U.S. 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 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-22594
ALLIANCE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0057842
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3099 North First Street
San Jose, California 95134-2006
(Address of principal executive offices) (Zip code)
(408) 383-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 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 ___.
Applicable only to issuers involved in bankruptcy proceedings during
the preceding five years:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No ___.
The number of shares outstanding of the Registrant's Common Stock on
November 6, 1997 was 39,319,416 shares.
Page 1 of 20, including exhibits
The Exhibit Index is located on page 18.
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<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
FORM 10-Q
INDEX
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations
Three months and six months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
Six months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities Not Applicable
Item 3. Defaults upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
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Part I. Financial Information
Item I. Consolidated Financial Statements
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
<CAPTION>
September 30, March 31,
1997 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,911 $ 22,489
Accounts receivable, net 15,206 16,827
Inventory 33,533 29,535
Deferred taxes 19,103 17,851
Income tax receivable -- 14,633
Other current assets 1,159 1,636
-------- --------
Total current assets 89,912 102,971
Property and equipment, net 11,196 11,352
Investment in Chartered Semiconductor 51,596 51,596
Investment in United Semiconductor Corp. ("USC") 75,014 52,829
Investment in United Silicon, Inc. ("USI") 13,701 13,701
Other assets 120 120
-------- --------
$241,539 $232,569
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,360 $ 18,766
Accrued liabilities 4,712 4,584
Current portion of long term obligations 1,677 1,621
-------- --------
Total current liabilities 36,749 24,971
Long term obligations 1,357 2,219
Deferred tax liability 702 702
-------- --------
Total liabilities 38,808 27,892
-------- --------
Stockholders' equity
Common stock 393 390
Additional paid-in capital 181,506 180,012
Retained earnings 20,832 24,275
-------- --------
Total stockholders' equity 202,731 204,677
-------- --------
$241,539 $232,569
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
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<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue $ 28,998 $ 13,135 $ 65,337 $ 27,243
Cost of revenue 31,693 11,029 61,308 35,360
-------- -------- -------- --------
Gross profit (loss) (2,695) 2,106 4,029 (8,117)
-------- -------- -------- --------
Operating expenses:
Research and development 3,558 3,639 7,665 7,078
Selling, general and administrative 4,885 2,703 8,940 5,195
-------- -------- -------- --------
Total operating expenses 8,443 6,342 16,605 12,273
-------- -------- -------- --------
Income (loss) from operations (11,138) (4,236) (12,576) (20,390)
Other income, net 54 459 243 1,172
-------- -------- -------- --------
Income (loss) before income taxes
and equity in income of USC (11,084) (3,777) (12,333) (19,218)
Provision (benefit) for income taxes (3,879) (1,302) (4,316) (6,725)
-------- -------- -------- --------
Income (loss) before equity in income of USC (7,205) (2,455) (8,017) (12,493)
Equity in income of USC 2,654 -- 4,574 --
-------- -------- -------- --------
Net income (loss) ($ 4,551) ($ 2,455) ($ 3,443) ($12,493)
======== ======== ======== ========
Net income (loss) per share ($ 0.12) ($ 0.06) ($ 0.09) ($ 0.32)
======== ======== ======== ========
Weighted average common shares
and equivalents 39,175 38,483 39,087 38,450
======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
4
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<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six Months Ended
September 30,
----------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 3,443) ($12,493)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 1,686 1,447
Equity in income of USC (4,574) --
Changes in assets and liabilities:
Accounts receivable 1,621 (1,724)
Inventory (3,998) (1,212)
Other assets 477 5,749
Accounts payable 11,594 (19,418)
Accrued liabilities 128 (3,113)
Income taxes including
deferred income taxes 13,381 (5,182)
-------- --------
Net cash provided by (used in) operating activities 16,872 (35,946)
-------- --------
Cash used in investing activities:
Acquisition of equipment (1,530) (1,739)
Investment in USC (17,611) (16,391)
Investment in USI -- 187
-------- --------
Net cash used in investing activities (19,141) (17,943)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,497 220
Repayments of long term obligations (806) --
-------- --------
Net cash provided by financing activities 691 220
-------- --------
Net increase (decrease) in cash and cash equivalents (1,578) (53,669)
Cash and cash equivalents at beginning of the period 22,489 80,566
-------- --------
Cash and cash equivalents at end of the period $ 20,911 $ 26,897
======== ========
Supplemental disclosures:
Income taxes paid (refunded) ($17,783) --
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
5
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ALLIANCE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Alliance Semiconductor Corporation (the "Company" or "Alliance") in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted in accordance with such rules and
regulations. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the consolidated
financial position of the Company and its subsidiaries, and their consolidated
results of operations and cash flows. These financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto for the fiscal years ended March 31, 1997 and 1996 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on June 27, 1997.
