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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended DECEMBER 31, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from__________to__________.
Commission file number 0-25560
CELERITEK, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0057484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3236 SCOTT BLVD., SANTA CLARA, CA 95054
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(Address of principal executive offices) (Zip code)
(408) 986-5060
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: [X] Yes [ ] No
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE: 11,919,664 SHARES AS OF JANUARY 31, 2000
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CELERITEK, INC.
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets: 1
December 31, 2000 and March 31, 2000
Condensed Consolidated Statements of Operations: 2
Three and nine months ended December 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows: 3
Nine months ended December 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 22
Item 3: Quantitative and Qualitative Disclosures about Market Risk 23
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 24
SIGNATURES 25
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CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, March 31,
2000 2000
----------- --------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 11,350 $ 8,707
Short-term investments 102,883 18,009
Accounts receivable, net 21,497 11,909
Inventories 21,816 14,355
Prepaid expenses, other current assets,
and deferred tax assets 3,429 1,182
-------- --------
Total current assets 160,975 54,162
Property and equipment, net 16,789 9,401
Other assets 2,508 92
-------- --------
Total assets $180,272 $ 63,655
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,390 $ 6,221
Accrued payroll 2,072 2,514
Accrued liabilities 5,213 2,467
Current portion of long-term debt 1,407 667
Current obligations under capital leases 413 319
-------- --------
Total current liabilities 17,495 12,188
Long-term debt, less current portion 4,075 222
Non-current obligations under capital leases 213 414
Shareholders' equity 158,489 50,831
-------- --------
Total liabilities and shareholders' equity $180,272 $ 63,655
======== ========
Note: The balance sheet at March 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $ 24,245 $ 11,822 $ 67,043 $ 32,741
Cost of goods sold 18,505 10,806 49,195 28,582
-------- -------- -------- --------
Gross profit 5,740 1,016 17,848 4,159
Operating expenses:
Research and development 2,613 1,644 7,322 4,527
Selling, general and administrative 2,198 2,515 7,687 6,684
-------- -------- -------- --------
Total operating expenses 4,811 4,159 15,009 11,211
Income (loss) from operations 929 (3,143) 2,839 (7,052)
Interest income and other, net 2,141 18 4,138 136
-------- -------- -------- --------
Income (loss) before income tax 3,070 (3,125) 6,977 (6,916)
Provision for income taxes 461 0 1,047 0
-------- -------- -------- --------
Net income (loss) $ 2,609 ($ 3,125) $ 5,930 ($ 6,916)
======== ======== ======== ========
Basic earnings (loss) per share $ 0.22 ($ 0.42) $ 0.54 ($ 0.93)
======== ======== ======== ========
Diluted earnings (loss) per share $ 0.21 ($ 0.42) $ 0.50 ($ 0.93)
======== ======== ======== ========
Weighted average common shares outstanding 11,842 7,464 11,061 7,424
Weighted average common shares outstanding,
assuming dilution 12,667 7,464 11,916 7,424
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
Nine Months Ended
---------------------------
December 31, December 31,
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net income (loss) $ 5,930 $ (6,916)
Adjustment to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, amortization and other 2,703 2,089
Changes in operating assets and liabilities (14,724) 3,968
--------- ---------
Net cash used in operating activities (6,091) (859)
INVESTING ACTIVITIES
Purchase of property and equipment (9,313) (2,391)
Decrease (increase) in other assets (2,362) (2)
Purchases of short-term investments (150,134) (4,302)
Maturities of short-term investments 65,260 6,138
--------- ---------
Net cash used in investing activities (96,549) (557)
FINANCING ACTIVITIES
Payments under line of credit -- (750)
Borrowings under line of credit -- 3,000
Payments on long-term debt (721) (555)
Borrowings on long-term debt 5,314 --
Payments on obligations under capital leases (821) (101)
Proceeds from issuance of common stock 101,511 377
--------- ---------
Net cash provided by financing activities 105,283 1,971
Increase (decrease) in cash and cash equivalents 2,643 555
Cash and cash equivalents at beginning of period 8,707 1,729
--------- ---------
Cash and cash equivalents at end of period $ 11,350 $ 2,284
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 1 --
Interest 256 151
Capital lease obligations incurred to acquire equipment 714 --
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.
The Company's reporting period consisted of a thirteen-week period
ending on the Sunday closest to the calendar month end. The third
quarters of fiscal 2001 and fiscal 2000 ended December 31, 2000 and
January 2, 2000, respectively. For convenience, the accompanying
financial statements have been shown as ending on the last day of the
calendar month.
Operating results for the three and nine months ended December 31, 2000
are not necessarily indicative of the results that may be expected for
the fiscal year ending March 31, 2001. This financial information should
be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for
the year ended March 31, 2000.
2. INVENTORIES
The components of inventory consist of the following:
December 31, March 31,
2000 2000
----------- --------
(In Thousands)
Raw materials ................ $ 9,945 $ 3,193
Work-in-process .............. 11,871 11,162
------- -------
$21,816 $14,355
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3. EARNINGS PER SHARE
In accordance with the Statement of Financial Accounting Standards No.
128, "Earnings per Share," basic earnings (loss) per common share are
computed using the weighted average common shares outstanding during the
period. Diluted earnings per common share incorporates the incremental
shares issuable upon the assumed exercise of stock options when
dilutive.
