<PAGE>
================================================================================
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 SEPTEMBER 30, 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 0-26944
SILICON STORAGE TECHNOLOGY, INC.
(Exact name of Company as specified in its charter)
CALIFORNIA 77-0225590
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1171 SONORA COURT, SUNNYVALE, CA 94086
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code: (408) 735-9110
----------------------
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /.
Number of shares outstanding of our Common Stock, no par value, as of the latest
practicable date, October 31, 2000: 89,842,496.
================================================================================
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
FORM 10-Q: QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations............... 3
Condensed Consolidated Balance Sheets......................... 4
Condensed Consolidated Statements of Cash Flows............... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 23
Item 6. Exhibits and Reports on Form 8-K.............................. 24
</TABLE>
2
<PAGE>
PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 2000 1999 2000
------------------- ------------------- ------------------- -------------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues:
Product revenues - non-related parties $27,814 $146,478 $57,860 $294,452
Product revenues - related parties 4,694 15,887 12,874 31,802
License 2,639 1,356 5,732 2,967
------------------- ------------------- ------------------- -------------------
Total net revenues 35,147 163,721 76,466 329,221
Cost of revenues 25,941 90,086 60,945 183,645
------------------- ------------------- ------------------- -------------------
Gross profit 9,206 73,635 15,521 145,576
------------------- ------------------- ------------------- -------------------
Operating expenses:
Research and development 4,581 11,989 13,794 29,246
Sales and marketing 2,574 8,558 7,039 19,061
General and administrative 1,278 3,866 2,523 10,185
In-process research and development - - 2,011 -
------------------- ------------------- ------------------- -------------------
Total operating expenses 8,433 24,413 25,367 58,492
------------------- ------------------- ------------------- -------------------
Income (loss) from operations 773 49,222 (9,846) 87,084
Interest income 170 3,198 698 6,236
Interest expense (24) (66) (75) (611)
Other income, net - (1) - 61
------------------- ------------------- ------------------- -------------------
Income (loss) before provision for
income taxes 919 52,353 (9,223) 92,770
Provision for income taxes 471 16,087 536 24,324
------------------- ------------------- ------------------- -------------------
Net income (loss) $448 $36,266 ($9,759) $68,446
=================== =================== =================== ===================
Net income (loss) per share - basic $0.01 $0.41 ($0.14) $0.81
=================== =================== =================== ===================
Shares used in per share calculation 73,695 89,471 71,415 84,843
=================== =================== =================== ===================
Net income (loss) per share - diluted $0.01 $0.37 ($0.14) $0.74
=================== =================== =================== ===================
Shares used in per share calculation 81,489 97,563 71,415 92,818
=================== =================== =================== ===================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,223 $107,465
Short-term investments - 99,600
Trade accounts receivable, net 33,285 110,975
Trade accounts receivable from related parties 5,573 10,238
Inventories 29,766 57,097
Other current assets 3,341 10,419
------------------- ------------------
Total current assets 73,188 395,794
Equipment, furniture and fixtures, net 11,131 14,585
Long-term marketable securities - 31,369
Other assets 4,487 20,961
------------------- ------------------
Total assets $88,806 $462,709
=================== ==================
LIABILITIES
Current liabilities:
Borrowings under line of credit facility $19,287 $ -
Trade accounts payable 19,207 43,508
Accrued expenses and other liabilities 4,707 28,737
Deferred revenue 4,144 12,535
------------------- ------------------
Total current liabilities 47,345 84,780
Other liabilities 446 322
------------------- ------------------
Total liabilities 47,791 85,102
------------------- ------------------
SHAREHOLDERS' EQUITY
Common stock 60,570 328,660
Accumulated other comprehensive income - 56
Retained earnings (accumulated deficit) (19,555) 48,891
------------------- ------------------
Total shareholders' equity 41,015 377,607
------------------- ------------------
Total liabilities and shareholders' equity $88,806 $462,709
=================== ==================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 2000
----------------- ------------------
<S> <C> <C>
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,759) $ 68,446
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation /amortization 3,419 4,556
Provision for doubtful accounts receivable 32 326
Provision for excess and obsolete inventories and write down to market 124 4,261
Deferred income taxes - (2,293)
Tax benefits from employee stock plans - 10,954
Gain on sale of equipment (7) (62)
Purchase of in-process research and development 2,011 -
Changes in operating assets and liabilities:
Accounts receivable (14,505) (78,016)
Accounts receivable from related parties (59) (4,665)
Inventories (15,133) (31,592)
Other current and noncurrent assets 648 (5,170)
Trade accounts payable 17,192 24,301
Accrued expenses and other current liabilities (232) 24,030
Deferred revenue 2,300 8,391
----------------- ------------------
Net cash provided by (used in) operating activities (13,969) 23,467
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term available for sale investments - (102,092)
Proceeds from sales and maturities of short-term investments 851 2,546
Purchases of long-term available for sale investments - (31,369)
Acquisition of equipment, furniture and fixtures (6,471) (7,008)
Proceeds from sale of equipment, furniture and fixtures - 62
Investment in equity securities (473) (17,089)
----------------- ------------------
Net cash used in investing activities (6,093) (154,950)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facility - 39,750
Repayments under line of credit facility - (59,037)
Issuance of shares of common stock 1,440 257,136
Other (114) (124)
----------------- ------------------
Net cash provided by financing activities 1,326 237,725
----------------- ------------------
Net increase (decrease) in cash and cash equivalents (18,736) 106,242
Cash and cash equivalents at beginning of period 23,007 1,223
----------------- ------------------
Cash and cash equivalents at end of period $ 4,271 $ 107,465
================= ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash received during the period for interest $ 505 $ 2,728
Cash paid during the period for interest $ - $ 611
Net cash paid during the period for income taxes $ - $ 2,413
Common stock issued on acquisition of Linvex $ 4,794 $ -
Common stock issued on conversion of Linvex liabilities $ 476 $ -
Unrealized gain on securities $ - $ 56
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT SEPTEMBER 30, 2000
(UNAUDITED):
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed interim
consolidated financial statements contain all adjustments (all of which are
normal and recurring in nature) necessary to fairly present our financial
position, results of operations and cash flows. The results of operations for
the interim periods presented are not necessarily indicative of the results that
may be expected for any future interim periods or for the full fiscal year.
These interim financial statements should be read in conjunction with the
financial statements in our Annual Report on Form 10-K, as amended, for the year
ended December 31, 1999 and the Quarterly Reports on Form 10-Q for the three
months ended March 31, 2000 and the three and six months ended June 30, 2000.
The year-end balance sheet at December 31, 1999 was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 established a new model for
accounting for derivative and hedging activities. In July, 1999 the Financial
Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137). SFAS 137 deferred the effective date of SFAS 133
until the first fiscal year beginning after June 15, 2000. The impact of SFAS
133 on our consolidated financial statements has not yet been determined.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 summarizes certain of the Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We have until the fourth quarter of 2000 to comply with the guidance in SAB 101.
The impact of SAB 101 on our consolidated financial statements has not yet been
determined.
6
<PAGE>
2. COMPUTATION OF NET INCOME (LOSS) PER SHARE
We have computed and presented net income (loss) per share under two methods,
basic and diluted. Basic net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding for
the period. Diluted net income (loss) per share is computed by dividing the
income (loss) by the sum of the weighted average number of common shares
outstanding and potential common shares (when dilutive). A reconciliation of the
numerator and the denominator of basic and diluted net income (loss) per share
is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 448 $ 36,266 $ (9,759) $ 68,446
============= ============= ============= =============
Weighted-average shares - basic 73,695 89,471 71,415 84,843
============= ============= ============= =============
Effect of dilutive securities:
Employee stock options 7,794 8,092 - 7,975
------------- ------------- ------------- -------------
Weighted-average shares - diluted 81,489 97,563 71,415 92,818
============= ============= ============= =============
Net income (loss) per share - basic $ 0.01 $ 0.41 $ (0.14) $ 0.81
============= ============= ============= =============
Net income (loss) per share - diluted $ 0.01 $ 0.37 $ (0.14) $ 0.74
============= ============= ============= =============
</TABLE>
Stock options to purchase approximately 9,810,000 shares of common stock were
outstanding as of September 30, 1999. These stock options were not included in
the computation of diluted net loss per share for the nine months ended
September 30, 1999 because we had a net loss for that period. Anti-dilutive
stock options to purchase approximately 86,000 shares of common stock were
excluded from the computation of diluted net income per share for the nine
months ended September 30, 2000 because the exercise price of the options
exceeded the average fair market value of the stock for the nine months ended
September 30, 2000.