For purposes of presentation, the Company has indicated the first six
months of fiscal 1998 and 1997 as ending on September 30, respectively; whereas,
in fact the Company's fiscal quarters end on the Saturday nearest the end of the
calendar quarter.
The results of operations for the three and six months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending March 31, 1998, and the Company makes no representations related
thereto.
Note 2. Balance Sheet Components
September 30, March 31,
1997 1997
---- ----
Inventory: (in thousands)
Work in process $15,181 $18,319
Finished goods 18,352 11,216
------- -------
$33,533 $29,535
======= =======
Note 3. Inventory Charges
During the second quarter of fiscal 1998, the Company experienced continued
deterioration in the average selling prices for certain of its dynamic random
access memory ("DRAM") products and a continued decline in the average selling
prices and demand for certain of its static random access memory ("SRAM")
products; as a result of this deterioration, the Company recorded a pre-tax
charge of approximately $6.1 million to reflect a further decline in market
value of the Company's inventory. During the first quarter of fiscal 1997, the
Company experienced a significant deterioration in the average selling prices
and a slowing in demand for certain of its SRAM products; as a result of this
deterioration, the Company recorded a pre-tax charge of approximately $16.0
million primarily to reflect a further decline in market value of the Company's
inventory. The Company is unable to predict when or if such decline in prices
and demand will stabilize. A continued decline in average selling prices or
demand for SRAM and DRAM products could result in additional material inventory
valuation adjustments and corresponding charges to operations.
6
<PAGE>
Note 4. Investments
In July 1995, the Company entered into an agreement with United
Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a
separate Taiwanese company, United Semiconductor Corporation ("USC"), for the
purpose of building and managing a semiconductor manufacturing facility in
Taiwan. Alliance paid approximately NTD 1 billion (approximately US$36.4
million) in September 1995, approximately NTD 450 million (approximately US$16.4
million) in July 1996, and approximately NTD 492 million (approximately US$17.6
million) in July 1997. As a result of this last payment, Alliance has an equity
ownership of approximately 19% and the right to purchase up to approximately 25%
of the manufacturing capacity in this facility. The Company accounts for this
investment in USC using the equity method and as a result has recorded $4.6
million of equity in income of USC for the first six months of fiscal 1998.
Note 5. Commitments
At September 30, 1997, the Company had approximately $13.8 million of
noncancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers. During the first
quarter of fiscal 1997, the average selling prices of the Company's SRAM
products deteriorated significantly. As a result of this deterioration, the
Company recorded a pre-tax charge of approximately $2.3 million for adverse
purchase commitments related to these SRAM products, which is included in the
$16.0 million charge recorded in the first quarter of fiscal 1997 (see Note 3).
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon, Inc. ("USI"), for
the purpose of building and managing a semiconductor manufacturing facility in
Taiwan. The contributions of Alliance and other parties shall be in the form of
equity investments, representing an initial ownership interest of approximately
5% for each US$30 million invested. Alliance's investment, which is payable in
New Taiwan Dollars, will be up to approximately US$30 million payable in up to
three installments. The first installment of approximately 50% of the total
investment was made in January 1996, and the Company has the option to pay a
second installment of approximately 25% of the total investment in December
1997, plus interest at a rate of 8.5% on such amount from and after July 7,
1997. The final installment of approximately 25% of the total investment is
called for on or before fab production ramp-up. If the Company exercises its
option and further pays the third installment, the Company will have an equity
ownership of approximately 5% and have the right to purchase up to approximately
6.25% of the manufacturing capacity in this facility.
As of September 30, 1997, $5.1 million of standby letters of credit were
outstanding which expire through September 1998.
Note 6. Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares include common stock options using the treasury stock
method.
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share" was issued in February 1997. Under SFAS 128, the Company will be
required to disclose basic EPS and diluted EPS for all periods for which an
income statement is presented, which will replace disclosure currently being
made for primary EPS and fully-diluted EPS. SFAS 128 requires adoption for both
interim and annual fiscal periods ending
7
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after December 15, 1997. If SFAS 128 had been in effect during the first and
second quarters of fiscal 1998 and 1997, basic and diluted EPS would not have
been significantly different than EPS reported for those periods.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
When used in this Report, the words "expects," anticipates," "believes,"
"estimates" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements, which include statements concerning the timing
of new product introductions; the functionality and availability of products
under development; trends in the personal computer, networking,
telecommunications and instrumentation markets, in particular as they may affect
demand for or pricing of the Company's products; the percentage of export sales
and sales to strategic customers; the percentage of revenue by product line; and
the availability and cost of products from the Company's suppliers; are subject
to risks and uncertainties. These risks and uncertainties include those set
forth in Item 2 (entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations") of this Report, and in Item 1 (entitled
"Business") of Part I and in Item 7 (entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations") of Part II of the
Company's Annual report on Form 10-K for the fiscal year ended March 30, 1997
filed with the Securities and Exchange Commission on June 27, 1997. These risks
and uncertainties, or the occurrence of other events, could cause actual results
to differ materially from those projected in the forward-looking statements.