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
Three months ended Nine months ended
December 31, December 31,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
BASIC
Net income (loss) .............................. $ 2,609 $(3,125) $ 5,930 $(6,916)
======= ======= ======= =======
Weighted common shares outstanding ............. 11,842 7,464 11,061 7,424
======= ======= ======= =======
Basic earnings (loss) per common share ......... $ 0.22 $( 0.42) $ 0.54 $ (0.93)
======= ======= ======= =======
DILUTED
Net income (loss) .............................. $ 2,609 $(3,125) $ 5,930 $(6,916)
======= ======= ======= =======
Weighted common shares outstanding ............. 11,842 7,464 11,061 7,424
Dilutive effect of stock options ............... 825 -- 855 --
------- ------- ------- -------
Weighted common shares outstanding,
assuming dilution ............................ 12,667 7,464 11,916 7,424
======= ======= ======= =======
Diluted earnings (loss) per common share ....... $ 0.21 $ (0.42) $ 0.50 $ (0.93)
======= ======= ======= =======
4. COMPREHENSIVE INCOME
Comprehensive income for the three and nine month period ended December
31, 2000 was $2,825 and $6,146, respectively, and was the same as net
income for the three and nine month periods ended December 31, 1999.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101),
which provides guidance on the recognition, presentation and disclosure
of revenue in financial
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statements filed with the SEC. SAB 101 outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. This is effective December 31,
2000. The Company believes that its revenue recognition policy is in
compliance with the provisions of SAB 101 and that the adoption of SAB
101 did not have a material effect on the financial position or results
of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of
the Accounting Principals Board, or APB, Opinion No. 25. This
Interpretation clarifies the application of APB Opinion 25 including:
- the definition of employee for purposes of applying APB
Opinion 25;
- the criteria for determining whether a plan qualifies as
a noncompensatory plan;
- the accounting consequence of various modifications to
the terms of a previously fixed stock option or award;
and
- the accounting for an exchange of stock compensation
awards in a business combination.
In general, this Interpretation is effective July 1, 2000. The
adoption of Interpretation No. 44 did not impact on our financial
position or results of operations.
In June 1998, In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. In July 1999, FASB issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133, which postponed the
effective date of SFAS No. 133 for one year. In June 2000, FASB issued
SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment to SFAS No. 133. The adoption SFAS No.
133 (as amended by SFAS No. 138) is not expected to have a material
impact on the Company's financial position or results of operations.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements
represent the Company's expectations or beliefs concerning future events and
include statements, among others, regarding expansion of our design centers in
England and Northern Ireland, higher research and development spending, the
ability to meet our liquidity requirements, expansion of our foundry, the
possibility of entering into arrangements with new foundries, our sales to a
limited number of customers, our ability to compete and improve our products for
the wireless markets, an increase in competition, price declines and gross
profit margins, and the proportion and amount of international sales. Actual
results could differ materially from those projected in the forward-looking
statements as a result of a variety of factors such as, "Our in-house foundry
capacity is limited," "We depend on a small number of original equipment
manufacturers as customers," "Our backlog may not result in sales," and
including those set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Risks, Trends, and
Uncertainties," and elsewhere in this report.
RESULT OF OPERATIONS -- THIRD QUARTER OF FISCAL 2000 COMPARED TO THIRD QUARTER
OF FISCAL 2001:
Total net sales increased 105% from $11.8 million for the third quarter
of fiscal 2000 to $24.2 million for the third quarter of fiscal 2001. GaAs
semiconductor component sales increased 202% from $4.3 million in the third
quarter of fiscal 2000 to $13.0 million in the third quarter of fiscal 2001. The
increase in the semiconductor component sales was the result of an increase in
the sales of GaAs RF power amplifiers for use in mobile handsets and linear
devices for wireless data infrastructure applications, which were not
significant in the third quarter fiscal 2000. See "Risks, Trends, and
Uncertainties -- Our operating results have fluctuated significantly in the past
and we expect these fluctuations to continue."
Net sales of GaAs-based subsystems increased 105%, from $3.9 million in
the third quarter of fiscal 2000 to $8.0 million in the third quarter of fiscal
2001, primarily because of increased sales of GaAs-based subsystems for point to
point radios and satellite transceivers. Total net sales to defense customers
decreased 11% from $3.6 million in the third quarter of fiscal 2000 to $3.2
million for third quarter of fiscal 2001, primarily as a result of decreased
government spending in defense programs for our type of products, continued
competition in the defense industry and our focus on commercial markets.
Gross margin increased from 9% of net sales in the third quarter of
fiscal 2000 to 24% of net sales in the third quarter of fiscal 2001. The
increase in gross margin was primarily due to the increased sales level and the
related absorption of a larger portion of fixed costs due to volume increases in
fiscal 2001. See "Risks, Trends, and Uncertainties
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- -- The variability of our manufacturing yields may affect our gross margins" and
"Because many of our expenses are fixed, our earnings will decline if we do not
meet our projected sales."
Research and development expenses increased 59% from $1.6 million, or
14% of net sales, in the third quarter of fiscal 2000 to $2.6 million, or 11% of
net sales, in the third quarter of fiscal 2001. The increase is due to increased
staffing and the opening of our Lincoln, England design center. We expect to
expand our design centers in Lincoln, England and Belfast, Northern Ireland,
which will result in a higher level of research and development spending than we
have historically expended. See "Risks, Trends, and Uncertainties - We depend
heavily on our key managerial and technical personnel. If we cannot attract and
retain persons for our critical management and technical functions we may be
unable to compete effectively."
Selling, general and administrative expenses decreased from $2.5
million, or 21% of net sales, in the third quarter of fiscal 2000 to $2.2
million, or 9% of net sales, in the third quarter of fiscal 2001. The decrease
was primarily due to decreased selling costs associated with the change in
product mix to lower commissioned, high volume products.
Interest income and other, net increased from $18,000 in the third
quarter of fiscal 2000 to $2.1 million in the third quarter of fiscal 2001. The
increase in interest income and other, net, was primarily due to increased cash,
cash equivalents, and short-term investment balances from our follow-on public
offering in June 2000 by which we raised $100.4 million (including the
over-allotment option).
RESULT OF OPERATIONS -- FIRST NINE MONTHS OF FISCAL 2000 COMPARED TO FIRST NINE
MONTHS OF FISCAL 2001:
Total net sales increased 105% from $32.7 million for the first nine
months of fiscal 2000 to $67.0 million for the first nine months of fiscal 2001.