3. INVESTMENTS
We consider cash and all highly liquid investments purchased with an original
or remaining maturity of less than three months at the date of purchase to be
cash equivalents. Substantially all of our cash and cash equivalents are in the
custody of three major financial institutions.
Our investments comprise federal, state, and municipal government obligations
and foreign and public corporate equity securities. Investments with maturities
of less than one year at the balance sheet date are considered short term and
investments with maturities greater than one year at the balance sheet date are
considered long term. All these investments are available for sale and are
carried at fair value. Nearly all investments are held in our name. The specific
identification method is used to determine the cost of securities disposed of,
with realized gains and losses reflected in other income and expense. Unrealized
gains and losses on these investments are included as a separate component of
shareholders' equity, net of any related tax effect. We also have certain
investments in non-publicly traded companies. These investments are included in
"Other Assets" in the balance sheet and are generally carried at cost. The
companies we invested in during the quarter ended June 30, 2000 are
subcontractors to our production process. We monitor these investments for
impairment and make appropriate reductions in carrying values when necessary.
7
<PAGE>
3. INVESTMENTS (CONTINUED):
As of September 30, 2000 investments classified as available-for-sale were as
follows (in thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Fair
Cost Gain (Loss) Value
--------------------- --------------------- -------------------
<S> <C> <C> <C>
Corporate bonds and notes $ 63,466 $ (21) $ 63,445
Government bonds and notes 142,312 77 142,389
--------------------- --------------------- -------------------
Total bonds and notes 205,778 56 205,834
Less amounts classified as cash equivalents (74,880) 15 (74,865)
--------------------- --------------------- -------------------
Total short and long-term marketable securities $ 130,898 $ 71 $ 130,969
===================== ===================== ===================
Contractual maturity dates for investments:
Less than 1 year $ 99,600
1 to 5 years 31,369
===================
$ 130,969
===================
</TABLE>
4. BALANCE SHEET DETAIL:
Inventories are stated at the lower of cost (first-in, first-out) or market
(estimated net realizable value) and are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
--------------------- ----------------------
<S> <C> <C>
Raw Material $ 6,855 $ 22,080
Work in process 19,338 23,660
Finished goods 3,573 11,357
--------------------- ----------------------
$ 29,766 $ 57,097
===================== ======================
</TABLE>
Equipment, furniture and fixtures, net are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------------- ----------------------
<S> <C> <C>
Equipment $ 7,932 $ 9,707
Design hardware 2,540 3,779
Software 2,478 5,426
Furniture and fixtures 1,109 3,569
------------------- ----------------------
14,059 22,481
Less accumulated depreciation 4,859 8,404
------------------- ----------------------
9,200 14,077
Construction in progress 1,931 508
------------------- ----------------------
Equipment, furniture and fixtures, net $ 11,131 $ 14,585
=================== ======================
</TABLE>
Accounts payable at September 30, 2000 includes payables to related parties in
the amount of $4.7 million.
8
<PAGE>
5. CONTINGENCIES
On January 3, 1996, Atmel Corporation sued us in the U.S. District Court for
the Northern District of California. Atmel's complaint alleged that we willfully
infringe five U.S. patents owned by or exclusively licensed to Atmel. Atmel
later amended its complaint to allege infringement of a sixth patent. Regarding
each of these six patents, Atmel sought a judgment that we infringe the patent,
an injunction prohibiting future infringement, and treble damages, as well as
attorney's fees and expenses.
On two of the six patents, the District Court granted in our favor a summary
judgment that we did not infringe. Two of the other patents were invalidated by
another U.S. District Court in a proceeding to which we were not a party, but
this decision was reversed by the Federal Circuit. Thus, four patents remain at
issue in Atmel's District Court case against us.
On February 17, 1997, Atmel filed an action with the International Trade
Commission, or ITC, against two suppliers of our parts, involving four of the
six patents that Atmel alleged that we infringed in the District Court case
above. We intervened as a party to that investigation. Pursuant to
indemnification agreements with these suppliers, we are obligated to indemnify
both to the extent provided in those agreements.
As to one of these four patents, Atmel's claims were withdrawn because of the
summary judgment granted by the District Court, as described above. The
administrative law judge, or ALJ, who makes recommended determinations to the
ITC, ruled that we did not infringe the remaining three patents. As to one of
these patents, the `903 patent, also known as "Silicon Signature", the ALJ ruled
on May 17, 2000 that it is invalid and unenforceable because Atmel intentionally
misled the U.S. Patent Office. On October 16, 2000, the ITC overturned the ALJ's
recommendation on the `903 patent and ruled that we could not import certain
products which used this circuit in the United States. We appealed the ITC
ruling and a Federal Circuit Court granted us a temporary stay of the ITC order
on October 23, 2000, and ordered the ITC and Atmel to file briefs responding to
our motion by October 30, 2000. Our reply papers were filed on November 6, 2000.
The Federal Circuit will issue a final decision regarding the permanency of the
stay after reviewing the materials submitted by all of the parties.
Any final decisions by the ITC will not be dispositive because Atmel can
still pursue its claims in the District Court action. The District Court has
scheduled a hearing for December 15, 2000, to set a trial date.
We intend to vigorously defend ourselves against these actions.
On October 1, 2000, we announced a settlement in our lawsuit with Winbond
Electronics of Taiwan. We filed a lawsuit against Winbond in July 1998 in the
U.S. District Court in San Jose, California pursuant to the termination of our
SuperFlash technology licensing agreement with Winbond. As part of the
settlement, Winbond agreed to a consent judgment and will not contest the
validity and appropriateness of SST's termination of the licensing agreement in
June 1998. This settlement concludes all litigation between us and Winbond.
From time to time, we are also involved in other legal actions arising in the
ordinary course of business. While we have accrued certain amounts for the
estimated legal costs associated with defending these matters, there can be no
assurance the Atmel complaint or other third party assertions will be resolved
without costly litigation, in a manner that is not adverse to our financial
position, results of operations or cash flows or without requiring royalty
payments in the future which may adversely impact gross margins. No estimate can
be made of the possible loss or possible range of loss associated with the
resolution of these contingencies.
6. LINE OF CREDIT
As of September 30, 2000 we had no borrowings on our line of credit as this
credit facility was paid off during the quarter ended March 31, 2000. However,
we continue to have access to this facility should we need it. As of September
30, 2000, our line of credit was for $25 million. This agreement expires
September 2002. Borrowing is limited to 80.0% of eligible world-wide accounts
receivable and is also reduced by any letters of credit issued under a $25
million sub-agreement to this line. Therefore, as of September 30, 2000 our
actual credit available under this line was approximately $4.1 million. The line
bears interest at a rate of the bank's reference rate (9.5% at September 30,
2000) plus 0.5%. We must pay an unused line fee on the first $5 million of the
line at the annual rate of one quarter of one percent on the unused portion. As
of September 30, 2000 we were in compliance with the covenants of this
agreement.
9
<PAGE>
7. SEGMENT INFORMATION
Our business has two reportable segments: Flash Products and Technology
Licensing, based on our method of internal reporting. The tables below present
information about the reportable segments (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999: THREE MONTHS ENDED SEPTEMBER 30, 2000:
Flash Technology Flash Technology
Products Licensing Total Products Licensing Total
-------------- -------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <S> <C> <C> <C>
Revenues $ 32,508 $ 2,639 $ 35,147 Revenues $162,365 $ 1,356 $163,721
Gross profits $ 6,567 $ 2,639 $ 9,206 Gross profits $ 72,279 $ 1,356 $ 73,635
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999: NINE MONTHS ENDED SEPTEMBER 30, 2000:
Flash Technology Flash Technology
Products Licensing Total Products Licensing Total
-------------- -------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <S> <C> <C> <C>
Revenues $ 70,734 $ 5,732 $ 76,466 Revenues $326,254 $ 2,967 $329,221
Gross profits $ 9,789 $ 5,732 $ 15,521 Gross profits $142,609 $ 2,967 $145,576
</TABLE>
We do not allocate operating expenses, interest income or expense, other income,
net or the provision for income taxes to these segments for internal reporting
purposes.
