE>
8
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6. SUBSEQUENT EVENT
On April 19, 2000 we announced a definitive agreement to acquire
privately held Sebring Networks, Inc. of Campbell, California. Under the
terms of the agreement, which will be accounted for as a purchase
transaction, approximately 1,149,000 shares of PLX common stock, with an
aggregate value of approximately $30 million, will be exchanged for the
remaining 84% of the outstanding shares of Sebring. Prior to the
agreement, we owned approximately 16% of the outstanding shares of
Sebring.
9
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q contains forward-looking statements, including
statements regarding our expectations, hopes, intentions, beliefs or strategies
regarding the future. Such forward-looking statements include, but are not
limited to, our anticipated expense levels for research and development,
selling, general and administrative operations, and deferred compensation; the
amount of and specific uses of anticipated capital expenditures; expectations
regarding inventory balances, liquidity, adequacy of cash resources; and
adequacy of current facilities under the sub-headings "Results of Operations"
and "Liquidity and Capital Resources." Actual results could differ materially
from those projected in any forward-looking statements for the reasons detailed
below under the sub-heading "Factors That May Affect Future Operating Results"
and in other sections of this Report on Form 10-Q. All forward-looking
statements included in this Form 10-Q are based on information available to us
on the date of this Report on Form 10-Q, and we assume no obligation to update
the forward-looking statements, or to update the reasons why actual results
could differ from those projected in the forward-looking statements. See
"Factors That May Affect Future Operating Results" below, as well as such other
risks and uncertainties as are detailed in our Securities and Exchange
Commission reports and filings for a discussion of the factors that could cause
actual results to differ materially from the forward-looking statements.
The following discussion should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
OVERVIEW
PLX Technology Inc., established in May 1986 ("PLX" or the "Company"), develops
and supplies semiconductor devices and software that accelerate and manage the
transfer of data in networking and telecommunications, enterprise storage,
imaging and industrial equipment. This equipment is typically controlled by
internal computers, commonly referred to as embedded systems. We offer a
complete solution consisting of three related types of products: semiconductor
devices, software development kits and hardware design kits. Our semiconductor
devices simplify the development of data transfer circuits in high-performance
embedded systems and are compatible with microprocessors such as IBM's PowerPC,
Motorola's PowerPC, Intel's i960, IDT's MIPs and Hitachi's SH. Our software
development kits and hardware design kits promote sales of our semiconductor
devices by lowering customers' development costs and by accelerating their
ability to bring new products to market. Demand for networking,
telecommunications and other equipment that transmits, stores and processes
information rapidly has dramatically increased due to:
- - growth of the Internet,
- - deployment of high-speed networking, and
- - proliferation of multimedia.
Suppliers of this equipment are changing the way they design their products to
reduce product development time and to use their scarce engineering resources
more efficiently. Until recently, these suppliers typically developed their own
system components and the connections between the components. Now, however, they
are increasingly building their equipment based on industry standard connection
methods, and they are purchasing components supplied by other companies that
comply with these standards. By doing so, they reduce the time and resources
required for product development. Consequently, there is a growing demand for
standards-based components that connect systems together, such as our
semiconductor devices. The majority of our products are based on Peripheral
Component Interconnect, or PCI, a standard that is widely used in our markets.
Our objective is to expand our advantages in data transfer technology by:
10
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- - focusing on high-growth markets,
- - delivering comprehensive solutions, including semiconductor devices,
- - software development kits and hardware design kits,
- - extending our technology advantages by incorporating new functions and
technologies,
- - driving industry standards, and
- - strengthening and expanding our industry relationships.
We utilize a "fabless" semiconductor business model whereby we purchase
semiconductor devices from independent manufacturing foundries. This approach
allows us to focus on defining, developing, and marketing our products and
eliminates the need for us to invest large amounts of capital in manufacturing
facilities and work-in-process inventory.
Our gross margins have fluctuated in the past and are expected to fluctuate in
the future due to changes in product mix, the position of our products in their
respective life cycles, and specific product manufacturing costs.