GaAs semiconductor component sales increased 185% from $11.7 million in the
first nine months of fiscal 2000 to $33.3 million in the first nine months of
fiscal 2001. The increase in the semiconductor component sales was the result of
an increase in the sales of GaAs RF power amplifiers for use in mobile handsets
and linear power devices for use in wireless data infrastructure applications,
which were not significant in the first nine months of fiscal 2000. See "Risks,
Trends, and Uncertainties -- Our operating results have fluctuated significantly
in the past and we expect these fluctuations to continue."
Net sales of GaAs-based subsystems increased 151%, from $9.5 million in
the first nine months of fiscal 2000 to $23.8 million in the first nine months
of fiscal 2001, primarily because of increased sales of GaAs-based subsystems
for point to point radios and satellite transceivers. Total net sales to defense
customers decreased 14% from $11.5 million in the first nine months of fiscal
2000 to $9.9 million for first nine months of fiscal 2001, primarily as a result
of decreased government spending in defense programs for our type of products,
continued competition in the defense industry and our focus on commercial
markets.
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Gross margin increased from 13% of net sales in the first nine months of
fiscal 2000 to 27% of net sales in the first nine months of fiscal 2001. The
increase in gross margin was primarily due to the increased sales level and the
related absorption of a larger portion of fixed costs due to volume increases in
fiscal 2001. See "Risks, Trends, and Uncertainties -- The variability of our
manufacturing yields may affect our gross margins" and "Because many of our
expenses are fixed, our earnings will decline if we do not meet our projected
sales."
Research and development expenses increased 62% from $4.5 million, or
14% of net sales, in the first nine months of fiscal 2000 to $7.3 million, or
11% of net sales, in the first nine months of fiscal 2001. The increase is due
to increased staffing and the opening of our Lincoln, England design center. We
expect to expand our design centers in Lincoln, England and Belfast, Northern
Ireland, which will result in a higher level of research and development
spending than we have historically reported. See "Risks, Trends, and
Uncertainties - We depend heavily on our key managerial and technical personnel.
If we cannot attract and retain persons for our critical management and
technical functions we may be unable to compete effectively."
Selling, general and administrative expenses increased from $6.7
million, or 20% of net sales, in the first nine months of fiscal 2000 to $7.7
million, or 11% of net sales, in the first nine months of fiscal 2001. The
overall year to date dollar increase was primarily due to increased
administrative expenses associated with the growth in business levels.
Interest income and other, net increased from $136,000 in the first nine
months of fiscal 2000 to $4.1 million in the first nine months of fiscal 2001.
The increase in interest income and other, net, was primarily due to increased
cash, cash equivalents, and short-term investment balances from our follow-on
public offering in June 2000 by which we raised $100.4 million (including the
over-allotment option).
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date primarily through cash flows from
operations and sales of equity securities. As of December 31, 2000, we had $11.4
million of cash and cash equivalents, $102.9 million of short-term investments
and $143.5 million of working capital. Our liquidity and capital resources have
substantially increased over the past nine months due to sales of our common
stock to the public. In February 2000, we issued 1.5 million shares of common
stock in a private placement to institutional investors and received net
proceeds of approximately $25.3 million. In June 2000, we issued 2.0 million
shares of common stock through a follow-on public offering and received net
proceeds of approximately $87.2 million. In July 2000 we issued 300,000 shares
of common stock through the exercise of the over-allotment option granted to the
underwriters in connection with the follow-on public offering in June 2000 and
received net proceeds of approximately $13.2 million.
On October 25, 1999, we renewed our Master Loan Agreement. The Company
has chosen not to renew its line of credit and allowed the Master Loan Agreement
to
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expire on October 31, 2000. As of December 31, 2000, we have $725,000 in
outstanding letters of credit which are secured by our assets.
Under the original Master Loan Agreement, we had a lease line, which
subsequently converted into two separate term loans. We still have these two
term loans outstanding, which expire in March and November 2001. The term loans
bear interest at the bank's reference rate (9.5% as of December 31, 2000) plus
0.5%. As of December 31, 2000, we had borrowings of $389,000 outstanding against
the term loans. As part of the agreement, we are required to maintain various
covenants. The covenants pertain to the maintenance of financial ratios,
liquidity levels and minimum tangible net worth and prohibit the payment of
dividends.
In December 2000, we invested approximately $2.4 million in Suntek
Compound Semiconductor Co. LTD, a GaAs foundry under construction in Taiwan.
This foundry is scheduled to be in production in 18 to 24 months. We believe
this investment will assist in securing a portion of Suntek's capacity for our
use although we have not yet entered into a written agreement for the purchase
of product. If Suntek is not successful or is delayed in completing the
construction of their facility of if we do not execute a capacity purchase
agreement with Suntek, we may have difficulty in meeting our capacity
requirements and might have to write down this investment. We have accounted for
this investment on a cost basis.
We believe our current cash resources, combined with cash generated from
operations and borrowings available from our equipment leasing sources should be
sufficient to meet our liquidity requirements through at least the next fiscal
year.
RISKS, TRENDS, AND UNCERTAINTIES
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business operations.
If any of the following risks actually occur, our business, results of
operations or cash flows could be adversely affected. In those cases, the
trading price of our common stock could decline, and you may lose all or part of
your investment.
OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND WE EXPECT
THESE FLUCTUATIONS TO CONTINUE. IF OUR RESULTS ARE WORSE THAN EXPECTED, OUR
STOCK PRICE COULD FALL.
Our operating results have fluctuated in the past, and may continue to
fluctuate in the future. These fluctuations may cause our stock price to
decline. Some of the factors that may cause our operating results to fluctuate
include:
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- the timing, cancellation or delay of customer orders or
shipments;
- the mix of products that we sell;
- our ability to secure manufacturing capacity and effectively
utilize the capacity;
- the availability and cost of components;
- GaAs semiconductor component and GaAs-based subsystem failures
and associated support costs;
- variations in our manufacturing yields related to our GaAs
semiconductor components;
- the timing of our introduction of new products and the
introduction of new products by our competitors;
- market acceptance of our products;
- variations in average selling prices of our products; and
- changes in our inventory levels.