8. SHAREHOLDERS' EQUITY
On June 16, 2000, our Board of Directors approved a 3-for-1 stock split,
in the form of a stock dividend, payable to shareholders of record as of
July 28, 2000. The stock dividend was distributed on August 14, 2000. All
numbers in this report have been adjusted to reflect the stock dividend.
9. COMPREHENSIVE INCOME
Statement of Financial Accounting Standard No. 130 (SFAS 130), "Reporting
Comprehensive Income" establishes rules for the reporting and display of
comprehensive income and its components. The following are the components of
comprehensive income (loss) (in thousands):
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
-------------------------- --------------------------
1999 2000 1999 2000
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net income (loss) $448 $36,266 $ (9,759) $68,446
Unrealized gain (loss) on marketable securities
- 56 - 56
------------ ------------ ------------- ------------
Comprehensive income (loss) $448 $36,322 $ (9,759) $68,502
============ ============ ============= ============
------------ ------------
1999 2000
------------ ------------
Unrealized gain (loss) on marketable securities $ - $ 56
============ ============
</TABLE>
10. LEASE COMMITMENT
On June 26, 2000, we entered into an agreement to lease approximately 92,000
square feet of additional space in Sunnyvale, California. The lease period
begins January 1, 2001 and ends April 5, 2010. In connection with the signing of
the agreement, the first month's rent of $175,000 was paid to the landlord.
Future minimum rental payments at June 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2001 $2,099
2002 2,162
2003 2,227
2004 2,294
2005 and thereafter 15,285
------------
$24,067
============
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION MAY BE UNDERSTOOD MORE FULLY BY REFERENCE TO THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINED IN OUR ANNUAL REPORT ON FORM 10-K,
AS AMENDED, FOR THE YEAR ENDED DECEMBER 31, 1999, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISK
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS
WHICH ARE DIFFICULT TO FORECAST AND CAN MATERIALLY AFFECT OUR QUARTERLY OR
ANNUAL OPERATING RESULTS. FLUCTUATIONS IN REVENUES AND OPERATING RESULTS MAY
CAUSE VOLATILITY IN OUR STOCK PRICE. PLEASE REFER TO THE SECTION BELOW ENTITLED
"BUSINESS RISKS".
OVERVIEW
We are a leading supplier of flash memory semiconductor devices for the
digital consumer, networking, wireless communication and Internet computing
markets.
The semiconductor industry has historically been cyclical, characterized by
wide fluctuations in product supply and demand. From time to time, the industry
has also experienced significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions. Downturns of this type occurred in 1996, 1997 and 1998. These
downturns have been characterized by diminished product demand, production
over-capacity and accelerated decline of selling prices, and in some cases have
lasted for more than a year. Our business could be harmed by industry-wide
fluctuations in the future. While these conditions have improved in recent
periods, if they were to resume our growth and operating results would be
harmed.
We derived 80.1% of our product revenues for the nine month period ended
September 30, 2000 and 80.8% of our product revenues during 1999 from product
shipments to Asia. Additionally, all of our major wafer suppliers and packaging
and testing subcontractors are located in Asia. During 1998 and 1997, several
Asian countries where we do business, including Japan, Taiwan and Korea,
experienced severe currency fluctuation and economic deflation, which negatively
impacted our revenues and, therefore, our ability to collect payments from these
customers. In September 1999, Taiwan experienced a major earthquake. The
resulting disruption to the manufacturing operations in the wafer foundries and
assembly and testing subcontractors that we use in Taiwan harmed our revenues
and operating results during the third and fourth quarters of 1999.
Our product sales are made primarily using short-term cancelable purchase
orders. The quantities actually purchased by the customer, as well as shipment
schedules, are frequently revised to reflect changes in the customer's needs and
in our supply of product. Accordingly, our backlog of open purchase orders at
any given time is not a meaningful indicator of future sales. Changes in the
amount of our backlog do not necessarily reflect a corresponding change in the
level of actual or potential sales.
Direct sales to customers are recognized upon shipment, net of an allowance
for estimated returns. Sales to distributors are made primarily under
arrangements allowing price protection and the right of stock rotation on
merchandise unsold to customers. Because of the uncertainty associated with
pricing concessions and future returns, we defer recognition of such revenues,
related costs of revenues and related gross margin until we are notified by the
distributor that the merchandise is sold by the distributor.
Most of our technology licenses provide for the payment of up-front license
fees and continuing royalties based on product sales. For license and other
arrangements for technology that we are continuing to enhance and refine and
under which we are obligated to provide unspecified enhancements, revenue is
recognized over the lesser of the estimated period we have historically enhanced
and developed refinements to the technology, generally three years, the upgrade
period, or the remaining portion of the upgrade period from the date of
delivery, provided all specified technology and documentation has been
delivered, the fee is fixed and determinable and collection of the fee is
probable. From time to time, we reexamine the estimated upgrade period relating
to licensed technology to determine if a change in the estimated update period
is needed. Revenues from license or other technology arrangements where we are
not continuing to enhance and refine the technology or are not obligated to
provide unspecified enhancements is recognized upon delivery, if the fee is
fixed and determinable and collection of the fee is probable.
We recognize royalties received under these arrangements during the upgrade
period as revenue based on the ratio of the elapsed portion of the upgrade
period to the estimated upgrade period. We recognize the remaining portion of
the royalties
11
<PAGE>
ratably over the remaining portion of the upgrade period. We recognize royalties
received after the upgrade period has elapsed when reported to us, which
generally coincides with the receipt of payment.
RESULTS OF OPERATIONS: QUARTER ENDED SEPTEMBER 30, 2000
NET REVENUES
Net revenues were $163.7 million for the three months ended September 30,
2000 as compared to $103.2 million in the second quarter of 2000 and $35.1
million for the three months ended September 30, 1999. The increase in the third
quarter of 2000 from both the second quarter of 2000 and the third quarter of
1999 was due to increased shipment volume of new and existing products and due
to increased average selling prices. Our quarterly results are not indicative of
annual results, and we may not continue to experience recent rates of growth in
revenues and earnings. Net revenues were $329.2 million for the nine months
ended September 30, 2000 as compared to $76.5 million for the comparable period
in 1999. The increase from year to year was due to increased shipment volume of
new and existing products and due to increased average selling prices. Average
selling prices fluctuate due to a number of factors including the overall supply
and demand for our products in the marketplace, maturing product cycles and
declines in general economic conditions.
PRODUCT REVENUES. Product revenues were $162.4 million in the third quarter
of 2000 as compared to $102.1 million in the second quarter of 2000 and $32.5
million for the third quarter of 1999. The increase in the third quarter of 2000
from both the second quarter of 2000 and the third quarter of 1999 was due to
shipments of over 50 new products that we have introduced since the second half
of 1998. Approximately 90.8% of product revenues in the third quarter of 2000
were from shipments of these new products as compared to 79.6% in the second
quarter of 2000 and 39.7% for the third quarter of 1999. In addition, the
average selling price across all products increased 26.2% since the second
quarter of 2000 and increased 79.6% since the third quarter of 1999. Gross unit
shipments increased approximately 25.6% from the second quarter of 2000 and
approximately 182.6% from the third quarter of 1999. Product revenues increased
to $326.3 million in the first nine months of 2000 from $70.7 million in the
first nine months of 1999 due to increased shipment volume of new and existing
products and due to increased average selling prices from period to period.
LICENSE REVENUES. Revenues from license fees and royalties were $1.4 million
in the third quarter of 2000, as compared to $1.1 million in the second quarter
of 2000 and $2.6 million in the third quarter of 1999. Revenues from license
fees and royalties were $3.0 million for the nine months ended September 30,
2000 as compared to $5.7 million for the nine months ended September 30, 1999.
License fee revenue declined during the first nine months of 2000 as compared to
the first nine months of 1999 because a larger number of significant agreements
were signed in 1999 which included the payment up-front licensing fees for older
technology. We anticipate that license revenues will fluctuate significantly in
the future.
GROSS PROFIT
Gross profit was $73.6 million or 45.0% of net revenues in the third quarter
of 2000 as compared to $46.1 million, or 44.7% of net revenues, in the second
quarter of 2000 and $9.2 million, or 26.2% of net revenues, in the third quarter
of 1999. Gross profit was $145.6 million for the nine months ended September 30,
2000 as compared to $15.5 million for the nine months ended September 30, 1999.