These forward-looking statements speak only as of the date of this Report. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or to
reflect any change in events, conditions or circumstances on which any such
forward-looking statement is based, in whole or in part.
<TABLE>
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue:
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 109.3 84.0 93.8 (129.8)
----- ----- ----- -----
Gross profit (loss) (9.3) 16.0 6.2 (29.8)
----- ----- ----- -----
Operating expenses:
Research and development 12.3 27.7 11.7 26.0
Selling, general and administrative 16.8 20.6 13.7 19.1
----- ----- ----- -----
Total operating expenses 29.1 48.3 25.4 45.1
----- ----- ----- -----
Income (loss) from operations (38.4) (32.3) (19.2) (74.9)
-----
Other income, net 0.2 3.5 0.4 4.3
----- ----- ----- -----
Income (loss) before income taxes (38.2) (28.8) (18.9) (70.6)
Provision (benefit) for income taxes (13.4) (10.1) (6.6) (24.7)
----- ----- ----- -----
Income (loss) before equity in income of USC (24.8)% (18.7)% (12.3)% (45.9)%
===== ===== ===== =====
</TABLE>
8
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Net Revenue
During the first two quarters of fiscal 1998, the Company's net revenue was
principally derived from the sale of DRAM and SRAM products, whereas the
Company's net revenue for the first two quarters of fiscal 1997 was principally
derived from the sale of SRAM products. Net revenue for the second quarter of
fiscal 1998 was $29.0 million, or 121% higher than the $13.1 million of revenue
for the second quarter of fiscal 1997. Net revenue for the first sixth months of
fiscal 1998 was $65.3 million, or 140% higher than the $27.2 million of net
revenue for the first sixth months of fiscal 1997. During the first six months
of fiscal 1998, one customer accounted for 14% of net revenue. During the first
six months of fiscal 1997, no customer accounted for more than 10% of net
revenue. The increase in net revenue for the three and six months ended
September 30, 1997, was due to increased production of DRAM products and an
overall increase in units shipped, offset by continued decreases in the average
selling prices for certain of the Company's SRAM and DRAM products and a
decrease in demand for certain of the Company's SRAM products. The Company is
unable to predict when or if such price and demand declines will stabilize. A
continued decline in average selling prices or unit demand could have a material
adverse effect on the Company's operating results.
Revenues from the Company's SRAM products contributed approximately 30% of
the Company's net revenues for the second quarter of fiscal 1998 and
approximately 28% of the Company's net revenues for the first sixth months of
fiscal 1998. To increase demand and the average selling price for the Company's
SRAM products, the Company has added to its SRAM product offerings and begun to
ship volume quantities of enhanced versions of 1 megabit SRAMs and a 4 megabit
SRAMs.
In addition to existing DRAM product offerings, the Company has recently
begun to ship volume quantities of 4 megabit DRAM, in a 256KbitX16
configuration, and a 16 megabit DRAM. Revenues from the Company's DRAM products
contributed approximately 63% of the Company's net revenues for the second
quarter and 67% of the Company's net revenues for the first sixth months of
fiscal 1998. The DRAM market is characterized by volatile supply and demand
conditions, fluctuating pricing and rapid technology changes to higher density
products. During the first six months of fiscal 1998, average selling prices for
the Company's DRAM products have experienced declines. The Company is unable to
predict when or if such price declines will stabilize. A continued decline in
average selling prices of DRAMs could have a material adverse effect on the
Company's operating results.
The Company has also recently begun to ship in limited quantities the new
ProMotion(R)-AT3D, the latest enhancement to the Company's multi-media user
interface ("MMUI") accelerator product family. Sales of the Company's MMUI
product line contributed approximately 6% to the Company's net revenues for the
second quarter of fiscal 1998 and approximately 5% of the Company's net revenues
for the first sixth months of fiscal 1998. The graphics and video accelerator
market is characterized by a large and growing number of competitors providing a
steady stream of new products with enhanced features. A significant decline in
average selling prices due to competitive conditions, including overall supply
and demand in the market, could have a material adverse effect on the Company's
operating results.
Generally, the markets for the Company's products are characterized by
volatile supply and demand conditions, numerous competitors, rapid technological
change and product obsolescence. These conditions could require the Company to
make significant shifts in its product mix in a relatively short period of time.
These changes involve several risks, including, among others, constraints or
delays in timely deliveries of products from the Company's suppliers; lower than
anticipated wafer manufacturing yields; lower than expected throughput from
assembly and test suppliers; and lower than anticipated demand and selling
prices. The occurrence of any problems resulting from these risks could have a
material adverse effect on the Company's operating results.