Any unfavorable changes in the factors listed above or general industry
and global economic conditions could significantly harm our business, operating
results and financial condition. For example, during fiscal 1999, a number of
our GaAs semiconductor components and GaAs-based subsystems contracts were
either terminated or delayed and our net sales declined substantially. We cannot
assure you that additional customers will not terminate contracts, that customer
orders will not be delayed, or that customers will ever reinstate orders under
contracts which have been delayed. We cannot assure you that we will be able to
achieve or maintain quarterly profitability in the future.
Due to fluctuations in our net sales and operating expenses, we believe
that period to period comparisons of our results of operations are not a good
indication of our future performance. It is possible that in some future quarter
or quarters, our operating results will be below the expectations of securities
analysts or investors. In that case, our stock price could decline.
WE MAY NOT EFFECTIVELY MANAGE POSSIBLE FUTURE GROWTH.
The wireless communication industry's rapid growth has caused our
business to expand in size and complexity at a pace we have not encountered in
the past. The recent expansion of our customer base and product line has placed
significant demands on our management and operations. In addition, our business
has shifted recently to rely more upon the commercial mobile handset and
infrastructure markets and less on the defense
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industry. Our systems, procedures or controls may not be adequate to support
these increased demands and shifts in market emphasis. We may not be able to
achieve the rapid expansion necessary to meet our current orders. For example, a
significant portion of our approximately $65 million backlog as of March 31,
2000 represents orders whose requested shipment dates have passed, some by more
than nine months. If we cannot successfully manufacture our products in the
future at volumes, yields or cost levels necessary to meet our customers' needs,
we may lose customers and our net sales will suffer. We do not know if we will
be able to manage our future growth and increasing emphasis on the mobile
handset and infrastructure markets and customers, and the failure to do so could
seriously harm our business.
OUR MANUFACTURING CAPACITY AND OUR ABILITY TO INCREASE SALES VOLUME IS DEPENDENT
ON THE SUCCESSFUL HIRING OF SUFFICIENT DESIGN, ASSEMBLY AND TEST PERSONNEL AND
OUR ABILITY TO INSTALL CRITICAL ASSEMBLY AND TEST EQUIPMENT ON A TIMELY BASIS.
Our ability to satisfy our current backlog and any additional orders we
may receive in the future will depend on our ability to successfully hire or
contract for additional design engineers, assembly and test personnel. Our
design engineers reside at our headquarters in Santa Clara, California and at
our two design centers in the United Kingdom. We contract with third parties
located primarily in Asia for many of our assembly and test requirements. Our
need to successfully hire, contract, train and manage these personnel will
intensify further if our production volumes are required to increase
significantly from expected levels. Demand for people with these skills is
intense and we cannot assure you that we will be successful in hiring and
contracting for sufficient personnel with these critical skills. Our business
has been harmed in the past by our inability to retain people with these
critical skills, and we cannot assure you that similar problems will not
reoccur. For example, in 1997 we experienced manufacturing capacity constraints
which resulted from our inability to hire a sufficient number of test personnel.
We also lost an order from a major customer in fiscal 2000 due to a shortage we
experienced in design engineers.
Our ability to increase manufacturing capacity also depends on our
ability to install additional assembly and test equipment at our Santa Clara
facility and at our Asian subcontractors' facilities on a timely basis. We rely
on third party providers of this equipment to deliver and install it on a timely
basis. If there is a delay in the delivery and installation of this equipment,
our planned increased production capacity will be reduced or delayed. This could
result in delayed or lost sales to customers, adversely affect our customer
relationships and harm our business.
OUR IN-HOUSE FOUNDRY CAPACITY IS LIMITED. IF WE ARE UNABLE TO MANUFACTURE A
SUFFICIENT NUMBER OF GAAS SEMICONDUCTOR COMPONENTS AT OUR IN-HOUSE FOUNDRY AND
THROUGH THIRD PARTY FOUNDRY RELATIONSHIPS TO MEET OUR PRODUCTION NEEDS, WE WOULD
BE UNABLE TO SATISFY CUSTOMER DEMAND FOR OUR PRODUCTS AND OUR BUSINESS WOULD
SUFFER.
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We currently operate our own foundry located in Santa Clara, California
to produce GaAs semiconductor components for sale as well as for use in our
GaAs-based subsystems products. Our foundry does not have sufficient capacity to
meet anticipated customer demand for our GaAs semiconductor components and GaAs-
based subsystems. We plan to expand the capacity of our foundry and currently
expect that the expansion will be completed during fiscal 2001. If the expansion
is not completed on a timely basis, we may not be able to meet our planned
production requirements which could result in a loss of customers and sales
which would harm our business.
Even if our planned expansion is successfully completed, our in-house
capacity will not be sufficient by itself to satisfy anticipated demand and our
growth objectives. Accordingly, in order to meet increasing customer demand, we
entered into a contract in December 2000 with a third party foundry located in
Los Angeles, California. This contract obligates us to purchase a certain level
of products in exchange for a commitment by this foundry to reserve capacity for
our use. In the event we have an unanticipated decrease in demand, this
commitment would require us to purchase products in excess of our needs or to
pay a cancellation charge. Each product submitted to this foundry for processing
must go through a qualification process. There can be no assurance that the
particular products demanded in any one quarter by our customers will be
products that have been qualified for production in the foundry. If this foundry
does not deliver to us the GaAs semiconductor components we request in a timely
manner at acceptable yields, we would not be able to satisfy customer demand for
our products on a timely basis. In addition, our use of this third party foundry
can be subject to approval by our customers. If our customers do not approve of
the use of this foundry, we may not be able to fulfill their orders for our
products.
