NLST - Earnings call transcript Q3 2019

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Operator

Good day. And welcome to the Netlist Third Quarter 2019 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions]

is event this note being recorded. Please now Mike Smargiassi, would like to to over conference the Investor turn I Relations. Please go ahead.

Mike Smargiassi

will call. Thank everyone. you, and today’s Gail conference Financial of Welcome day, Hong, call Leading to Netlist Sasaki, Executive Sarah, third quarter Netlist; and Officer be Chuck good Officer. Chief Chief XXXX

the website and accessed a reminder, Investors section at the on of of today’s a As Netlist replay earnings release the netlist.com. be call can

of Netlist note we are the the results in the to update The of statements Netlist I differ today’s Before projected and SEC that include and obligation filings, uncertainties in press based which from assumes could materially cautionary no expectations. and statements. forward-looking and number would to statements, that are may contained statements start current questions actual release current answers of results the the those presentation because today. call, in forward-looking on risks the the forward-looking expressed call, annual

turn I would now like the call to Chuck. over to

Chuck Hong

last key hello, significant number a Thanks, Mike, in progress Since of made have call everyone. we areas. and the

First, financial and both for bottomline. performance sequentially the improved revenue

support of in we JEDEC publication Second, of specifications the NVDIMM-H. to HybriDIMM latest headway commercialization announced DIMM as made the further

NVMe broaden an X provider. validation OEM major we initial a SSDs and production market Third, for at the services Netlist’s cloud received with products a Tier order from

from which in essential milestone ITC, memory significant recent IP determination standard on server campaign initial company’s Hynix Netlist’s a patent. the reached we Fourth, that the infringes the LRDIMM the favorable found SK with

received SK-Hynix. a second to or Commission initial news ITC from States in company’s the regards Turning on ID action International first XXst United determination ITC, recent of against to we Trade October notice the from the the

Netlist validity not and outcome as that We are determinations met defeating violated and for standards to domestic as JEDEC implementers patent, received we to standards its had industry. Netlist’s the of pleased SK-Hynix obligations XXX as contentions infringement as had Rand the with well of positive very the the

facing of an for importation LRDIMM dollars Netlist This Tariff major billions XXX for Section’s the a XXXX. sale on was into of order win States and of exclusion who violation be the of of United annually of Act the may in products sale, against SK-Hynix, importation

avenues that The does this RDIMM the Without products which found have the however, in knowing will reasons second ID for determine the that not in ID access document, XXX, decision. yet decision Netlist able pursue/appeal the full in the and by to case, commission. we the this be the we Once patent the invalid full weeks, benefit consultation to this receive for counsel, outside coming with covers to of un-infringed.

incorrect. ITC of are the the findings entire procedure, ID. of for they the is Both believe review will parties review to of then decide petition now Commission Commissioners. As whether to ITC by any subject part ID review the portions can The or

issued issues the in of which be by will affirm, on Commission XXXX. under the review or ID Once conclusions the have a the under These be briefed, is scheduled the XX, portions set may contained determination, February review. modify final Commission aside to been

continues final by arguments of The the both appeal of first at parties will the early multi-prong campaign SK-Hynix Appeals, hear of as against Circuit next the they oral Federal action. ITC Netlist’s and Court month determination

Federal ITC the and against the final of patents, XXX first for XXX, XXX and both a determination path us Netlist’s places a potential determinative to validity Circuit to with on infringement case regards SK-Hynix. of potential overturn This ruling from a the and

from which In an U.S. of the Netlist the the important the its notice before improve the of patent, issue for year. continues RDIMM received patent meantime, to end recently and will issuance PTO portfolio

shipment volume groundwork booked company. order we side, lays to cloud in quarter over the order product SSDs believe major of future We volumes the Netlist during in the services NVMe regards to sales, moving product for first significant this Now with of the fourth production a XXXX.