Gross profit increased across all periods due to increased shipments of existing
cost-reduced products, increased shipments of new, higher margin products, and
increased average selling prices on both older and newer products. We also wrote
down $4.3 million of inventory related to products that we determined to be
excess or obsolete during the nine months ended September 30, 2000.
OPERATING EXPENSES
Our operating expenses consist of research and development, sales and
marketing, and general and administrative expenses. Operating expenses were
$24.4 million, or 14.9% of net revenues, in the third quarter of 2000, as
compared to $18.7 million or 18.2% of net revenues, in the second quarter of
2000, and $8.4 million, or 24.0% of net revenues, in the third quarter of 1999.
The increase in absolute dollars from the prior quarter was primarily due to
increased profit sharing with employees, increased commissions, and increased
salaries due to hiring additional personnel. The increase from the comparable
quarter last year was due primarily to hiring additional personnel, annual
salary increases and profit sharing, and the development of new products and
infrastructure. Operating expenses increased to $58.5 million for the nine
months ended September 30, 2000 from $25.4 million for the comparable period in
1999 primarily due to increased profit sharing, increased salaries and benefits
related to increased headcount, and increased commissions. We anticipate that we
will continue to devote substantial resources to research and development, sales
and marketing and to general and administrative, and that these expenses will
continue to increase in absolute dollar amounts.
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RESEARCH AND DEVELOPMENT. Research and development expenses include costs
associated with the development of new products, enhancements to existing
products, quality assurance activities and occupancy costs. These costs consist
primarily of employee salaries, benefits and the cost of outside resources that
supplement the internal development team. Research and development expenses were
$12.0 million, or 7.3% of net revenues, during the third quarter of 2000, as
compared to $9.2 million, or 8.9% of net revenues, during the second quarter of
2000 and $4.6 million or 13.0% of net revenues during the third quarter of 1999.
Research and development expenses increased 30.6% from the second quarter of
2000 due primarily to a $1.4 million expense for profit sharing and expenses
related to increased engineering headcount and occupancy costs. Research and
development expenses increased 161.7% from the third quarter of 1999 due to
increased personnel costs (salaries, payroll taxes, benefits, and profit
sharing), increased wafer, mask and tooling charges for new product development,
and increased occupancy costs. Research and development expenses increased to
$29.2 million for the nine months ended September 30, 2000 from $13.8 million
for the nine months ended September 30, 1999 due to increased personnel costs,
as explained above, increased wafer, mask and tooling charges for new product
development, and increased occupancy costs. We expect research and development
expenses to continue to increase in absolute dollars.
SALES AND MARKETING. Sales and marketing expenses consist of personnel costs,
commissions to stocking representatives, travel and entertainment and
promotional expenses. Sales and marketing expenses were $8.6 million, or 5.2% of
net revenues, in the third quarter of 2000 as compared to $5.9 million, or 5.7%
of net revenues, in the second quarter of 2000 and $2.6 million, or 7.3% of net
revenues, during the third quarter of 1999. Sales and marketing expenses
increased 45.6% from the second quarter of 2000 and also increased 232.5% as
compared to the third quarter of 1999 due to increased commissions owed on
higher product revenues, increased salaries and related expenses, increased
building occupancy costs due to the lease of additional space, and increased
freight and product sample charges. Sales and marketing expenses increased to
$19.1 million for the nine months ended September 30, 2000 from $7.0 million for
the nine months ended September 30, 1999 due primarily to increased commissions
owed on higher product revenues and expenses associated with increased headcount
(salaries, benefits, profit sharing and building occupancy). We expect sales and
marketing expense to increase in absolute dollars as we continue to expand our
sales and marketing efforts.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
salaries for administrative, executive and finance personnel, recruiting costs,
professional services and legal fees and allowances for doubtful accounts.
General and administrative expenses were $3.9 million, or 2.4% of net revenues,
in the third quarter of 2000 as compared to $3.7 million, or 3.6% of net
revenues, in the second quarter of 2000 and $1.3 million, or 3.6% of net
revenues, during the third quarter of 1999. Expenses increased 5% from the
second quarter of 2000 due to increased profit sharing expenses. Expenses
increased from the third quarter of 1999 due to increased legal, occupancy,
salary, and profit sharing, as well as depreciation expense associated with our
new Oracle ERP system, which we implemented in January 2000. General and
administrative expenses increased to $10.2 million for the nine months ended
September 30, 2000 from $2.5 million for the nine months ended September 30,
1999 due to increased legal, occupancy, salary, profit sharing and depreciation.
Our reserve for bad debt increased due to the increase our accounts receivable
during this period. We anticipate that general and administrative expenses will
continue to increase in absolute dollar amount as we scale our facilities,
infrastructure, and head count to support our overall expected growth. We may
also incur additional expenses in connection with the Atmel litigation. For
further information on this litigation see "Legal Proceedings."
INTEREST INCOME. Interest income was approximately $3.2 million, or 2.0% of
net revenues, during the third quarter of 2000, as compared to $3.0 million, or
2.9% of net revenues, during the second quarter of 2000 and $0.2 million, or
0.5% of net revenues, during the third quarter of 1999. Interest income
increased to $6.2 million for the nine months ended September 30, 2000 from $0.7
million in the nine months ended September 30, 1999. Interest income increased
from both quarters and from 1999 to 2000 due to the receipt of cash proceeds
from a follow-on public offering, which was completed on March 27, 2000 and the
underwriters exercise of an option in April 2000.
INTEREST EXPENSE. Interest expense was approximately $66,000 for the third
quarter of 2000 as compared to $101,000 for the second quarter of 2000 and
$24,000 for the third quarter of 1999. Interest expense relates to fee activity
under our line of credit. Interest expense decreased from the prior quarter as
fee activity declined as we ceased to borrow against our line of credit.
Interest expense charges will continue in order to maintain the line of credit
facility.
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PROVISION FOR (BENEFIT FROM) INCOME TAXES
Our income tax provision of $16.1 million in the third quarter of 2000
consists of a 30.7% tax rate on income before taxes. This compares with a tax
provision of $7.8 million in the second quarter of 2000 which was a 32.0% tax
rate on income before taxes, reduced for a $1.9 million benefit related to the
recognition of our deferred tax asset. The deferred tax asset, relating to
differences between the tax basis and the financial basis of our assets,
accruals, and allowances, was considered fully recoverable due to our four
consecutive quarters of profitability and future expectations. Provision for
income taxes increased to $24.3 million for the nine months ended September 30,
2000 from $0.5 million in the comparable period of 1999 due to taxable income
generated in 2000 that was not present in 1999.
SEGMENT REPORTING
Our business has two segments: flash products and technology licensing. Flash
products comprise our standard flash memory products, our application-specific
memory products, flash-embedded controllers and mass storage products.
Technology licensing comprises design service fees, technical consultation fees,
license fees and royalties earned through technology agreements that we have
with wafer foundries and manufacturers for non-competing applications. For the
three month period ended September 30, 2000, revenues and gross profits from the
flash products segment was $162.4 million and $72.3 million, respectively, and
revenues and gross profit from the technology licensing segment was $1.4 million
and $1.4 million, respectively. For the three month period ended June 30, 2000,
revenues and gross profits from the flash products segment was $102.1 million
and $45.0 million, respectively, and revenues and gross profit from the
technology licensing segment was $1.1 million and $1.1 million, respectively.
For the three month period ended September 30, 1999, revenues and gross profits
from the flash products segment was $32.5 million and $6.6 million,
respectively, and revenues and gross profit from the technology licensing
segment was $2.6 million and $2.6 million, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 established a new model for
accounting for derivative and hedging activities. In July, 1999 the Financial
Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137). SFAS 137 deferred the effective date of SFAS 133
until the first fiscal year beginning after June 15, 2000. The impact of SFAS
133 on our consolidated financial statements has not yet been determined.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 summarizes certain of the Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We have until the fourth quarter of 2000 to comply with the guidance in SAB 101.
The impact of SAB 101 on our consolidated financial statements has not yet been
determined.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. Our operating activities provided cash of $23.5 million
for the nine month period ended September 30, 2000 as compared to using cash of
$14.0 million for the nine month period ended September 30, 1999. The cash
provided by operating activities for the nine month period ended September 30,
2000 related primarily to net income of $68.4 million, increases in trade
accounts payable of $24.3 million and increases in accrued expenses and deferred
revenue of $32.4 million. Increased accounts receivable and accounts receivable
from related parties of $82.7 million related to increased shipment volume and
increased inventories of $31.6 million related to our production ramp somewhat
offset the net income and increased payables. In addition, depreciation and
amortization of $4.6 million, tax benefits from employee stock plans of $11.0
million and provision for inventory write-downs of $4.3 million represented
adjustments to reconcile net income to cash provided by operating activities.