In December 2000, we invested approximately $2.4 million in Suntek
Compound Semiconductor Co. LTD, a GaAs foundry under construction in Taiwan.
This foundry is scheduled to be in production in 18 to 24 months. We believe
this investment will assist in securing a portion of Suntek's capacity for our
use although we have not yet entered into a written agreement for the purchase
of product. If Suntek is not successful or is delayed in completing the
construction of their facility of if we do not execute a capacity purchase
agreement with Suntek, we may have difficulty in meeting our capacity
requirements and might have to write down this investment. We have accounted for
this investment on a cost basis.
We anticipate that we may have to enter into additional arrangements
with independent foundries to meet our future production requirements. We
anticipate these future arrangements may require us to enter into agreements
that may include:
- contracts that commit us to purchase specified quantities at
specified prices over extended periods;
- option payments, non-refundable deposits, loans or other
prepayments; or
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- joint ventures or other strategic partnerships with foundries.
Qualifying a new foundry can take nine months or longer. We may not be
able to make any such arrangements in a timely fashion or at all, and these
arrangements, if any, may not be favorable to us. Our increasing reliance on
third party foundries means we have less control over delivery schedules,
manufacturing yields and costs. Our relationship with outside foundries will
also require us to successfully manage and coordinate our production through
third parties over which we have limited or no control. If we are not successful
in effectively managing and coordinating our in-house manufacturing capabilities
with the independent foundries, our integrated component production could be
disrupted and fail to meet our requirements which could severely harm our
business.
THE VARIABILITY OF OUR MANUFACTURING YIELDS MAY AFFECT OUR GROSS MARGINS.
The success of our business depends largely on our ability to produce
our products efficiently through a manufacturing process that results in a large
number of usable products, or yields, from any particular production run. In the
past we have experienced significant delays in our product shipments due to
lower than expected production yields. Due to the rigid technical requirements
for our products and manufacturing processes, our production yields can be
negatively affected for a variety of reasons, some of which are beyond our
control. For instance, yields may be reduced by:
- defects in masks which are used to transfer circuit patterns
onto wafers;
- impurities in materials used;
- contamination of the manufacturing environment; and
- equipment failures.
Our manufacturing yields also vary significantly among our products due
to product complexity and the depth of our experience in manufacturing a
particular product. We cannot assure you that we will not experience problems
with our production yields in the future. Decreases in our yields can result in
substantially higher costs for our products. If we cannot maintain acceptable
yields in the future, our business, operating results and financial condition
will suffer.
WE DEPEND ON A SMALL NUMBER OF ORIGINAL EQUIPMENT MANUFACTURERS AS CUSTOMERS. IF
WE LOSE ONE OR MORE OF OUR SIGNIFICANT CUSTOMERS, OR IF PURCHASES BY ONE OF OUR
KEY CUSTOMERS DECREASE, OUR NET SALES WILL DECLINE AND OUR BUSINESS WILL BE
HARMED.
A substantial portion of our sales is derived from sales to a small
number of original equipment manufacturers. For example, in the fiscal year
ended March 31, 2000, sales to our top ten customers accounted for approximately
61% of our net sales. For the first nine months of fiscal 2001, sales to our top
ten customers increased to 72% of our net sales.
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Motorola accounted for approximately 15% of our net sales during fiscal 2000 and
approximately 16% during the first nine months of fiscal 2001. P-COM accounted
for approximately 11% of our net sales during fiscal 2000. We expect that sales
to a limited number of customers will continue to account for a large percentage
of our net sales in the future. In addition, the mix of our major customers has
shifted during the fiscal year ended March 31, 2000 to rely more upon customers
in the mobile handset and wireless communications infrastructure markets, and
less upon defense industry customers. Accordingly, our relationships with many
of our anticipated major customers have only recently been established. Our
success depends on our ability to successfully satisfy these customers' GaAs
semiconductor component and GaAs-based subsystem requirements. If we lose a
major customer or if anticipated sales to a major customer do not to
materialize, our operating results and business would be harmed. For example, in
fiscal 1999, our net sales were adversely affected when a major customer
cancelled a significant order as a result of a decline in demand for point to
point radio networks.
OUR BACKLOG MAY NOT RESULT IN SALES.
Our backlog primarily represents signed purchase orders for products due
to ship within the next year. As of December 31, 2000, our backlog was
approximately $92 million. Backlog is not necessarily indicative of future sales
as our customers may cancel or defer orders without penalty. Nevertheless, we
make a number of management decisions based on our backlog, including our
purchase of materials, hiring of personnel and other matters that may increase
our production capabilities and costs. Cancellation of pending purchase orders
or termination or reduction of purchase orders in progress could significantly
harm our business. A significant portion of our backlog as of December 31, 2000
represents orders whose requested shipment dates have passed, some by more than
nine months. We do not believe that our backlog as of any particular date is
representative of actual sales for any succeeding period, and we do not know
whether our current order backlog will necessarily lead to sales in any future
period.
Of our current backlog, approximately 16% is attributable to orders
received from one customer. If we lose this customer or any other major
customer, or if orders by a major customer were to otherwise decrease or be
delayed, including reductions due to market or competitive conditions in the
wireless communications markets or further decreases in government defense
spending, our business, operating results and financial condition would be
harmed.
WE DEPEND ON SINGLE AND LIMITED SOURCES FOR KEY COMPONENTS. IF WE LOSE ONE OR
MORE OF THESE SOURCES, DELIVERY OF OUR PRODUCTS COULD BE DELAYED OR PREVENTED
AND OUR BUSINESS COULD SUFFER.