Tier We our for and and completed X had In to enterprise product OEM. in a also powerful is NVMe significant the benchmarked a performance of data Netlist’s best-in-class the other performance end we testing endorsement recently SSDs. center SSDs this OEM, with latency validation against results and markets. process when users This bring high the leading value

on a there this front We be And major further validate will partnering news the our proliferate CPU solutions with in coming vendor also are to their and SSD on platform. weeks.

which for DIMMs, expand We base Netlist’s at resale to quarter-over-quarter. also in customer consecutively, grow XX% specialty continue the

October’s Although, based we and growth product product sales both revenue, in don’t margins. meaningful on guide activity, estimate we gross

both we HybriDIMM. our to develop HybriDIMM, a progress on of and an for standard The and to for standardization in standard commercialization product September framework publication a are making ecosystem of provides components users solid NVDIMM-H and broad necessary industry base suppliers JEDEC of campaign. Turning healthy

are major Memorandum the Such market. bring resources AISC as HybriDIMM, for as well third discussions Understanding HybriDIMM the a partners create company a controller. would with potential ASIC of company semiconductor continuing, major path drive chipset for to solution other the to under of our partnership implementation for semiconductor to parties of well Discussions with bring the as a a as the

call review. over turn I for to financial the Gail the will now

Gail Sasaki

quarter line XXXX erosion $X.X a related were Revenues of the of quarter. September pricing The rest basis, directly industry. improvement decrease versus server see expected, revenues the XX, period. ago DRAM as quarter the the the compared in $X.X year But and Chuck. year-over-year we to with on did million we in topline to worldwide in sequential modest million, topline was for for Thanks, million $X.X ended XXXX the previous the third quarter,

is product quarter quarter. before manufacturing X.X% for for After for gross percentage, the XX.X% net cost, margins Third which previous quarter X.X% the current gross XX.X%, to costs, XXXX manufacturing was compared last profit and quarter. the were year’s

third as quarter improvement of mix improvement we quarter, current fourth we and And product indicated earlier, gross anticipate the although, well don’t the to last compared bookings, pace in as Chuck as to in margin compared percentage guide, the quarter. given revenues

legal XX%, as declined Operating the down the million $X.X by period. from expenses expenses quarter, were ago year-to-year XX% during year third

decreases in legal quarters. additional future expect expense the in We

ended quarter million, of paid and of the We cash quarter, net $X.X for litigation with change end of during out restricted cash quarter. to cash second the cash compared with million million and the and the at $X.X $X $XXX,XXX, costs equivalents

purchase during quarter-to-date during entered We $X.X raised quarter approximately June we million the into third of agreement another this $X.X million the and during the under equity $XX million year.

in to decrease days a inventory, manage continue the cash days proactively year-over-year. also cycle, of includes XX improvement which We operational

million credit to of and providing accounts Bank, In borrowing Silicon support with addition, capital line working we up working have of accessibility to Valley growth. of $X eligible XX% capital to revenue a receivable

we are for now Operator, ready questions.

Operator

question Suji Please Desilva first Our [Operator from with Capital. Instructions] go ROTH comes ahead.

Suji Desilva

industry things Gail. memory impact few Hi, the in and on memory of are revenue if the it there’s Seems or the on quarters lag you I that firming opportunity right what’s next maybe be away, product dynamic Chuck. Hi, Thanks. side? the progress wondering all guys here. to Congratulations the the for is NAND a DRAM firms industry even up? effect as what for whether the but you is am up, you see about Maybe talk supply/demand can the

Chuck Hong

in the the of as ASP the We marketplace. supply a saw this that Yeah. in of in result half declines revenues Thanks, came excess overall the year, declined the about Suji. first with

are things noted, you As up. firming

to starting, but of the are up in in decline see -- it back certainly, number pricing to starting We this pick up code as well. has in pick up And quarter activity, starting a dissipate. gone and to transactions hasn’t

this for customers the -- are efforts across starting we of our overall, of And to labor design many our starting see us, the now to wins are proliferate fruits some quarter. SSDs

order a expect ongoing major the OEM expect be -- major cloud we meaningful quarter first to that to the mentioned, with from I this this through a those rest vendor month, continue with next a that we and production As the of booked or orders customers. year we and

Suji Desilva

was Okay. customer, customer. SSD cloud about the second question Chuck. Great, the My

of is of opportunity customer part would multi-source of tell socket, long for you you that’s XXXX those for of a in the you qualification size and the think sort presume, timeframe perhaps? are me that how the typically? how And And correct? So cycle about I once not for that kind we if customers but

Chuck Hong

The cycle long. is -- has been qualification

that -- vendor cloud uses OEM have a particular We major server platform.