RESULTS OF OPERATIONS
The following table summarizes historical results of operations as a percentage
of net revenues for the periods shown.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
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<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of revenues 30.4 36.5
------ ------
Gross margin 69.6 63.5
Operating expenses:
Research and development 13.9 19.4
Selling, general and administrative 23.4 25.7
------ ------
Total operating expenses 37.3 45.1
------ ------
Income from operations 32.3 18.4
Interest income and other, net 3.4 0.4
------ ------
Income before income taxes 35.7 18.8
Provision for income taxes 12.5 6.6
------ ------
Net income 23.2% 12.2%
</TABLE>
NET REVENUES
Net revenues for the three months ended March 31, 2000 were $14.5 million, an
increase of 63% from $8.9 million for the three months ended March 31, 1999. The
increase was primarily due to higher unit shipments resulting from increased
market acceptance of our products. For the three months ended March 31, 2000,
net revenues derived from customers in the United States were 64%, with 26% of
net revenues from sales to Unique Technologies, our U.S. distributor. For that
period Cisco Systems accounted for 15% of net revenues. No other individual
customer represented greater than 10% of net revenues.
11
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GROSS PROFIT
Gross profit represents net revenues less the cost of revenues. Cost of revenues
includes the cost of purchasing packaged semiconductor devices from our
independent foundries, our operating costs associated with the procurement,
storage, and shipment of products, as well as royalty expenses paid on some of
our products. Gross profit for the three months ended March 31, 2000 was $10.1
million, an increase of 79% from $5.7 million for the three months ended March
31, 1999. Gross profit as a percentage of net revenues was 69.6% for the three
months ended March 31, 2000, as compared to 63.5% for the three months ended
March 31, 1999. The improvement in our gross profit was primarily due to higher
unit shipments and lower product costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of salaries and related
costs of employees engaged in research, design, and development activities. In
addition, expenses for outside engineering consultants and non-recurring
engineering at our independent foundries are included in research and
development expenses. Research and development expenses for the three months
ended March 31, 2000 were $2.0 million, an increase of 17% from $1.7 million for
the three months ended March 31, 1999. The increase was primarily due to
increased headcount and higher costs to support our continuing efforts to
develop new products. Research and development expenses as a percentage of net
revenues were 13.9% for the three months ended March 31, 2000, as compared to
19.4% for the three months ended March 31, 1999. This percentage decrease was
primarily due to higher net revenues. We expect that research and development
expenses in absolute dollars will continue to increase in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist primarily of employee
related expenses, professional fees, trade show and other promotional expenses,
and sales commissions to manufacturers' representatives. Selling, general and
administrative expenses for the three months ended March 31, 2000 were $3.4
million, an increase of 48% from $2.3 million for the three months ended March
31, 1999. Selling, general and administrative expenses as a percentage of net
revenues were 23.4% for the three months ended March 31, 2000, as compared to
25.7% for the three months ended March 31, 1999. The absolute dollar increase is
related to increases in employee related expenses, professional fees, trade show
and other promotional expenses, and sales commissions to manufacturer's
representatives. The percentage decrease was primarily due to higher net
revenues. We expect that selling, general and administrative expenses in
absolute dollars will continue to increase in future periods.
DEFERRED COMPENSATION
We recorded deferred compensation in connection with the grant of stock options
and restricted stock to our employees during 1997 and 1998. Amortization of
deferred compensation was approximately $22,000 for each of the three months
ended March 31, 2000 and March 31, 1999. The amount of deferred compensation is
amortized ratably over the vesting period of the applicable stock grants. We
expect the deferred compensation amortization to continue at approximately
$20,000 per quarter through December 31, 2001.
INTEREST INCOME AND OTHER, NET
Interest income and other income, net reflects interest earned on average cash,
cash equivalents, short-term and long-term investment balances. Interest income
and other, net increased to $489,000 for the three months ended March 31, 2000
from $43,000 for the three months ended March 31, 1999. This increase was
primarily due to interest earned on higher levels of short-term investments,
long-term investments, and cash balances generated by our initial public
offering in April 1999.