Inventory write-downs relates to products that we deemed to be excess or
obsolete inventory. The cash used in operating activities for the nine month
period ended September 30, 1999 consisted of a net loss of $9.8 million and
increased receivables of $14.5 million and increased inventories of $15.1
million partially offset by non-cash adjustments and increased payables and
deferred revenue of $25.5 million. The higher increase in accounts receivable in
2000 as compared to the same period in 1999 is primarily a result of a 365.8%
increase in net revenues in the current quarter from the comparable quarter of
1999. We anticipate that additional new product introductions in 2000 will
require additional working capital. Deferred revenue increased $8.4 million from
December 31, 1999, due to increased sales to distributors in the first nine
months of 2000.
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INVESTING ACTIVITIES. Our investing activities used cash of $154.9 million
for the nine month period ended September 30, 2000, as compared to using cash of
$6.1 million for the first nine months of 1999. Of the $154.9 million cash used,
$130.9 million was invested in short-term or long-term marketable securities.
Capital expenditures were $7.0 million for the current nine month period,
slightly higher than $6.5 million in capital expenditures for the same period of
1999. We also made strategic equity investments during the second quarter of
2000 totaling $17.1 million. These companies are subcontractors to our
production process. Capital spending for the remainder of the year is currently
anticipated at approximately $1.8 million, of which less than $1.0 million
relates to information technology infrastructure and supply chain management
systems.
FINANCING ACTIVITIES. Our financing activities provided cash of approximately
$237.7 million during the nine month period ended September 30, 2000. The cash
provided was primarily from the issuance of common stock for $257.1 million and
primarily relates to net proceeds from a follow-on public offering in which we
issued and sold 4,025,000 shares of common stock, a private placement in which
we issued and sold 168,000 shares of common stock, and $3.9 million from common
stock issued under the employee stock purchase plan and the exercise of employee
stock options, offset by the repayment of our entire line of credit at the end
of March.
Principal sources of liquidity at September 30, 2000 consisted of $207.1
million of cash, cash equivalents, and short-term marketable securities and the
line of credit. As of September 30, 2000 we had no borrowings on our line of
credit as this credit facility was paid off during the quarter ended March 31,
2000. However, we continue to have access to this facility should we need it. As
of September 30, 2000, our available credit was for $25 million. This agreement
expires September 2002. Borrowing is limited to 80.0% of eligible world-wide
accounts receivable and is also reduced by any letters of credit issued under a
$25 million sub-agreement to this line. Therefore, as of September 30, 2000 our
actual credit available under this line was approximately $4.1 million. The line
bears interest at a rate of the bank's reference rate (9.5% at September 30,
2000) plus 0.5%. We must pay an unused line fee on the first $5 million of the
line at the annual rate of one quarter of one percent on the unused portion. As
of September 30, 2000 we were in compliance with the covenants of this
agreement.
We believe that our cash balances, together with funds expected to be
generated from operations and the line of credit availability, will be
sufficient to meet our projected working capital and other cash requirements
through at least the next twelve months. However, there can be no assurance that
future events will not require us to seek additional borrowings or capital and,
if so required, that such borrowing or capital will be available on acceptable
terms.
BUSINESS RISKS
RISKS RELATED TO OUR BUSINESS
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, AND AN UNANTICIPATED DECLINE IN
REVENUES MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE
IN OUR STOCK PRICE.
Our recent growth may not be sustainable, and you should not use our past
financial performance to predict future operating results. We incurred net
losses in fiscal 1997, 1998 and 1999. Our recent quarterly and annual operating
results have fluctuated, and will continue to fluctuate, due to the following
factors, all of which are difficult to forecast and many of which are out of our
control:
- the availability, timely delivery and cost of wafers from our suppliers;
- competitive pricing pressures and related changes in selling prices;
- fluctuations in manufacturing yields and significant yield losses;
- new product announcements and introductions of competing products by us
or our competitors;
- product obsolescence;
- lower of cost or market inventory adjustments;
- changes in demand for, or in the mix of, our products;
- the gain or loss of significant customers;
- market acceptance of products utilizing our SuperFlash(R) technology;
- changes in the channels through which our products are distributed and
the timeliness of receipt of distributor resale information;
- exchange rate fluctuations;
- general economic, political and environmental-related conditions, such
as natural disasters;
- difficulties in forecasting, planning and management of inventory
levels;
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- unanticipated research and development expenses associated with new
product introductions; and
- the timing of significant orders and of license and royalty revenue.
A downturn in the market for products such as personal computers and cellular
telephones that incorporate our products can also harm our operating results.
WE DEPEND ON A LIMITED NUMBER OF FOREIGN FOUNDRIES TO MANUFACTURE OUR PRODUCTS,
AND THESE FOUNDRIES MAY NOT BE ABLE TO SATISFY OUR MANUFACTURING REQUIREMENTS,
WHICH COULD CAUSE OUR REVENUES TO DECLINE.
We outsource all of our manufacturing with the exception of limited testing
activities. We currently buy all of our wafers and sorted die from a limited
number of suppliers. Substantially all of our products are manufactured by three
foundries, Taiwan Semiconductor Manufacturing Co., Ltd., in Taiwan, Sanyo
Electric Co., Ltd., in Japan, and Samsung Electronics Ltd. in Korea. We
anticipate that these foundries, together with National Semiconductor
Corporation in the United States, will manufacture the majority of our products
in 2001. If these suppliers fail to satisfy our requirements on a timely basis
and at competitive prices we could suffer manufacturing delays, a possible loss
of revenues or higher than anticipated costs of revenues, any of which could
harm our operating results.
Given the current constraints on worldwide semiconductor manufacturing capacity,
our revenues for the next several quarters will largely be determined by our
ability to obtain adequate wafer supplies from our foundries. We are currently
unable to meet all of the demand for our products, and have in the past failed
to meet scheduled shipment dates, due to our inability to obtain a sufficient
supply of wafers and sorted die from our foundries. The foundries with which we
currently have arrangements, together with any additional foundry at which
capacity might be obtained, may not be willing or able to satisfy all of our
manufacturing requirements on a timely basis at favorable prices. In addition,
we have encountered delays in qualifying new products and in ramping new product
production and could experience these delays in the future. We are also subject
to the risks of service disruptions, raw material shortages and price increases
by the foundries. Such disruptions, shortages and price increases could harm our
operating results.
IF WE ARE UNABLE TO INCREASE OUR MANUFACTURING CAPACITY, OUR REVENUES MAY
DECLINE.
In order to grow, we need to increase our present manufacturing capacity. Events
that we have not foreseen could arise which would limit our capacity. We are
continually engaged in attempting to secure additional manufacturing capacity to
support our long-term growth. While we have made arrangements with manufacturers
to provide us with more than twice the capacity in 2001 as compared to 2000, we
still anticipate being unable to satisfy all of our indicated customer demand,
as least in the first half of 2001. In the longer term we may determine that it
is necessary to invest substantial capital in order to secure appropriate
production capacity commitments. If we cannot secure additional manufacturing
capacity on acceptable terms, our ability to grow will be impaired and our
operating results will be harmed.
OUR COST OF REVENUES MAY INCREASE IF WE ARE REQUIRED TO PURCHASE MANUFACTURING
CAPACITY IN THE FUTURE.
To obtain additional manufacturing capacity, we may be required to make
deposits, equipment purchases, loans, joint ventures, equity investments or
technology licenses in or with water fabrication companies. These transactions
could involve a commitment of substantial amounts of our capital and technology
licenses in return for production capacity. We may be required to seek
additional debt or equity financing if we need substantial capital in order to
secure this capacity and we cannot assure you that we will be able to obtain
such financing.
IF OUR FOUNDRIES FAIL TO ACHIEVE ACCEPTABLE WAFER MANUFACTURING YIELDS, WE WILL
EXPERIENCE HIGHER COSTS OF REVENUES AND REDUCED PRODUCT AVAILABILITY.