9
<PAGE>
Gross Profit (Loss)
The Company experienced a gross loss of $2.7 million for the second quarter
of fiscal 1998, or (9.3)% of net revenue compared to gross profit of $2.1
million, or 16% of net revenue for the same period of fiscal 1997. Gross profit
was $4.0 million for the first six months of fiscal 1998, or 6.2% of net revenue
compared to gross loss of $8.1 million, or (29.8)% of net revenue for the same
period of fiscal 1997. The decrease in gross margin for the second quarter of
fiscal 1998 resulted primarily from pre-tax inventory related charges of
approximately $6.1 million recorded in the second quarter to reflect recent
declines in the market value for certain of the Company's products. The increase
in gross margin for the first six months of fiscal 1998 resulted primarily
increase revenues and a decrease in pre-tax inventory related charges recorded
to reflect declines in the market value for certain of the Company's products.
As a result of the significant deterioration in the average selling prices for
certain of its SRAM and DRAM products and decreased demand for certain of its
SRAM products, the Company's gross margin declined and became a gross loss
during the second quarter of fiscal 1998. The Company is unable to predict when
or if such declines in price and demand will stabilize. A continued decline in
average selling prices or demand could result in further adverse impacts on the
Company's gross margins.
The Company is subject to a number of factors which may have an adverse
impact on gross margins, including the availability and cost of products from
the Company's suppliers; increased competition or decreased demand, and related
decreases in average unit selling prices; changes in the mix of products sold;
and the timing of new product introductions and volume shipments. In addition,
the Company may seek to add additional foundry suppliers and transfer existing
and newly developed products to more advanced manufacturing processes. The
commencement of manufacturing at a new foundry is often characterized by lower
yields as the manufacturing process is refined. There can be no assurance that
one or more of the factors set forth in this paragraph will not have a material
adverse effect on the Company's gross margins in future periods.
Research and Development
Research and development expenses were $3.6 million, or 12.3% of net
revenue in the second quarter of fiscal 1998 compared to $3.6 million, or 27.7%
of net revenue in the same period of the prior fiscal year. Research and
development expenses were $7.7 million, or 11.7% of net revenue in the first six
months of fiscal 1998 compared to $7.1 million, or 26.0% of net revenue in the
same period of the prior fiscal year. The increase in research and development
expenses for the first six months of fiscal 1998 was due to increased
expenditures for materials utilized in the Company's development activities
which are dependent on the timing of new product development and introduction,
increased legal expenses related to legal reserves for certain patent-related
items and increases in personnel related costs. Research and development
expenses are expected to increase in absolute dollars and may also increase as a
percentage of net revenue in future periods.
Selling, General and Administrative
Selling, general and administrative expenses were $4.9 million, or 16.8% of
net revenue in the second quarter of fiscal 1998 compared to $2.7 million, or
20.6% of net revenue in the same period of the prior fiscal year. Selling,
general and administrative expenses were $8.9 million, or 13.7% of net revenue
in the first six months of fiscal 1998 compared to $5.2 million, or 19.1% of net
revenue in the same period of the prior fiscal year. The increase in selling,
general and administrative expenses was primarily the result of increased sales
commissions due to increased revenue, increased legal expenses in connection
with certain legal proceedings, bad debt reserves and higher personnel-related
costs. Selling, general and administrative expenses are expected to increase in
absolute dollars and may also increase as a percentage of net revenue in future
periods.
10
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Other Income, Net
Net other income was $0.1 million for the second quarter of fiscal 1998
compared to $0.5 million for the same period of fiscal 1997. Net other income
was $0.2 million for the first six months of fiscal 1998 compared to $1.2
million for the same period of fiscal 1997. Net other income for the first three
and sixth months of fiscal 1998 primarily represents interest and dividend
income from investments, offset by interest expense for long term obligations.
Provision (Benefit) for Income Taxes
The Company's effective tax rate was 35.0% for the first and second
quarters of fiscal 1998 and 1997. The tax benefit for the first and second
quarters of fiscal 1998 and 1997 represents amounts which may be carried back to
offset taxes paid in prior years, resulting in a tax refund to the Company.
Equity in Income of United Semiconductor Corporation ("USC")
As discussed in "Liquidity and Capital Resources", the Company entered into
an agreement with other parties to form a separate Taiwanese company, USC. This
investment is accounted for under the equity method of accounting with a ninety
day lag in reporting the Company's share of results for the entity. Equity in
income of USC reflects the Company's share of income earned by USC for the
previous quarter. The Company reported $2.7 million of equity in income of USC
for the second quarter and $4.6 million of equity in income of USC for the first
six months of fiscal 1998. No amounts were reported for the same periods of the
prior year as the Company's share of USC's net income was not material.