PROVISION FOR INCOME TAXES
Income tax expenses as a percentage of pretax income was 35% for each of the
three months ended March 31, 2000 and March 31, 1999. Our effective tax rates in
2000 and in 1999 differ from the applicable statutory rate primarily due to
state income taxes offset by the benefit of tax-exempt interest income and
research and development tax credits.
12
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had $36.7 million in working capital and $34.9 million in
cash, cash equivalents and short term investments. Our operating activities
generated cash of $5.8 million for the three months ended March 31, 2000, and
used cash of $140,000 for the three months ended March 31, 1999. The $5.8
million increase in cash provided by operations was primarily attributable to
our net income and increases in income taxes payable and accounts payable
partially offset by an increase in accounts receivable. The absolute increases
in net income and accounts receivable were due to higher product shipments
during the three months ended March 31, 2000 as compared to the three months
ended March 31, 1999.
Our investing activities provided cash of $5.4 million for the three months
ended March 31, 2000 and used cash of $275,000 for the three months ended March
31, 1999. The $5.4 million increase in cash provided by investing activities was
primarily attributable to the maturity and sale of short term investment
securities partially offset by purchases of short term investment securities.
Cash provided by financing activities was $735,000 for the three months ended
March 31, 2000 and $1,000 for the three months ended March 31, 1999. Cash
provided by financing activities for the three months ended March 31, 2000 is
related to exercise of employee stock options.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This quarterly report on Form 10-Q contains forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially from
those anticipated by such forward-looking statements as a result of certain
factors, including those set forth below.
RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO FACTORS WHICH ARE NOT WITHIN OUR
CONTROL
Our quarterly operating results have fluctuated significantly in the past and
are expected to fluctuate significantly in the future based on a number of
factors, many of which are not in our control. Our operating expenses, which
include product development costs and selling, general and administrative
expenses, are relatively fixed in the short-term. If our revenues are lower than
we expect because we sell fewer semiconductor devices, delay the release of new
products or the announcement of new features, or for other reasons, we may not
be able to quickly reduce our spending in response.
Other circumstances that can affect our operating results include:
- - our ability to develop, introduce and market new products and
technologies on a timely basis,
- - the timing of significant orders, order cancellations and reschedulings,
- - changes in our pricing policies or those of our competitors or
suppliers, including decreases in unit average selling prices of our
products,
- - introduction of products and technologies by our competitors,
- - shifts in our product mix toward lower margin products,
- - the availability of production capacity at the fabrication facilities
that manufacture our products, and
- - the availability and cost of materials to our suppliers.
These factors are difficult to forecast, and these or other factors could
adversely affect our business. Any shortfall in our revenues would have a direct
impact on our business. In addition, fluctuations in our quarterly results could
adversely affect the market price of our common stock in a manner unrelated to
our long-term operating performance.
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<PAGE> 14
SALES CYCLE CAN RESULT IN UNCERTAINTY AND DELAYS WITH REGARD TO OUR EXPECTED
REVENUES
Our customers typically perform numerous tests and extensively evaluate our
products before incorporating them into their systems. The time required for
test, evaluation and design of our products into the customer's equipment can
range from six to twelve months or more. It can take an additional six to twelve
months or more before a customer commences volume shipments of equipment that
incorporates our products. Because of this lengthy sales cycle, we may
experience a delay between the time when we increase expenses for research and
development and sales and marketing efforts and the time when we generate higher
revenues, if any, from these expenditures.
In addition, the delays inherent in our lengthy sales cycle raise additional
risks of customer decisions to cancel or change product plans. When we achieve a
design win, there can be no assurance that the customer will ultimately ship
products incorporating our products. Our business could be materially adversely
affected if a significant customer curtails, reduces or delays orders during our
sales cycle or chooses not to release products incorporating our products.