The fabrication of our products requires wafers to be produced in a highly
controlled and ultra-clean environment. Semiconductor companies that supply our
wafers sometimes have experienced problems achieving acceptable wafer
manufacturing yields. Semiconductor manufacturing yields are a function of both
our design technology and the foundry's manufacturing process technology. Low
yields may result from marginal design or manufacturing process drift. Yield
problems may not be identified until the wafers are well into the production
process, which often makes them difficult, time consuming and costly to correct.
Furthermore we rely on independent foreign foundries for our wafers which
increases the effort and time required to identify, communicate and resolve
manufacturing yield problems. If our foundries fail to achieve acceptable
manufacturing yields, we will experience higher costs of revenues and reduced
product availability, which would harm our operating results.
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IF OUR FOUNDRIES DISCONTINUE THE MANUFACTURING PROCESSES NEEDED TO MEET OUR
DEMANDS, OR FAIL TO UPGRADE THE TECHNOLOGIES NEEDED TO MANUFACTURE OUR PRODUCTS,
WE MAY FACE PRODUCTION DELAYS AND LOWER REVENUES.
Our wafer and product requirements typically represent a small portion of the
total production of the foundries that manufacture our products. As a result, we
are subject to the risk that a foundry will cease production on an older or
lower-volume manufacturing process that it uses to produce our parts.
Additionally, we cannot be certain our foundries will continue to devote
resources to advance the process technologies on which the manufacturing of our
products is based. Each of these events could increase our costs and harm our
ability to deliver our products on time.
OUR DEPENDENCE ON THIRD-PARTY SUBCONTRACTORS TO ASSEMBLE AND TEST OUR PRODUCTS
SUBJECTS US TO A NUMBER OF RISKS, INCLUDING AN INADEQUATE SUPPLY OF PRODUCTS AND
HIGHER COSTS OF MATERIALS.
We depend on independent subcontractors to assemble and test our products. Our
reliance on these subcontractors involves the following significant risks:
- reduced control over delivery schedules and quality;
- the potential lack of adequate capacity during periods of strong demand;
- difficulties selecting and integrating new subcontractors;
- limited warranties on products supplied to us;
- potential increases in prices due to capacity shortages and other
factors; and
- potential misappropriation of our intellectual property.
These risks may lead to increased costs, delayed product delivery or loss of
competitive advantage, which would harm our profitability and customer
relationships.
OUR OPERATING EXPENSES ARE RELATIVELY FIXED, AND WE ORDER MATERIALS IN ADVANCE
OF ANTICIPATED CUSTOMER DEMAND. THEREFORE, WE HAVE LIMITED ABILITY TO REDUCE
EXPENSES QUICKLY IN RESPONSE TO ANY REVENUE SHORTFALLS.
Our operating expenses are relatively fixed, and we therefore have limited
ability to reduce expenses quickly in response to any revenue shortfalls.
Consequently, our operating results will be harmed if our revenues do not meet
our revenue projections. We may experience revenue shortfalls for the following
reasons:
- significant pricing pressures that occur because of declines in selling
prices over the life of a product;
- sudden shortages of raw materials or fabrication, test or assembly
capacity constraints that lead our suppliers to allocate available
supplies or capacity to other customers which, in turn, harm our
ability to meet our sales obligations; and
- the reduction, rescheduling or cancellation of customer orders.
In addition, we typically plan our production and inventory levels based on
internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. From time to time, in response to anticipated long lead
times to obtain inventory and materials from our outside suppliers and
foundries, we may order materials in advance of anticipated customer demand.
This advance ordering may result in excess inventory levels or unanticipated
inventory write-downs if expected orders fail to materialize.
BECAUSE OUR FLASH MEMORY PRODUCTS TYPICALLY HAVE LENGTHY SALES CYCLES, WE MAY
EXPERIENCE SUBSTANTIAL DELAYS BETWEEN INCURRING EXPENSES RELATED TO RESEARCH AND
DEVELOPMENT AND THE GENERATION OF REVENUES.
Due to the flash memory product cycle we usually require more than nine months
to realize volume shipments after we first contact a customer. We first work
with customers to achieve a design win, which may take three months or longer.
Our customers then complete the design, testing and evaluation process and begin
to ramp up production, a period which typically lasts an additional six months
or longer. As a result, a significant period of time may elapse between our
research and development efforts and our realization of revenue, if any, from
volume purchasing of our products by our customers.
WE FACE INTENSE COMPETITION FROM COMPANIES WITH SIGNIFICANTLY GREATER FINANCIAL,
TECHNICAL AND MARKETING RESOURCES THAT COULD HARM SALES OF OUR PRODUCTS.
We compete with major domestic and international semiconductor companies, many
of which have substantially greater financial, technical, marketing,
distribution, and other resources than we do. Many of our competitors have their
own facilities
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for the production of semiconductor memory components and have recently added
significant capacity for such production. Our memory products, which presently
account for substantially all of our revenues, compete principally against
products offered by Intel, Advanced Micro Devices, Atmel, STMicroelectronics,
Sanyo, Winbond Electronics and Macronix. If we are successful in developing our
high density products, these products will compete principally with products
offered by Intel, Advanced Micro Devices, Fujitsu, Hitachi, Sharp, Samsung
Semiconductor, SanDisk and Toshiba, as well as any new entrants to the market.
In addition, we may in the future experience direct competition from our foundry
partners. We have licensed to our foundry partners the right to fabricate
products based on our technology and circuit design, and to sell such products
worldwide, subject to our receipt of royalty payments.
Competition may also come from alternative technologies such as ferroelectric
random access memory, or FRAM, or other developing technologies.
OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND, THEREFORE, OUR
SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.
The markets for our products are characterized by:
- rapidly changing technologies;
- evolving and competing industry standards;
- changing customer needs;
- frequent new product introductions and enhancements;
- increased integration with other functions; and
- rapid product obsolescence.
To develop new products for our target markets, we must develop, gain access to
and use leading technologies in a cost-effective and timely manner and continue
to expand our technical and design expertise. In addition, we must have our
products designed into our customers' future products and maintain close working
relationships with key customers in order to develop new products that meet
their changing needs.
In addition, products for communications applications are based on continually
evolving industry standards. Our ability to compete will depend on our ability
to identify and ensure compliance with these industry standards. As a result, we
could be required to invest significant time and effort and incur significant
expense to redesign our products and ensure compliance with relevant standards.
We believe that products for these applications will encounter intense
competition and be highly price sensitive. While we are currently developing and
introducing new products for these applications, we cannot assure you that these
products will reach the market on time, will satisfactorily address customer
needs, will be sold in high volume, or will be sold at profitable margins.
We cannot assure you that we will be able to identify new product opportunities
successfully, develop and bring to market new products, achieve design wins or
respond effectively to new technological changes or product announcements by our
competitors. In addition, we may not be successful in developing or using new
technologies or in developing new products or product enhancements that achieve
market acceptance. Our pursuit of necessary technological advances may require
substantial time and expense. Failure in any of these areas could harm our
operating results.
OUR FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICE OF OUR KEY DESIGN
ENGINEERING, SALES, MARKETING AND EXECUTIVE PERSONNEL AND OUR ABILITY TO
IDENTIFY, RECRUIT AND RETAIN ADDITIONAL PERSONNEL.
We are highly dependent on Bing Yeh, our President and Chief Executive Officer,
as well as the other principal members of our management team and engineering
staff. There is intense competition for qualified personnel in the semiconductor
industry, in particular the highly skilled design, applications and test
engineers involved in the development of flash memory technology. Competition is
especially intense in Silicon Valley, where our corporate headquarters is
located. We may not be able to continue to attract and retain engineers or other
qualified personnel necessary for the development of our business or to replace
engineers or other qualified personnel who may leave our employ in the future.
Our anticipated growth is expected to place increased demands on our resources
and will likely require the addition of new management and engineering personnel
and the development of additional expertise by existing management personnel.
The failure to recruit and retain key design engineers or other technical and
management personnel could ham our business.
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OUR ABILITY TO COMPETE SUCCESSFULLY WILL DEPEND, IN PART, ON OUR ABILITY TO
PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a combination of patent, trade secrets, copyrights, mask work rights,
nondisclosure agreements and other contractual provisions and technical measures
to protect our intellectual property rights. Policing unauthorized use of our
products, however, is difficult, especially in foreign countries. Litigation may
continue to be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Litigation could result in substantial costs and diversion of
resources and could harm our business, operating results and financial condition
regardless of the outcome of the litigation. We own 23 patents in the United
States relating to our products and processes, and have filed for several more.