We acquire some of the components for our existing products from single
sources, and some of the other components for our products are presently
available or acquired only from a limited number of suppliers. For example, our
single-sourced components include millimeter wave components and semiconductor
packages. In the event that any of these
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suppliers are unable to fulfill our requirements in a timely manner, we may
experience an interruption in production until we locate alternative sources of
supply. If we encounter shortages in component supply, we may be forced to
adjust our product designs and production schedules. Currently, we are
experiencing longer lead times and higher prices for some components. The
failure of one or more of our key suppliers or vendors to fulfill our orders in
a timely manner and with acceptable quality and yields could cause us to not
meet our contractual obligations, could damage our customer relationships and
could harm our business.
WE DEPEND HEAVILY ON OUR KEY MANAGERIAL AND TECHNICAL PERSONNEL. IF WE CANNOT
ATTRACT AND RETAIN PERSONS FOR OUR CRITICAL MANAGEMENT AND TECHNICAL FUNCTIONS
WE MAY BE UNABLE TO COMPETE EFFECTIVELY.
Our success depends in significant part upon the continued service of
our key technical, marketing, sales and senior management personnel and our
continuing ability to attract and retain highly qualified technical, marketing,
sales and managerial personnel. In particular, we have experienced and continue
to experience difficulty attracting and retaining qualified engineers, which has
harmed our ability to meet some GaAs-based subsystem orders in a timely manner.
Competition for these kinds of experienced personnel is intense, and we cannot
assure you that we can retain our key technical and managerial employees or that
we can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. Our failure to attract, assimilate or retain
key personnel could significantly harm our business, operating results and
financial condition.
OUR BUSINESS WILL BE HARMED IF POTENTIAL CUSTOMERS DO NOT USE GALLIUM ARSENIDE
COMPONENTS.
Silicon semiconductor technologies are the dominant process technologies
for integrated circuits and the performance of silicon integrated circuits
continues to improve. Our prospective customers may be systems designers and
manufacturers who are evaluating these silicon technologies and, in particular,
silicon germanium versus gallium arsenide integrated circuits for use in their
next generation high performance systems. Customers may be reluctant to adopt
our gallium arsenide products because of:
- unfamiliarity with designing systems with gallium arsenide
products;
- concerns related to relatively higher manufacturing costs and
lower yields; and
- uncertainties about the relative cost effectiveness of our
products compared to high performance silicon components.
In addition, potential customers may be reluctant to rely on a smaller
company like us for critical components. We cannot be certain that prospective
customers will design our products into their systems, that current customers
will continue to integrate our
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components into their systems or that gallium arsenide technology will continue
to achieve widespread market acceptance.
WE NEED TO KEEP PACE WITH RAPID PRODUCT AND PROCESS DEVELOPMENT AND
TECHNOLOGICAL CHANGES TO BE COMPETITIVE.
We compete in markets with rapidly changing technologies, evolving
industry standards and continuous improvements in products. To be competitive we
will need to continually improve our products and keep abreast of new
technology. For example, our ability to grow will depend substantially on our
ability to continue to apply our GaAs semiconductor components and GaAs-based
subsystems processing expertise to existing and emerging wireless communications
markets. New process technologies could be developed that have characteristics
that are superior to our current processes. If we are unable to develop
competitive processes or design products using new technologies, our business
and operating results will suffer. We cannot assure you that we will be able to
respond to technological advances, changes in customer requirements or changes
in regulatory requirements or industry standards. Any significant delays in our
development, introduction or shipment of products could seriously harm our
business, operating results and financial condition.
BECAUSE MANY OF OUR EXPENSES ARE FIXED, OUR EARNINGS WILL DECLINE IF WE DO NOT
MEET OUR PROJECTED SALES.
Our business requires us to invest heavily in manufacturing equipment
and a related support infrastructure that we must pay for regardless of our
level of sales. To support our manufacturing capacity we also incur costs for
maintenance and repairs and employ personnel for manufacturing and process
engineering functions. These expenses, along with depreciation costs, do not
vary greatly, if at all, as our net sales decrease. In addition, the lead time
for developing and manufacturing our products often requires us to invest in
manufacturing capacity in anticipation of future demand. If future demand does
not materialize or if our net sales decline, we may continue to incur many of
these manufacturing related costs causing our results to suffer. For instance,
during fiscal 1999, we experienced two major customer order cancellations. These
cancellations caused net sales to decline faster than our ability to reduce our
costs and contributed to our net loss for that year. If our net sales
projections are inaccurate or we experience declines in demand for our products,
we may not be able to reduce many of our costs rapidly, if at all, and our
business, operating results and financial condition may be harmed.
DECREASES IN OUR CUSTOMERS' SALES VOLUMES COULD RESULT IN DECREASES IN OUR SALES
VOLUMES.
A significant number of our products are designed to address the
specific needs of individual original equipment manufacturer customers. Where
our products are designed into an original equipment manufacturer's product, our
sales volumes depend upon the commercial success of the original equipment
manufacturer's product. Sales of our major
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customers' products can vary significantly from quarter to quarter. Accordingly,
our sales could be adversely affected by a reduction in demand for mobile
handsets and for wireless subsystem infrastructure equipment. Our operating
results have been significantly harmed in the past by the failure of anticipated
orders to be realized and by deferrals or cancellations of orders as a result of
changes in demand for our customers' products. For example, in 1999, our
operating results were adversely affected when a major customer experienced a
reduction in anticipated demand for point to point networks.
OUR PRODUCTS MAY NOT PERFORM AS DESIGNED AND MAY HAVE ERRORS OR DEFECTS THAT
COULD RESULT IN A DECREASE IN NET SALES OR LIABILITY CLAIMS AGAINST US.
Our customers establish demanding specifications for product performance
and reliability. Our standard product warranty period is one year. Problems may
occur in the future with respect to the performance and reliability of our
products in conforming to customer specifications. If these problems do occur,
we could experience increased costs, delays in or reductions, cancellations or
rescheduling of orders and shipments, product returns and discounts, and product
redesigns, any of which would have a negative impact on our business, operating
results and financial condition. In addition, errors or defects in our products
may result in legal claims that could damage our reputation and our business,
increase our expenses and impair our operating results.