RAPID TECHNOLOGICAL CHANGE COULD MAKE OUR PRODUCTS OBSOLETE
The semiconductor industry is characterized by rapidly changing technology and
industry standards, along with frequent new product introductions. Consequently,
our future success depends on our ability to identify trends in our target
markets and to offer new semiconductor devices, as well as other products and
services, that address the changing needs of our target customers.
WE MUST MAKE SIGNIFICANT RESEARCH AND DEVELOPMENT EXPENDITURES PRIOR TO
GENERATING REVENUES FROM PRODUCTS
To establish market acceptance of a new semiconductor device, we must dedicate
significant resources to research and development, production and sales and
marketing. We incur substantial costs in developing, manufacturing and selling a
new product, which often significantly precede meaningful revenues from the sale
of this product. Consequently, new products can require significant time and
investment to achieve profitability. Prospective investors should note that our
efforts to introduce new semiconductor devices or other products or services may
not be successful or profitable. In addition, products or technologies developed
by others may render our products or technologies obsolete or noncompetitive.
We record as expenses the costs related to the development of new semiconductor
devices and other products as these expenses are incurred. As a result, our
profitability from quarter to quarter and from year to year may be adversely
affected by the number and timing of our new product launches in any period and
the level of acceptance gained by these products.
OUR INDEPENDENT MANUFACTURERS MAY NOT BE ABLE TO MEET OUR MANUFACTURING
REQUIREMENTS
We do not manufacture any of our semiconductor devices. Therefore, we are
referred to in the semiconductor industry as a "fabless" producer of
semiconductors. Consequently, we depend upon third party manufacturers to
produce semiconductors that meet our specifications. We currently have third
party manufacturers that can produce semiconductors which meet our needs.
However, as the semiconductor industry continues to progress to smaller
manufacturing and design geometries, the complexities of producing
semiconductors will increase. Decreasing geometries may introduce new problems
and delays that may affect product development and deliveries. Due to the nature
of the semiconductor industry and our status as a "fabless" semiconductor
company, we could encounter fabrication related problems that may affect the
availability of our semiconductor devices, may delay our shipments or may
increase our costs.
OUR RELIANCE ON SINGLE SOURCE MANUFACTURERS OF OUR SEMICONDUCTOR DEVICES COULD
DELAY SHIPMENTS AND INCREASE OUR COSTS
None of our semiconductor devices is currently manufactured by more than one
supplier. We place our orders on a purchase order basis and do not have a long
term purchase agreement with any of our existing suppliers. In the event that
the supplier of a semiconductor device was unable or unwilling to continue to
manufacture this product in the required volume, we would have to identify and
qualify a substitute supplier. Introducing new products or transferring existing
products to a new third party manufacturer or process may result in unforeseen
device specification and operating problems. These problems may affect product
shipments and may be costly to correct.
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<PAGE> 15
Silicon fabrication capacity may also change, or the costs per silicon wafer may
increase. Manufacturing-related problems may have a material adverse effect on
our business.
INTENSE COMPETITION IN THE MARKETS IN WHICH WE OPERATE MAY REDUCE THE DEMAND FOR
OR PRICES OF OUR PRODUCTS
Competition in the semiconductor industry is intense. If our main target market,
the embedded systems market, continues to grow, the number of competitors may
increase significantly. In addition, new semiconductor technology may lead to
new products that can perform similar functions as our products. Some of our
competitors and other semiconductor companies may develop and introduce products
that integrate into a single semiconductor device the functions performed by our
semiconductor devices. This would eliminate the need for our products in some
applications.
In addition, competition in our markets comes from companies of various sizes,
many of which are significantly larger and have greater financial and other
resources than we do and thus can better withstand adverse economic or market
conditions. Also, as we start to sell our processor products, we will compete
with established embedded microprocessor companies and others. Many of these
indirect competitors and microprocessor companies have significantly greater
financial, technical, marketing and other resources than we. Therefore, we
cannot assure you that we will be able to compete successfully in the future
against existing or new competitors, and increased competition may adversely
affect our business.