In addition, we hold three patents in Europe, two patents in Germany and
additional foreign patent applications have been filed in Europe, Japan, Taiwan
and Canada. We cannot assure you that any pending patent application will be
granted. Our operating results could be harmed by the failure to protect our
intellectual property.
IF WE ARE ACCUSED OF INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHER
PARTIES WE MAY BECOME SUBJECT TO TIME-CONSUMING AND COSTLY LITIGATION. IF WE
LOSE, WE COULD SUFFER A SIGNIFICANT IMPACT ON OUR BUSINESS AND BE FORCED TO PAY
DAMAGES.
Third parties may assert that our products infringe their proprietary rights, or
may assert claims for indemnification resulting from infringement claims against
us. Any such claims may cause us to delay or cancel shipment of our products or
pay damages which could seriously harm our business, financial condition and
results of operations. In addition, irrespective of the validity or the
successful assertion of such claims, we could incur significant costs in
defending against such claims.
Over the past three years we were sued both by Atmel Corporation and Intel
Corporation regarding patent infringement issues and by Winbond Electronics
Corporation regarding our contractual relationship with them. Significant
management time and financial resources have been devoted to defending these
lawsuits. We settled with Intel in May 1999, with Winbond in October 2000, and
the Atmel litigation is ongoing.
In addition to the Atmel, Intel and Winbond actions, we receive from time to
time, letters or communications from other companies stating that such companies
have patent rights which involve our products. Since the design of all of our
products is based on SuperFlash technology, any legal finding that the use of
our SuperFlash technology infringes the patent of another company would have a
significantly negative effect on our entire product line and operating results.
Furthermore, if such a finding were made, there can be no assurance that we
could license the other company's technology on commercially reasonable terms or
that we could successfully operate without such technology. Moreover, if we are
found to infringe, we could be required to pay damages to the owner of the
protected technology and could be prohibited from making, using, selling, or
importing into the United States any products that infringe the protected
technology. In addition, the management attention consumed by and legal cost
associated with any litigation could harm our operating results.
PUBLIC ANNOUNCEMENTS MAY HURT OUR STOCK PRICE. During the course of lawsuits
there may be public announcements of the results of hearings, motions, and other
interim proceedings or developments in the litigation. If securities analysts or
investors perceive these results to be negative, it could harm the market price
of our stock.
OUR LITIGATION MAY BE EXPENSIVE, MAY BE PROTRACTED AND CONFIDENTIAL INFORMATION
MAY BE COMPROMISED. Whether or not we are successful in our lawsuit with Atmel,
we expect this litigation to consume substantial amounts of our financial and
managerial resources. At any time Atmel may file additional claims against us,
which could increase the risk, expense and duration of the litigation. Further,
because of the substantial amount of discovery required in connection with this
type of litigation, there is a risk that some of our confidential information
could be compromised by disclosure.
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OUR BUSINESS MAY SUFFER DUE TO RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS.
During 1997, 1998, 1999 and the nine months ended September 30, 2000, our
export product and licensing revenues accounted for approximately 86.7%,
92.7%, 89.1% and 86.4% of our product revenues, respectively. Our
international business activities are subject to a number of risks, each of
which could impose unexpected costs on us that would harm our operating
results. These risks include:
- difficulties in complying with regulatory requirements and standards;
- tariffs and other trade barriers;
- costs and risks of localizing products for foreign countries;
- reliance on third parties to distribute our products;
- longer accounts receivable payment cycles;
- potentially adverse tax consequences;
- limits on repatriation of earnings; and
- burdens of complying with a wide variety of foreign laws.
We derived 80.8% and 80.1% of our product revenue from Asia during 1999 and
the nine months ended September 30, 2000 respectively. Additionally, our
major wafer suppliers and assembly and packaging subcontractors are all
located in Asia. Any kind of economic, political or environmental instability
in this region of the world can have a severe negative impact on our
operating results due to the large concentration of our production and sales
activities in this region. For example, during 1997 and 1998, several Asian
countries where we do business, such as Japan, Taiwan and Korea, experienced
severe currency fluctuation and economic deflation, which negatively impacted
our total revenues and also negatively impacted our ability to collect
payments from these customers. During this period, the lack of capital in the
financial sectors of these countries made it difficult for our customers to
open letters of credit or other financial instruments that are guaranteed by
foreign banks. Finally, the economic situation in this period exacerbated a
decline in selling prices for our products as our competitors reduced product
prices to generate needed cash.
It should also be noted that we are greatly impacted by the political, economic
and military conditions in Taiwan. Taiwan and China are continuously engaged in
political disputes and both countries have continued to conduct military
exercises in or near the other's territorial waters and airspace. Such disputes
may continue and even escalate, resulting in an economic embargo, a disruption
in shipping or even military hostilities. Any of these events could delay
production or shipment of our products. Any kind of activity of this nature or
even rumors of such activity could harm our operations, revenues, operating
results, and stock price.
BECAUSE A SMALL NUMBER OF CUSTOMER ACCOUNTS ARE RESPONSIBLE FOR A SUBSTANTIAL
PORTION OF OUR REVENUES, OUR REVENUES COULD DECLINE DUE TO THE LOSS OF ONE OF
THESE CUSTOMER ACCOUNTS.
In the past, more than half of our revenues have come from a small number of
customer accounts. For example, product sales to our top 10 customer accounts
represented approximately 62.3%, 62.8%, 53.6% and 45.0% of our product
revenues for 1997, 1998, 1999 and the nine months ended September 30, 2000,
respectively. During the nine months ended September 30, 2000, 7 of our top
10 customer accounts were stocking representatives, one was a domestic
distributor and two were OEMs. In 1997 and 1998 one customer account
represented 15.7% and 15.2% of product sales in each year. Another customer
account represented 10.7% and 12.4% of product sales in 1998 and 1999,
respectively. No single customer account represented 10% or more of product
revenues for the nine months ended September 30, 2000. If we were to lose any
of these customer accounts or experience any substantial reduction in orders
from these accounts, our revenues and operating results would suffer. In
addition, the composition of our major customer account base changes from
year to year as the market demand for our end customers' products change.
WE DO NOT TYPICALLY ENTER INTO LONG-TERM CONTRACTS WITH OUR CUSTOMERS, AND THE
LOSS OF A MAJOR CUSTOMER COULD HARM OUR BUSINESS.
We do not typically enter into long-term contracts with our customers, and we
cannot be certain as to future order levels from our customers. When we do enter
into a long-term contract, the contract is generally terminable at the
convenience of the customer. An early termination by one of our major customers
would harm our financial results as it is unlikely that we would be able to
rapidly replace that revenue source.
CANCELLATIONS OR RESCHEDULING OF BACKLOG MAY RESULT IN LOWER FUTURE REVENUE AND
HARM OUR BUSINESS.
Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not
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necessarily indicative of actual sales for any succeeding period. A reduction of
backlog during any particular period, or the failure of our backlog to result in
future revenue, could harm our business.
IF AN EARTHQUAKE OR OTHER NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITY OR
THOSE OF OUR SUPPLIERS, WE WOULD BE UNABLE TO MANUFACTURE OUR PRODUCTS FOR A
SUBSTANTIAL AMOUNT OF TIME AND WE WOULD EXPERIENCE LOST REVENUES.
Our corporate headquarters are located in California near major earthquake
faults. In addition, some of our suppliers are located near fault lines. In the
event of a major earthquake or other natural disaster near our headquarters, our
operations could be harmed. Similarly, a major earthquake or other natural
disaster near one or more of our major suppliers, like the one that occurred in
Taiwan in September 1999, could disrupt the operations of those suppliers, which
could limit the supply of our products and harm our business.
WE DEPEND ON STOCKING REPRESENTATIVES AND DISTRIBUTORS TO GENERATE A MAJORITY OF
OUR REVENUES.
We rely on stocking representatives and distributors to establish and
maintain customer relationships and, at times, to sell our products and these
accounts could discontinue their relationship with us or discontinue selling
our products at any time. Two of our stocking representatives are responsible
for relationships with customers which account for substantially all of our
sales in Taiwan, which was 28.3% and 27.2% of our product revenues during
1999 and for the nine months ended September 30, 2000. One stocking
representative accounted for substantially all of our sales in China,
including Hong Kong, during 1999 and the nine months ended September 30,
2000, which accounted for 24.3% and 21.3% of our total product revenues
during 1999 and the nine months ended September 30, 2000, respectively. The
loss of any of these stocking representatives, or any other significant
stocking representative or distributor could harm our operating results by
impairing our ability to sell our products to these customers.