Factors That May Affect Future Results
The Company's quarterly and annual operating results have historically
been, and will continue to be, subject to quarterly and other fluctuations due
to a variety of factors, including general economic conditions, changes in
pricing policies by the Company, its competitors or its suppliers, anticipated
and unanticipated decreases in average selling prices of the Company's products,
fluctuations in manufacturing yields, availability and cost of products from the
Company's suppliers, the timing of new products announcements and introductions
by the Company or its competitors, changes in the product mix of products sold,
the cyclical nature of the semiconductor industry, the gain or loss of
significant customers, increased research and development expenses associated
with new product introductions, market acceptance of new or enhanced versions of
the Company's products, seasonal customer demand and the timing of significant
orders. Operating results could be adversely affected by economic conditions
generally or in various geographic areas, other conditions affecting the timing
of customer orders and capital spending, a downturn in the market for personal
computers, or order cancellations or rescheduling. Additionally, because the
Company is continuing to increase its operating expenses for personnel and new
product development, the Company's operating results will be adversely affected
if increased sales levels are not achieved.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards, rapid product obsolescence
and significant price competition and, as a result, are subject to decreases in
average selling prices. The Company has recently experienced significant
deterioration in average selling prices for its SRAM and DRAM products. The
Company is unable to predict when or if such decline in prices will stabilize.
Historically, average selling prices for semiconductor memory products have
declined and the Company expects that average selling prices will decline in the
future. Accordingly, the Company's ability to maintain or increase revenues will
be highly dependent on its ability to increase unit sales volume of existing
products and to successfully develop, introduce and sell new products. Declining
average selling prices will also adversely affect
11
<PAGE>
the Company's gross margins unless the Company is able to reduce its cost per
unit in an amount sufficient to offset the declines in average selling prices.
There can be no assurance the Company will be able to increase unit sales
volumes of existing products, develop, introduce and sell new products or reduce
its cost per unit to offset declines in average selling prices. There also can
be no assurance that even if the Company were to increase unit sales volumes and
sufficiently reduce its costs per unit, the Company would be able to maintain or
increase revenues or gross margins.
The Company usually ships more product in the third month of each quarter
than in either of the first two months of the quarter, with shipments in the
third month higher at the end of the month. This pattern, which is common in the
semiconductor industry, is likely to continue. The concentration of sales in the
last month of the quarter may cause the Company's quarterly results of
operations to be more difficult to predict. Moreover, a disruption in the
Company's production or shipping near the end of a quarter could materially
reduce the Company's net sales for that quarter. The Company's reliance on
outside foundries and independent assembly and testing houses reduces the
Company's ability to control, among other things, delivery schedules.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company
experiences from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products at an acceptable cost to meet future demand, and any inability of
the Company to maintain adequate inventory levels may adversely affect its
relations with its customers. In addition, because the Company must order
products and build inventory substantially in advance of products shipments,
there is a risk that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products because demand for the Company's
products is volatile and subject to rapid technology and price change. This
inventory risk is heightened because certain of the Company's key customers
place orders with short lead times. The Company's customers' ability to
reschedule or cancel orders without significant penalty could adversely affect
the Company's liquidity, as the Company may be unable to adjust its purchases
from its independent foundries to match such customer changes and cancellations.
The Company has in the past produced excess quantities of certain products which
has had a material adverse effect on the Company's operating results. There can
be no assurance that the Company in the future will not produce excess
quantities of any of its products. To the extent the Company produces excess or
insufficient inventories of particular products, the Company's operating results
could be materially adversely affected, as was the case during fiscal 1996,
fiscal 1997 and fiscal 1998, during which periods the Company recorded pre-tax
charges of $55 million, $17 million and $6 million, respectively, primarily to
reflect a decline in the market value of certain inventory and certain
manufacturing issues.
The Company currently relies on outside foundries to manufacture all of the
Company's products. Reliance on these foundries involves several risks,
including constraints or delays in timely delivery of the Company's products,
reduced control over delivery schedules, quality assurance and costs, and loss
of production due to fires, seismic activity, weather conditions and other
factors. In October 1997, a fire caused extensive damage to United Integrated
Circuits Corporation ("UICC"), a foundry joint venture between United
Microelectronics Corporation ("UMC") and various companies. UICC is located next
to United Silicon, Inc. ("USI") and near USC and UMC in Science-Based Industrial
Park, Hsin-Chu, Taiwan. (The Company has products manufactured at UMC and USC,
and owns equity stakes in USC and USI.) There can be no assurance that fire or
other disaster will not have a material adverse affect on UMC, USC or USI in the
future. In addition, as a result of the rapid growth of the semiconductor
industry based in the Science-Based Industrial Park, severe constraints have
been placed on the water and electricity supply in that region. Any shortages of
water or electricity could adversely affect the Company's foundries' ability to
supply the Company's products, which could have a material adverse effect on the
Company's results of operations or financial condition. Although the Company
continuously evaluates sources of foundry capacity and may seek to add
additional foundry capacity, there can be no assurance that capacity can be
obtained at acceptable prices, if at all. The occurrence of any supply or other
problem resulting from these risks could have a material adverse effect on the
Company's operating results, as was the case during the third quarter of fiscal
1996, during which period manufacturing yields of one of the Company's products
were materially
12
<PAGE>
adversely affected by manufacturing problems at one of the Company's foundry
suppliers. There can be no assurance that other problems affecting manufacturing
yields of the Company's products will not occur in the future.