FAILURE TO HAVE OUR PRODUCTS DESIGNED INTO THE PRODUCTS OF ELECTRONIC EQUIPMENT
MANUFACTURERS WILL RESULT IN REDUCED SALES
Our future success depends on electronic equipment manufacturers that design our
semiconductor devices into their systems. We must anticipate market trends and
the price, performance and functionality requirements of current and potential
future electronic equipment manufacturers and must successfully develop and
manufacture products that meet these requirements. In addition, we must meet the
timing requirements of these electronic equipment manufacturers and must make
products available to them in sufficient quantities. These electronic equipment
manufacturers could develop products that provide the same or similar
functionality as one or more of our products and render these products obsolete
in their applications.
We do not have purchase agreements with our customers that contain minimum
purchase requirements. Instead, electronic equipment manufacturers purchase our
products pursuant to short-term purchase orders that may be canceled without
charge. We believe that in order to obtain broad penetration in the markets for
our products, we must maintain and cultivate relationships, directly or through
our distributors, with electronic equipment manufacturers that are leaders in
the embedded systems markets. Accordingly, we will often incur significant
expenditures in order to build relationships with electronic equipment
manufacturers prior to volume sales of new products. If we fail to develop
relationships with additional electronic equipment manufacturers, to have our
products designed into new embedded systems or to develop sufficient new
products to replace products that have become obsolete, our business would be
materially adversely affected.
LOWER DEMAND FOR OUR CUSTOMERS' PRODUCTS WILL RESULT IN LOWER DEMAND FOR OUR
PRODUCTS
Demand for our products depends in large part on the development and expansion
of the high-performance embedded systems markets including networking and
telecommunications, enterprise storage, imaging and industrial applications. The
size and rate of growth of these embedded systems markets may in the future
fluctuate significantly based on numerous factors. These factors include the
adoption of alternative technologies, capital spending levels and general
economic conditions. Demand for products that incorporate high-performance
embedded systems may not grow.
DEFECTS IN OUR PRODUCTS COULD INCREASE OUR COSTS AND DELAY OUR PRODUCT SHIPMENTS
Our products are complex. While we test our products, these products may still
have errors, defects or bugs that we find only after commercial production has
begun. We have experienced errors, defects and bugs in the past in connection
with new products.
15
<PAGE> 16
Our customers may not purchase our products if the products have reliability,
quality or compatibility problems. This delay in acceptance can make it more
difficult to retain our existing customers and to attract new customers.
Moreover, product errors, defects or bugs can result in additional development
costs, diversion of technical and other resources from our other development
efforts, claims by our customers or others against us, or the loss of
credibility with our current and prospective customers. In the past, the
additional time required to correct defects has caused delays in product
shipments and resulted in lower revenues. We may have to spend significant
amounts of capital and resources to address and fix problems in new products.
We must continuously develop our products using new process technology with
smaller geometries to remain competitive on a cost and performance basis.
Migrating to new technologies is a challenging task requiring new design skills,
methods and tools and is difficult to achieve.
FAILURE TO HIRE ADDITIONAL PERSONNEL AND TO IMPROVE OUR OPERATIONS WILL LIMIT
OUR GROWTH
We have experienced rapid growth which places a significant strain on our
limited personnel and other resources. To manage our expanded operations
effectively, we will need to further improve our operational, financial and
management systems. We will also need to successfully hire, train, motivate and
manage our employees. We may not be able to manage our growth effectively, which
could have a material adverse effect on our business. Also, we are seeking to
hire additional skilled development engineers, who are currently in short
supply. Our business could be adversely affected if we encounter delays in
hiring additional engineers.
WE COULD LOSE KEY PERSONNEL DUE TO COMPETITIVE MARKET CONDITIONS AND ATTRITION
Our success depends to a significant extent upon our senior management and key
technical and sales personnel. The loss of one or more of these employees could
have a material adverse effect on our business. We do not have employment
contracts with any of our executive officers.