OUR GROWTH CONTINUES TO PLACE A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES AND IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO MARKET AND SELL
OUR PRODUCTS AND DEVELOP NEW PRODUCTS MAY HE HARMED.
Our business is experiencing rapid growth which has strained our internal
systems and will require us to continuously develop sophisticated information
management systems in order to manage the business effectively. We are currently
implementing a supply-chain management system and a vendor electronic data
interface system. There is no guarantee that we will be able to implement these
new systems in a timely fashion, that in themselves they will be adequate to
address our expected growth, or that we will be able to foresee in a timely
manner other infrastructure needs before they arise. Our success depends on the
ability of our executive officers to effectively manage our growth. If we are
unable to manage our growth effectively, our results of operations will be
harmed. If we fail to successfully implement new management information systems,
our business may suffer severe inefficiencies that may harm the results of our
operations.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS IS DEPENDENT ON THE GROWTH AND STRENGTH OF THE FLASH MEMORY MARKET.
All of our products, as well as all new products currently under design, are
stand-alone flash memory devices or devices embedded with flash memory. A memory
technology other than SuperFlash may be adopted as an industry standard. Our
competitors are generally in a better financial and marketing position than we
are from which to influence industry acceptance of a particular memory
technology. In particular, a primary source of competition may come from
alternative technologies such as FRAM devices if such technology is
commercialized for higher density applications. To the extent our competitors
are able to promote a technology other than SuperFlash as an industry standard,
our business will be seriously harmed.
THE SELLING PRICES FOR OUR PRODUCTS ARE EXTREMELY VOLATILE AND HAVE HISTORICALLY
DECLINED DURING PERIODS OF OVER CAPACITY OR INDUSTRY DOWNTURNS. IN ADDITION, THE
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY COULD CREATE FLUCTUATIONS IN OUR
OPERATING RESULTS, AS WE EXPERIENCED IN 1997 AND 1998.
The semiconductor industry has historically been cyclical, characterized by wide
fluctuations in product supply and demand. From time to time, the industry has
also experienced significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions. Downturns of this type occurred in 1997 and 1998. These downturns
have been characterized by diminished product demand, production over-capacity
and accelerated decline of average selling prices, and in some cases have lasted
for more than a year. Our business could be harmed by industry-wide fluctuations
in the future. The flash memory products portion of the semiconductor industry,
from which we derived substantially all of our revenues in 1998, continued to
suffer from excess capacity in 1998, which resulted in greater than
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normal declines in our markets, which unfavorably impacted our revenues, gross
margins and profitability. While these conditions have improved in recent
periods, if they were to resume our growth and operating results would be
harmed.
THERE IS SEASONALITY IN OUR BUSINESS AND IF WE FAIL TO CONTINUE TO INTRODUCE NEW
PRODUCTS THIS SEASONALITY MAY BECOME MORE PRONOUNCED.
Sales of our products in the consumer electronics applications market are
subject to seasonality. As a result, sales of these products are impacted by
seasonal purchasing patterns with higher sales generally occurring in the second
half of each year. In 1999 and the first half of 2000, this seasonality was
partially offset by the introduction of new products as we continued to
diversify our product offerings. If we fail to continue to introduce new
products, our business may suffer and the seasonality of a portion of our sales
may become more pronounced.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to risks associated with foreign exchange rate fluctuations
due to our international sales and manufacturing and sales activities. These
exposures may change over time as business practices evolve and could negatively
impact our operating results and financial condition. All of our sales are
denominated in U.S. dollars. An increase in the value of the U.S. dollar
relative to foreign currencies could make our products more expensive and
therefore reduce the demand for our products. Such a decline in the demand could
reduce revenues and/or result in operating losses. In addition, a downturn in
the Japanese economy could impair the value of our investment in our Japanese
affiliate. If we consider the value of Silicon Technology, in which we have a
14.0% interest, to be impaired, we would write off, or expense some or all of
our approximately $939,000 investment. During the second quarter of 2000 we made
strategic investments totaling $17.0 million, all of which are located in
Taiwan. A downturn in the Taiwanese economy could impair the value of some or
all of these investments.
At any time, fluctuations in interest rates could affect interest earnings on
our cash and cash equivalents or increase any interest expense owed on the line
of credit facility. We believe that the effect, if any, of reasonably possible
near term changes in interest rates on our financial position, results of
operations and cash flows would not be material. Currently, we do not hedge
these interest rate exposures.
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PART II
ITEM 1. LEGAL PROCEEDINGS
On January 3, 1996, Atmel Corporation sued us in the U.S. District Court for the
Northern District of California. Atmel's complaint alleged that we willfully
infringe five U.S. patents owned by or exclusively licensed to Atmel. Atmel
later amended its complaint to allege infringement of a sixth patent. Regarding
each of these six patents, Atmel sought a judgment that we infringe the patent,
an injunction prohibiting future infringement, and treble damages, as well as
attorney's fees and expenses.
On two of the six patents, the District Court granted in our favor a summary
judgment that we did not infringe. Two of the other patents were invalidated by
another U.S. District Court in a proceeding to which we were not a party, but
this decision was reversed by the Federal Circuit. Thus, four patents remain at
issue in Atmel's District Court case against us. On February 17, 1997, Atmel
filed an action with the International Trade Commission, or ITC, against two
suppliers of our parts, involving four of the six patents that Atmel alleged
that we infringed in the District Court case above. We intervened as a party to
that investigation. Pursuant to indemnification agreements with these suppliers,
we are obligated to indemnify both to the extent provided in those agreements.
As to one of these four patents, Atmel's claims were withdrawn because of the
summary judgment granted by the District Court, as described above. The
administrative law judge, or ALJ, who makes recommended determinations to the
ITC, ruled that we did not infringe the remaining three patents. As to one of
these patents, the `903 patent, also known as "Silicon Signature", the ALJ ruled
on May 17, 2000 that it is invalid and unenforceable because Atmel intentionally
misled the U.S. Patent Office. On October 16, 2000, the ITC overturned the ALJ's
recommendation on the `903 patent and ruled that we could not import certain
products which used this circuit in the United States. We appealed the ITC
ruling and a Federal Circuit Court granted us a temporary stay of the ITC order
on October 23, 2000, and ordered the ITC and Atmel to file briefs responding to
our motion by October 30, 2000. Our reply papers were filed on November 6, 2000.
The Federal Circuit will issue a final decision regarding the permanency of the
stay after reviewing the materials submitted by all of the parties.
Any final decisions by the ITC will not be dispositive because Atmel can still
pursue its claims in the District Court action. The District Court has scheduled
a hearing for December 15, 2000, to set a trial date. We intend to vigorously
defend ourselves against these actions.
On October 1, 2000, we announced a settlement in our lawsuit with Winbond
Electronics of Taiwan. We filed a lawsuit against Winbond in July 1998 in the
U.S. District Court in San Jose, California pursuant to the termination of our
SuperFlash technology licensing agreement with Winbond. As part of the
settlement, Winbond agreed to a consent judgment and will not contest the
validity and appropriateness of SST's termination of the licensing agreement in
June 1998. This settlement concludes all litigation between us and Winbond.
From time to time, we are also involved in other legal actions arising in the
ordinary course of business. While we have accrued certain amounts for the
estimated legal costs associated with defending these matters, there can be no
assurance the Atmel complaint or other third party assertions will be resolved
without costly litigation, in a manner that is not adverse to our financial
position, results of operations or cash flows or without requiring royalty
payments in the future which may adversely impact gross margins. No estimate can
be made of the possible loss or possible range of loss associated with the
resolution of these contingencies.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. We incorporate by reference all exhibits filed in connection
with our annual report on Form 10-K, as amended, for the year ended
December 31, 1999.
EXHIBIT
NUMBER DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September 30, 2000:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, County of
Santa Clara, State of California, on the 13th day of November, 2000.
SILICON STORAGE TECHNOLOGY, INC.
By:
/s/ BING YEH
---------------------------------------------
Bing Yeh
President, Chief Executive Officer
and Director (PRINCIPAL EXECUTIVE OFFICER)
/s/ JEFFREY L. GARON
---------------------------------------------
Jeffrey L. Garon
Vice President Finance & Administration,
Chief Financial Officer and Secretary
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
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