The Company conducts a significant portion of its business internationally
and is subject to a number of risks resulting from such operations. Such risks
include political and economic instability and changes in diplomatic and trade
relationships, foreign currency fluctuations, unexpected changes in regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. Although the Company to date has
not experienced any material adverse effect on its operations as a result of
such factors, there can be no assurance that such factors will not adversely
impact the Company's operations in the future or require the Company to modify
its current business practice.
The Company also is party to certain legal proceedings, and is subject to
the risk of adverse developments in such proceedings. The semiconductor industry
is characterized by frequent claims and litigation regarding patent and other
intellectual property rights. The Company currently is involved in patent
litigation, and also has from time to time received, and believes that it likely
will in the future receive, notices alleging that the Company's products, or the
processes used to manufacture the Company's products, infringe the intellectual
property rights of third parties, and the Company is subject to the risk that it
may become party to litigation involving such claims. The Company currently is
party to an anti-dumping proceeding, which may result in the assessment of
anti-dumping duties on the Company's importation into the United States of
Taiwan-manufactured SRAMs. See Item 1 - Legal Proceedings, of Part II of this
Report. There can be no assurance that adverse developments in current or future
legal proceedings, including without limitation the above-identified patent
litigation and antidumping proceedings, will not have a material adverse effect
on the Company's operating results or financial condition.
Additionally, other factors may materially adversely affect the Company's
operating results. The Company relies on domestic and offshore subcontractors
for die assembly and testing of products, and is subject to risks of disruption
in adequate supply of such services and quality problems with such services. The
Company is subject to the risks of shortages of goods or services and increases
in the cost of raw materials used in the manufacture or assembly of the
Company's products. The Company faces intense competition, and many of its
principal competitors and potential competitors have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines and longer-standing relationships with customers than does the
Company, any of which factors may place such competitors and potential
competitors in a stronger competitive position than the Company. The Company's
corporate headquarters are located near major earthquake faults, and the Company
is subject to the risk of damage or disruption in the event of seismic activity.
There can be no assurance that any of the foregoing factors will not materially
adversely affect the Company's operating results.
As a result of the foregoing factors, as well as other factors affecting
the Company's operating results, past performance should not be considered to be
a reliable indicator of future performance and investors should not use
historical trends to anticipate results or trends in future periods. In
addition, stock prices for many technology companies are subject to significant
volatility, particularly on a quarterly basis. If revenues or earnings fail to
meet expectations of the investment community, there could be an immediate and
significant impact on the market price of the Company's common stock.
Liquidity and Capital Resources
The Company's operating activities generated cash of $16.9 million in the
first six months of fiscal 1998 and used cash of $35.9 million in the first six
months of fiscal 1997. Cash generated from operations in the first six months of
fiscal 1998 was the result of taxes refunded and changes in working capital
accounts, offset by the net loss generated during the period combined with the
Company's share of USC's income. Cash used in operations
13
<PAGE>
in the first six months of fiscal 1997 was primarily a result of net loss
generated during the period and payment of a significant portion of the
Company's liabilities.
Net cash used in investing activities was $19.1 million for the first six
months of fiscal 1998 and $17.9 million for the same period of fiscal 1997. Net
cash used in investing activities in the first six months of fiscal 1998
reflects an investment of $17.6 million in USC and equipment purchases of $1.5
million. Net cash used in investing activities in the first six months of fiscal
1997 reflects an investment of $16.4 million in USC, equipment purchases of $1.7
million, partially offset by a reduction in the investment of USI of $0.2
million.
Net cash provided by financing activities was $0.7 million in the first six
months of fiscal 1998 and $0.2 million in the first six months of fiscal 1997.
Net cash provided by financing activities in the first six months of fiscal 1998
reflects net proceeds from the sales of common stock in connection with the
exercise of stock options, offset by repayments of long term obligations. Net
cash provided by financing activities in the first six months of fiscal 1997
reflects net proceeds from the sales of common stock in connection with the
exercise of stock options.
At September 30, 1997, the Company had $20.9 million in cash, a decrease of
$1.6 million from March 31, 1997 and working capital of $53.2 million, a
decrease of $24.8 million from March 31, 1997. The Company believes that these
sources of liquidity, together with potential financings, will be sufficient to
meet its projected working capital and other cash requirements for the
foreseeable future.