Our success also depends on our ability to attract and retain qualified
technical, sales and marketing, customer support, financial and accounting, and
managerial personnel. Competition for such personnel in the semiconductor
industry is intense, and we may not be able to retain our key personnel or to
attract, assimilate or retain other highly qualified personnel in the future. In
addition, we may lose key personnel due to attrition, including health, family
and other reasons. We have experienced, and may continue to experience,
difficulty in hiring and retaining candidates with appropriate qualifications.
If we do not succeed in hiring and retaining candidates with appropriate
qualifications, our business could be materially adversely affected.
A LARGE PORTION OF OUR REVENUES IS DERIVED FROM SALES TO THIRD-PARTY
DISTRIBUTORS WHO MAY TERMINATE THEIR RELATIONSHIPS WITH US AT ANY TIME
We depend on distributors to sell a significant portion of our products. In the
three months ended March 31, 2000 and in 1999, net revenues through distributors
accounted for approximately 61% and 58%, respectively, of our net revenues. Some
of our distributors also market and sell competing products.
Distributors may terminate their relationships with us at any time. Our future
performance will depend in part on our ability to attract additional
distributors that will be able to market and support our products effectively,
especially in markets in which we have not previously distributed our products.
We may lose one or more of our current distributors or may not be able to
recruit additional or replacement distributors. The loss of one or more of our
major distributors could have a material adverse effect on our business.
THE DEMAND FOR OUR PRODUCTS DEPENDS UPON OUR ABILITY TO SUPPORT EVOLVING
INDUSTRY STANDARDS
Substantially all of our revenues are derived from sales of products which rely
on the PCI standard. If the embedded systems markets move away from this
standard and begin using new standards, we may not be able to successfully
design and manufacture new products that use these new standards. There is also
the risk that new products we develop in response to new standards may not be
accepted in the market. In addition, the PCI standard is continuously evolving,
and we may not be able to modify our products to address new PCI specifications.
Any of these events would have a material adverse effect on our business.
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<PAGE> 17
THE SUCCESSFUL MARKETING AND SALES OF OUR PRODUCTS DEPEND UPON OUR THIRD PARTY
RELATIONSHIPS, WHICH ARE NOT SUPPORTED BY WRITTEN AGREEMENTS
When marketing and selling our semiconductor devices, we believe we enjoy a
competitive advantage based on the availability of development tools offered by
third parties. These development tools are used principally for the design of
other parts of the embedded system but also work with our products. We will lose
this advantage if these third party tool vendors cease to provide these tools
for existing products or do not offer them for our future products. This event
could have a material adverse effect on our business. We generally have no
written agreements with these third parties, and these parties could choose to
stop providing these tools at any time.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION
Our future success and competitive position depend upon our ability to obtain
and maintain proprietary technology used in our principal products. Currently,
we have limited protection of our intellectual property in the form of patents
and rely instead on trade secret protection. Our existing or future patents may
be invalidated, circumvented, challenged or licensed to others. The rights
granted thereunder may not provide competitive advantages to us. In addition,
our future patent applications may not be issued with the scope of the claims
sought by us, if at all. Furthermore, others may develop technologies that are
similar or superior to our technology, duplicate our technology or design around
the patents owned or licensed by us. In addition, effective patent, trademark,
copyright and trade secret protection may be unavailable or limited in foreign
countries where we may need protection. We cannot be sure that steps taken by us
to protect our technology will prevent misappropriation of the technology.
We may from time to time receive notifications of claims that we may be
infringing patents or other intellectual property rights owned by other third
parties. While there is currently no intellectual property litigation pending
against us, litigation could result in significant expenses to us, adversely
affect sales of the challenged product or technology. This litigation could also
divert the efforts of our technical and management personnel, whether or not the
litigation is determined in our favor. In addition, we may not be able to
develop or acquire non-infringing technology or procure licenses to the
infringing technology under reasonable terms. This could require expenditures by
us of substantial time and other resources. Any of these developments would have
a material adverse effect on our business.
THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY MAY LEAD TO SIGNIFICANT
VARIANCES IN THE DEMAND FOR OUR PRODUCTS
In the last two years, the semiconductor industry has been characterized by
significant downturns and wide fluctuations in supply and demand. Also, during
this time, the industry has experienced significant fluctuations in anticipation
of changes in general economic conditions, including economic conditions in
Asia. This cyclicality has led to significant variances in product demand and
production capacity. It has also accelerated erosion of average selling prices
per unit. We may experience periodic fluctuations in our future financial
results because of industry-wide conditions.
BECAUSE WE SELL OUR PRODUCTS TO CUSTOMERS OUTSIDE OF NORTH AMERICA AND BECAUSE
OUR PRODUCTS ARE INCORPORATED WITH PRODUCTS OF OTHERS THAT ARE SOLD OUTSIDE OF
NORTH AMERICA WE FACE FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS
Sales outside of North America accounted for 36% of our revenues for the three
months ended March 31, 2000. In 1999, 1998, and 1997 sales outside of North
America accounted for 35%, 34%, and 22% of our revenues, respectively. We
anticipate that these sales may increase in future periods and may account for
an increasing portion of our revenues. In addition, equipment manufacturers who
incorporate our products into their products, sell their products outside of
North America, thereby exposing us indirectly to foreign risks. Further, most of
our semiconductor products are manufactured outside of North America.
Accordingly, we are subject to international risks, including:
- - difficulties in managing distributors,
- - difficulties in staffing and managing foreign subsidiary and branch
operations,
17
<PAGE> 18
- - political and economic instability,
- - foreign currency exchange fluctuations,
- - difficulties in accounts receivable collections,
- - potentially adverse tax consequences,
- - timing and availability of export licenses,
- - changes in regulatory requirements, tariffs and other barriers,
- - difficulties in obtaining governmental approvals for telecommunications
and other products, and
- - the burden of complying with complex foreign laws and treaties.
Because sales of our products have been denominated to date exclusively in
United States dollars, increases in the value of the United States dollar will
increase the price of our products so that they become relatively more expensive
to customers in the local currency of a particular country, leading to a
reduction in sales and profitability in that country.
OUR POTENTIAL FUTURE ACQUISITIONS MAY NOT BE SUCCESSFUL
There have been a significant number of mergers and acquisitions in the
semiconductor industry in the past. As part of our business strategy, we expect
to review additional acquisition prospects that would complement our existing
product offerings, improve market coverage or enhance our technological
capabilities. We have an agreement to purchase Sebring Networks and we expect
the transaction to close in May 2000. This and other future acquisitions can
result in the following:
- - potentially dilutive issuances of equity securities,
- - large one-time write-offs,
- - the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets,
- - difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies,
- - diversion of management's attention from other business concerns, and
- - risks of entering geographic and business markets in which we have no or
limited prior experience and potential loss of key employees of acquired
organizations.
We are not certain that we will be able to successfully integrate any
businesses, products, technologies or personnel that we may acquire. Our failure
to do so could have a material adverse effect on our business.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS
Our executive officers, directors and other principal stockholders, in the
aggregate, beneficially own approximately 40% of our outstanding common stock.
Although these stockholders do not have majority control, they currently have,
and likely will continue to have, significant influence with respect to the
election of our directors and approval or disapproval of our significant
corporate actions. This influence over our affairs might be adverse to the
interests
18
<PAGE> 19
of other stockholders. In addition, the voting power of these stockholders could
have the effect of delaying or preventing a change in control of PLX.
THE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION COULD ADVERSELY
AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
Anti-takeover provisions of Delaware law and our Certificate of Incorporation
may make a change in control of PLX more difficult, even if a change in control
would be beneficial to the stockholders. These provisions may allow the Board of
Directors to prevent changes in the management and control of PLX. Under
Delaware law, our Board of Directors may adopt additional anti-takeover measures
in the future.
One anti-takeover provision that we have is the ability of our Board of
Directors to determine the terms of preferred stock and issue preferred stock
without the approval of the holders of the common stock. Our Certificate of
Incorporation allows the issuance of up to 5,000,000 shares of preferred stock.