THE SALES CYCLE OF OUR PRODUCTS IS LENGTHY AND THE LIFE CYCLE OF OUR PRODUCTS IS
SHORT, MAKING IT DIFFICULT TO MANAGE OUR INVENTORY EFFICIENTLY.
Most of our products are components in mobile handsets or wireless
subsystem infrastructure equipment. The sales cycle associated with our products
is typically lengthy, and can be as long as two years, due to the fact that our
customers conduct significant technical evaluations of our products before
making purchase commitments. This qualification process involves a significant
investment of time and resources from us and our customers to ensure that our
product designs are fully qualified to perform with the customers' equipment.
The qualification process may result in the cancellation or delay of anticipated
product shipments, thereby harming our operating results.
In addition, our inventory can rapidly become out of date due to the
short life cycle of the end products which incorporate our products. For
example, the life cycle of mobile handsets has been and is expected to continue
to be relatively short with models, features and functionality evolving rapidly.
In fiscal 1999, we wrote off out of date inventory when one of our customers
stopped producing the mobile handset that incorporated our power amplifier. Our
business, operating results and financial condition could be harmed by excess or
out of date inventory levels if our customers' products evolve more rapidly than
anticipated or if demand for a product does not materialize.
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INTENSE COMPETITION IN OUR INDUSTRY COULD RESULT IN THE LOSS OF CUSTOMERS OR AN
INABILITY TO ATTRACT NEW CUSTOMERS.
We compete in an intensely competitive industry and we expect our
competition to increase. A number of companies produce products that compete
with ours or could enter into competition with us. These competitors, or
potential future competitors, include ANADIGICS, Conexant Systems, CTT, EndWave,
Litton Industries, MTI (Taiwan), New Japan Radio Corporation, REMEC, RF Micro
Devices, SPC America, Telaxis, and TriQuint Semiconductor. In addition, a number
of smaller companies may introduce competing products. Many of our current and
potential competitors have significantly greater financial, technical,
manufacturing and marketing resources than we have and have achieved market
acceptance of their existing technologies. Our ability to compete successfully
depends upon a number of factors, including:
- the willingness of our customers to incorporate our products
into their products;
- product quality, performance and price;
- the effectiveness of our sales and marketing personnel;
- the ability to rapidly develop new products with desirable
features;
- the ability to produce and deliver products that meet our
customers' requested shipment dates;
- the capability to evolve as industry standards change; and
- the number and nature of our competitors.
We cannot assure you that we will be able to compete successfully with
our existing or new competitors. If we are unable to compete successfully in the
future, our business, operating results and financial condition will be harmed.
WE EXPECT OUR PRODUCTS TO EXPERIENCE RAPIDLY DECLINING AVERAGE SALES PRICES, AND
IF WE DO NOT DECREASE COSTS OR DEVELOP NEW OR ENHANCED PRODUCTS, OUR MARGINS
WILL SUFFER.
In each of the markets where we compete, average sales prices of
established products have significantly declined in the past. We anticipate that
prices will continue to decline and negatively impact our gross profit margins.
Accordingly, to remain competitive, we believe that we must continue to develop
product enhancements and new technologies that will either slow the price
declines of our products or reduce the cost of producing and delivering our
products. If we fail to do so, our results of operations would be seriously
harmed.
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WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATION WHICH COULD NEGATIVELY
IMPACT OUR BUSINESS.
We are subject to a variety of federal, state and local laws, rules and
regulations related to the discharge and disposal of toxic, volatile and other
hazardous chemicals used in our manufacturing process. Our failure to comply
with present or future regulations could result in fines being imposed on us,
suspension of our production or a cessation of our operations. The regulations
could require us to acquire significant equipment or to incur substantial other
expenses in order to comply with environmental regulations. Any past or future
failure by us to control the use of or to restrict adequately the discharge of
hazardous substances could subject us to future liabilities and could cause our
business, operating results and financial condition to suffer. In addition,
under some environmental laws and regulations we could be held financially
responsible for remedial measures if our properties are contaminated, even if we
did not cause the contamination.
A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS.
A disaster could severely damage our ability to deliver our products to
our customers. Our products depend on our ability to maintain and protect our
computer systems, which are primarily located in or near our principal
headquarters in Santa Clara, California. Santa Clara exists on or near a known
earthquake fault zone. Further, California is currently experiencing power
outages due to a shortage in the supply of power within the state, and this
could interrupt the operations of our vendors and subcontractors within the
state of California. Although the facilities in which we host our computer
systems are designed to be fault tolerant, the systems are susceptible to damage
from fire, floods, earthquakes, power loss, telecommunications failures, and
similar events. Although we maintain general business insurance against fires,
floods and some general business interruptions, there can be no assurance that
the amount of coverage will be adequate in any particular case.
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, OR IF IT WERE
DETERMINED THAT WE INFRINGED THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR
ABILITY TO COMPETE IN THE MARKET MAY BE IMPAIRED.
Our success depends in part on our ability to obtain patents, trademarks
and copyrights, maintain trade secret protection and operate our business
without infringing the intellectual property rights of other parties. Although
there are no pending lawsuits against us, from time to time we have been
notified in the past and may be notified in the future that we are infringing
another party's intellectual property rights. For example, we recently received
a letter from Rockwell International Corporation alleging that components
supplied to us by a third party were manufactured by that third party using a
process claimed in a Rockwell patent. These components were processed and tested
by us for use by us as part of our InGaP HBT power amplifiers. The letter from
Rockwell invited us to discuss a licensing assignment for Rockwell's patented
technology.
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Rockwell's patent expired in January 2000 and prior to that time we
had distributed for testing but had not sold products incorporating the third
party supplied components. We are currently reviewing this matter but do not
believe it will seriously harm our operating results or financial condition. If,
however, Rockwell files suit in connection with our use of the third party
supplied components, we cannot assure you that we will prevail. In addition,
litigation would be costly and time consuming.