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has considered and
will continue to consider various possible transactions, including equity
investments in or loans to foundries in exchange for guaranteed production, the
formation of joint ventures to own and operate foundries, or the usage of "take
or pay" contracts that commit the Company to purchase specified quantities of
wafers over extended periods. Manufacturing arrangements such as these may
require substantial capital investments, which may require the Company to seek
additional debt or equity financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. Additionally, the Company has entered
into and will continue to enter into various transactions, including the
licensing of its integrated circuit designs in exchange for royalties, fees or
guarantees of manufacturing capacity.
In July 1995, the Company entered into an agreement with UMC and S3 to form
a separate Taiwanese company, USC, for the purpose of building and managing a
semiconductor manufacturing facility in Taiwan. Alliance paid approximately NTD
1 billion (approximately US$36.4 million) in September 1995, approximately NTD
450 million (approximately US$16.4 million) in July 1996, and approximately NTD
492 million (approximately US$17.6 million) in July 1997. As a result of this
last payment, Alliance has an equity ownership of approximately 19% and the
right to purchase up to approximately 25% of the manufacturing capacity in this
facility.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, USI, for the purpose of building
and managing a semiconductor manufacturing facility in Taiwan. The contributions
of Alliance and other parties shall be in the form of equity investments,
representing and initial ownership interest of approximately 5% for each US$30
million invested. Alliance's investment, which is payable in New Taiwan Dollars,
will be up to approximately US$30 million payable in up to three installments.
The first installment of approximately 50% of the total investment was made in
January 1996, and the Company has the option to pay a second installment of
approximately 25% of the total investment in December 1997, plus interest at a
rate of 8.5% on such amount from and after July 7, 1997. The final installment
of approximately 25% of the total investment is called for on or before fab
production ramp-up. If the Company exercises its option and further pays the
third installment, the Company will have an equity ownership of approximately 5%
and have the right to purchase up to approximately 6.25% of the manufacturing
capacity in this facility.
14
<PAGE>
In addition, the Company believes that success in its industry requires
substantial capital and liquidity. In addition to capital needs for its ongoing
business operations, the Company also may desire, from time to time, as market
and business conditions warrant, to invest in or acquire complementary
businesses, products or technologies. As a result, the Company may seek
additional equity or debt financings to fund such activities or to otherwise
take advantage of favorable financing opportunities. The sale of additional
equity or convertible debt securities could result in additional dilution to the
Company's stockholders. There can be no assurance that such additional
financing, if required, can be obtained on terms acceptable to the Company, if
at all.
15
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As previously reported, in February 1997, Micron Technology, Inc. filed an
anti-dumping petition (the "Petition") with the United States International
Trade Commission ("ITC") (Investigation Nos. 731-TA-761-762) and United States
Department of Commerce ("DOC") (Investigations Nos. A-580-828, A-583-827),
alleging that static random access memories ("SRAMs") produced in Korea and
Taiwan are being sold in the United States at less than fair value, and that the
United States industry producing SRAMs (the "Domestic Industry") is materially
injured or threatened with material injury by reason of imports of SRAMs
manufactured in Korea and Taiwan. The Petition requests the United States
government to impose antidumping duties on imports into the United States of
SRAMs manufactured in Korea and Taiwan. A material portion of the SRAMs designed
and sold by the Company are manufactured in Taiwan. The Company received
preliminary producer and importer questionnaires from the ITC, and submitted
responses to such questionnaires in March 1997. In April 1997, the ITC
preliminarily determined that there is a reasonable indication that the imports
of the products under investigation are injuring the United States industry. The
Company received a questionnaire and supplements thereto from the DOC, and
responded to such questionnaire and supplements in accordance with the deadlines
established by the DOC. In September 1997, the DOC preliminarily determined that
estimated antidumping duties of 59.06% (the "Preliminary Margin") should be
imposed on the Company's importation of Taiwan-fabricated SRAMs. The Company
anticipates that the DOC will make a final determination as to the level of such
margin (the "Final Margin") in the first calendar quarter of 1998. The Company
anticipates that the ITC, in the first quarter of calendar 1998, will make a
final determination as to whether the Domestic Industry is materially injured or
threatened with material injury by reason of imports of SRAMs manufactured in
Korea and Taiwan. Since October 1997, the Company has been required to post a
bond in the amount of the Preliminary Margin in order to import
Taiwan-fabricated SRAMs into the United States. If the DOC makes a final
determination that the Company should be required to pay estimated antidumping
duties, and if the ITC finds that the Domestic Industry is materially injured or
threatened with material injury by reason of imports of SRAMs manufactured in
Taiwan, then the Company will be required to pay a cash deposit in the amount of
the Final Margin in order to import Taiwan-fabricated SRAMs into the United
States. The Company may, in 1999, request a review of its sales of
Taiwan-fabricated SRAMs from approximately October 1997 through March 1999 (the
"Review Period"). If the Company makes such a request, the cash deposits made by
the Company shall not be "assessed" or "liquidated" until the conclusion of the
review, in early 2000. If the DOC found, based upon analysis of the Company's
sales during the Review Period, that antidumping duties either should not be
imposed or should be imposed at a lower rate than the Final Margin, the
difference between the cash deposits made by the Company, and the deposits that
would have been made had the lower rate (or no rate, as the case may be) been in
effect, would be returned to the Company, plus interest. If, on the other hand,
the DOC found that higher margins were appropriate, the Company would have to
pay difference between the cash deposits made by the Company, and the deposits
that would have been made had the higher rate been in effect. The Company
vigorously is seeking, and intends to continue vigorously to seek, to ensure
that antidumping duties are not assessed on imports of its SRAM products
manufactured in Taiwan. There can be no assurance, however, that such duties
will not be assessed. The possibility of assessment of such could materially
adversely affect the Company's ability to sell Taiwan-fabricated SRAMs in the
United States and have a material adverse effect on the Company's operating
results or financial condition.