There are no shares of preferred stock outstanding. However, because the rights
and preferences of any series of preferred stock may be set by the Board of
Directors in its sole discretion without approval of the holders of the common
stock, the rights and preferences of this preferred stock may be superior to
those of the common stock. Accordingly, the rights of the holders of common
stock may be adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have an investment portfolio of fixed income securities, including those
classified as cash equivalents of approximately $40.4 million at March 31, 2000.
These securities are subject to interest rate fluctuations and will decrease in
market value if interest rates increase.
The primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. The Company invests primarily in high-quality, short-term and
long-term debt instruments. A hypothetical 100 basis point increase in interest
rates would result in less than $0.5 million decrease (less than 2%) in the fair
value of the Company's available-for-sale securities.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has invested the proceeds generated from the Initial public
offering of its common stock in the amount of $31 million in high quality,
short-term and long-term debt and equity securities. The Company intends to use
such proceeds for general corporate purposes, including working capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibit 3.1.
10.1* Form of Indemnification Agreement between PLX and each of
its Officers and Directors.
10.2*+ 1998 Stock Incentive Plan.
10.3*+ 1999 Stock Incentive Plan.
10.4* Lease Agreement dated December 20, 1995 by and between Aetna
Life Insurance Company as Landlord and PLX as Tenant.
10.5* Lease Agreement dated October 17, 1997 between The Arrillaga
Foundation and The Perry Foundation as Landlords and PLX as
Tenant, as amended.
10.6*+ Form of Restricted Stock Purchase Agreement used in
connection with the 1986 Restricted Stock Purchase Program.
10.7*+ Form of Pledge Agreement used in connection with the 1986
Restricted Stock Purchase Program.
10.8*+ Form of Promissory Note used in connection with the 1986
Restricted Stock Purchase Program.
10.9* PLX Technology, Inc. Stock Restriction, Information Rights
and Registration Rights Agreement dated April 19, 1989.
10.10* PLX Technology, Inc. Stock Restriction, Information Rights
and Registration Rights Agreement dated July 3, 1991.
27.1 Financial Data Schedule.
-----------------
* Incorporated by reference to the same numbered exhibit previously
filed with the Company's Registration Statement on Form S-1
(Registration No. 333-71795).
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K. The Company did not file any Reports on Form
8-K during the quarter ended March 31, 2000.
20
<PAGE> 21
SIGNATURE
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.
PLX TECHNOLOGY, INC.
--------------------
(Registrant)
Date: May 12, 2000 By /s/ Scott M. Gibson
-------------------------------
Scott M. Gibson
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
21
<PAGE> 22
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibit 3.1.
10.1* Form of Indemnification Agreement between PLX and each of
its Officers and Directors.
10.2*+ 1998 Stock Incentive Plan.
10.3*+ 1999 Stock Incentive Plan.
10.4* Lease Agreement dated December 20, 1995 by and between Aetna
Life Insurance Company as Landlord and PLX as Tenant.
10.5* Lease Agreement dated October 17, 1997 between The Arrillaga
Foundation and The Perry Foundation as Landlords and PLX as
Tenant, as amended.
10.6*+ Form of Restricted Stock Purchase Agreement used in
connection with the 1986 Restricted Stock Purchase Program.
10.7*+ Form of Pledge Agreement used in connection with the 1986
Restricted Stock Purchase Program.
10.8*+ Form of Promissory Note used in connection with the 1986
Restricted Stock Purchase Program.
10.9* PLX Technology, Inc. Stock Restriction, Information Rights
and Registration Rights Agreement dated April 19, 1989.
10.10* PLX Technology, Inc. Stock Restriction, Information Rights
and Registration Rights Agreement dated July 3, 1991.
27.1 Financial Data Schedule.
* Incorporated by reference to the same numbered exhibit previously
filed with the Company's Registration Statement on Form S-1
(Registration No. 333-71795).
+ Management contract or compensatory plan or arrangement.
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