In the event of any adverse determination of litigation alleging that
our products infringe the intellectual property rights of others, we may be
unable to obtain licenses on commercially reasonable terms, if at all. If we
were unable to obtain necessary licenses, we could incur substantial liabilities
and be forced to suspend manufacture of our products. Litigation arising out of
infringement claims could be costly and divert the effort of our management and
technical personnel.
In addition to patent and copyright protection, we also rely on trade
secrets, technical know-how and other unpatented proprietary information
relating to our product development and manufacturing activities. We try to
protect this information with confidentiality agreements with our employees and
other parties. We cannot be sure that these agreements will not be breached,
that we would have adequate remedies for any breach or that our trade secrets
and proprietary know-how will not otherwise become known or independently
discovered by others.
In addition, to retain our intellectual property rights we may be
required to seek legal action against infringing parties. This legal action may
be costly and may result in a negative outcome. An adverse outcome in litigation
could subject us to significant liability to third parties, could put our
patents at risk of being invalidated or narrowly interpreted and could put our
patent applications at risk of not issuing. If we are not successful in
protecting our intellectual property our business will suffer.
OUR CUSTOMERS' FAILURE TO ADHERE TO GOVERNMENTAL REGULATIONS COULD HARM OUR
BUSINESS.
A significant portion of our products are integrated into the wireless
communications subsystems of our clients. These subsystems are regulated
domestically by the Federal Communications Commission and internationally by
other government agencies. With regard to equipment in which our products are
integrated, it is typically our customers' responsibility, and not ours, to
ensure compliance with governmental regulations. Our net sales will be harmed if
our customers' products fail to comply with all applicable domestic and
international regulations.
OUR SALES TO INTERNATIONAL CUSTOMERS EXPOSE US TO RISKS WHICH MAY HARM OUR
BUSINESS.
During the first nine months of fiscal 2001, sales from international
customers accounted for 42% of our net sales. This is a substantial increase
from fiscal 2000, during
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which time sales from international customers accounted for 22% of our net
sales. We expect that international sales will continue to account for a
significant portion of our net sales in the future. In addition, many of our
domestic customers sell their products outside of the United States. These sales
expose us to a number of inherent risks, including:
- the need for export licenses;
- unexpected changes in regulatory requirements;
- tariffs and other potential trade barriers and restrictions;
- reduced protection for intellectual property rights in some
countries;
- fluctuations in foreign currency exchange rates;
- the burdens of complying with a variety of foreign laws;
- the impact of recessionary or inflationary environments in
economies outside the United States; and
- generally longer accounts receivable collection periods.
WE ARE ALSO SUBJECT TO GENERAL GEOPOLITICAL RISKS, SUCH AS
POLITICAL AND ECONOMIC INSTABILITY AND CHANGES IN DIPLOMATIC AND
TRADE RELATIONSHIPS, IN CONNECTION WITH OUR INTERNATIONAL
OPERATIONS. POTENTIAL MARKETS FOR OUR PRODUCTS EXIST IN
DEVELOPING COUNTRIES THAT MAY DEPLOY WIRELESS COMMUNICATIONS
NETWORKS. THESE COUNTRIES MAY DECLINE TO CONSTRUCT WIRELESS
COMMUNICATIONS NETWORKS, EXPERIENCE DELAYS IN THE CONSTRUCTION
OF THESE NETWORKS OR USE THE PRODUCTS OF ONE OF OUR COMPETITORS
TO CONSTRUCT THEIR NETWORKS. AS A RESULT, ANY DEMAND FOR OUR
PRODUCTS IN THESE COUNTRIES WILL BE SIMILARLY LIMITED OR
DELAYED. IF WE EXPERIENCE SIGNIFICANT DISRUPTIONS TO OUR
INTERNATIONAL SALES, OUR BUSINESS, OPERATING RESULTS AND
FINANCIAL CONDITION COULD BE HARMED.
ANTITAKEOVER PROVISIONS COULD AFFECT THE PRICE OF OUR COMMON STOCK.
The ability of our board of directors to issue preferred stock at any
time with rights preferential to those of our common stock and the presence of
our shareholder rights plan may deter or prevent a takeover attempt, including a
takeover attempt in which the potential purchaser offers to pay a per share
price greater than the current market price for our common stock. The practical
effect of these provisions is to require a party seeking control of our company
to negotiate with our board, which could delay or prevent a change in control.
These provisions could limit the price that investors might be willing to pay in
the future for our common stock.
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ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK
INTEREST RATE RISK
At March 31, 2000, our cash equivalents and short-term investments
consisted primarily of high grade fixed income securities of short-term
maturity. We maintain a strict investment policy which ensures the safety and
preservation of our invested funds by limiting default risk and reinvestment
risk. The securities held are subject to interest rate fluctuations and may
decline in value when interest rates change. However, the short-term maturity of
all securities removes any material risk, and in the opinion of management, no
material impact could result in our financial results due to these holdings.
FOREIGN CURRENCY EXCHANGE RISK
The current foreign exchange exposure in all international operations is
deemed to be immaterial since all of our net sales and the majority of
liabilities are receivable and payable in U.S. dollars. A 10% change in exchange
rates would not be material to our financial condition and results from
operations. Accordingly, we do not use derivative financial instruments to hedge
against foreign exchange exposure.
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Part II
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Number
10. Suntek Compound Semiconductor Co. LTD
B. No reports on Form 8-K were filed during the three months ended
December 31, 2000.
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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.
Celeritek, Inc.
(Registrant)
Date: February 9, 2001 /s/ MARGARET E. SMITH
--------------------------
Margaret E. Smith, Vice President,
Chief Financial Officer and
Assistant Secretary
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EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
10. Suntek Compound Semiconductor Co. LTD
27. Financials Statements included herein