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On September 5, 1997, at the annual meeting of the stockholders of the
Company, the stockholders voted to: (1) elect as directors, until the 1998
annual meeting of the stockholders or until their respective successors are
elected and qualified, N. Damodar Reddy (36,429,537 votes in favor and 65,974
votes withheld), C.N. Reddy (36,430,137 votes in favor and 65,374 votes
withheld), Sanford L. Kane (36,433,137 votes in favor and 62,374 votes withheld)
and Jon B. Minnis (36,434,137 votes in favor and 61,374 votes withheld); and (2)
ratify and approve the appointment of Price Waterhouse as the Company's
independent auditors for the current fiscal year (36,422,258 votes in favor,
34,428 votes against and 38,825 votes abstained).
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
(a) Exhibits
<CAPTION>
Number Title Filing Status
------ ----- -------------
<S> <C> <C> <C>
3.01 Registrant's Certificate of Incorporation (A)
3.02 Registrant's Bylaws (A)
3.03 Registrant's Certificate of Elimination of Series A Preferred Stock (A)
3.04 Registrant's Certificate of Amendment of Certificate of (B)
Incorporation
4.01 Specimen of Common Stock Certificate of Registrant (A)
11.01 Statement re: Computation of Earnings per Share (C)
27.01 Financial Data Schedule (C)
(b) Reports on Form 8-K
None.
<FN>
- -----------
(A) The document referred to is hereby incorporated by reference from the
Company's Registration Statement on Form SB-2 (File No. 33-69956-LA)
declared effective by the Commission on November 30, 1993.
(B) The document referred to is hereby incorporated by reference from the
Company's Quarterly Report on Form 10-Q (File No. 0-22594) filed with the
Commission on November 14, 1995.
(C) The document referred to is filed herewith.
</FN>
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alliance Semiconductor Corporation
(Registrant)
Date: November 11, 1997 /s/ N. D. Reddy
---------------
N. Damodar Reddy
President and Principal Executive Officer
Date: November 11, 1997 /s/ Charles Alvarez
-------------------
Charles Alvarez
Vice President - Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
19
Exhibit 11.01
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
COMPUTATION OF NET INCOME(LOSS) PER SHARE
AND COMMON EQUIVALENT SHARES
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands, except per (in thousands, except per
share data) share data)
<S> <C> <C> <C> <C>
Net income (loss) .............................................. ($ 4,551) ($ 2,455) ($ 3,443) ($12,490)
======== ======== ======== ========
Weighted average number of common shares
outstanding during the period .............................. 39,175 38,483 39,087 38,450
Weighted-average common stock equivalents
(calculated using the "treasury stock"
method) representing shares issuable
upon exercise of employee stock
options .................................................... -- -- -- --
-------- -------- -------- --------
Weighted-average common shares and equivalents ................. 39,175 38,483 39,087 38,450
======== ======== ======== ========
Net income (loss) per share .................................... ($ 0.12) ($ 0.06) ($ 0.09) ($ 0.32)
======== ======== ======== ========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> SEP-27-1997
<CASH> 20,911
<SECURITIES> 0
<RECEIVABLES> 15,206
<ALLOWANCES> 0
<INVENTORY> 33,533
<CURRENT-ASSETS> 89,912
<PP&E> 11,196
<DEPRECIATION> 0
<TOTAL-ASSETS> 241,539
<CURRENT-LIABILITIES> 36,749
<BONDS> 1,357
0
0
<COMMON> 393
<OTHER-SE> 202,338
<TOTAL-LIABILITY-AND-EQUITY> 241,539
<SALES> 65,337
<TOTAL-REVENUES> 65,337
<CGS> 61,308
<TOTAL-COSTS> 61,308
<OTHER-EXPENSES> 7,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,333)
<INCOME-TAX> (4,316)
<INCOME-CONTINUING> (8,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,443)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