OEM And major so had the at and application we do rack the qualified level testing then at get to vendor. cloud

So months in six to total was about nine it qualification. probably of months

cloud we we to it decent year. $XX are LOI. that will the vendor in letter increase our volumes that volume, intent receive in, the hope set between product $X with anywhere of million we of go for and of customer. next out that through from But weeks that beyond that a recent to And be think that supply million a Now we course of in did that share locked

Suji Desilva

multi-sourced for SSDs… Okay. Great. these And you are

Chuck Hong

Yeah. Yeah. Yes.

will -- we random that We better sequential SSDs that than performance the other seen and our of one -- sequential we is receive. competitor is competition socket. feedback But read-writes are, what is have we there in our the that have

we that pretty feel we So are good about with where customer.

Suji Desilva

I like like on And to How the does standards already about implement Were motion ready get the long kind snap guess, Okay. ecosystem ratified? that to they then ready or does NVDIMM-H does When -- that have systems parts my to ratified. of now software… into take was HybriDIMM to their just of and that already start questions in in kind this? the got, other that feel it’s ecosystem it’s NVDIMM-H

Chuck Hong

to clarify, So, it ratified. hasn’t been Suji,

Suji Desilva

Okay.

Chuck Hong

do certain a last steps which bytes server, get months, recognize what presence memory detect a a module the happens So here is CPU number set an will the so nine have aside that to a what in is, setting of first be serial done to to SPD, meaning as are over NVDIMM-H. able the we to

finite -- CPU. of reserved space there in because through to difficult we it’s JEDEC, that So doing bytes available very the is the from a it’s our SPD number itself do and

So have that. we done

We are now on the out working protocol. finishing

get XX finished group the the Once that that its which which And we full members. then committee to of work, go task it will some companies about odd other today a group we chair, couple as ratification. done within expect has task to items for has

So that for to of more that. few -- here a going all it’s quarters take

this standard working ASIC. quarters three well we but be the way meantime, will finalized in standard, take as to it our But the getting development we couple will happen. another all a are it In will on on of

Suji Desilva

helpful discussed balance been used or equity last that The investor at you that’s sheet. something million possibly for that that of the perhaps question Gail upsize Would color. with $XX is already Okay. on then, considered or point? that. agreement have million you That’s And this particular partner $X.X

Gail Sasaki

this about no any that have Suji at point this Yeah. raised fifth to and considered we increase We at actually point. not

Suji Desilva

progress. the on it. Got congratulations All Thanks right.

Chuck Hong

Suji. Thanks Yeah.

Gail Sasaki

Suji. Thanks

Operator

The from comes next Please ahead. with Craig-Hallum. Richard question Shannon go

Richard Shannon

Chuck thanks well. taking for my and questions as Gail,

me one guys on was you either NVMe and by May orders follow-up you the talked qualifications from of SSDs you or can I driven a production compendium far see cloud so when through you Let engagements the OEM. or order be your through talk if mentioned, some cloud here, customer, OEMs might other think, either an success, whatever? about

Chuck Hong

a size the received So was that order. meaningful order we

million So, $ of about I we think, decent margins. at SSD will see new sales this quarter starting worth

are order are services that get we that shipping -- major we -- those other where X through to vendor, to Tier expect cloud the caliber X the cloud qualification dollars being there this Tier OEM is that And a -- fulfilled is to then in through OEM. vendors ship which we So to is that quarter. starting within of the that is of services

we other NVMe SSDs. shipping OEMs, are are There volume that are -- two this dollar for where There probably, others, the smaller quarter. within other

continue of get expect out that we ramp have starting odd the year. So, to some XX to meaningful through orders some of now that and next course -- achieved ramp to to-date, purchase we qualifications are we

Richard Shannon

as getting Fair Okay. up and But qualified assume but whatever. would had XXXX the me may but I you Board I this if look I for that you can like size think quarters, the it. you Chuck, TAM in what have ramping are, do this see -- market products across the for qualifications, you just everyone enough. that, let do obviously, know hear you think, What for next are you year? ask past asked so again,

Chuck Hong

market our TAM that So, what or in which Richard, are you the the shipping would for mean into portion be? of we segment

Richard Shannon

The total TAM.

Chuck Hong

NVMe to total SSDs. We think the so are TAM, these specific, be

So NVMe factor length. SSDs products half the the describes The the meaning add interface that’s AIC, our are form for of in HHHL height, protocol. card, half

that in. So that is niche are the playing we

of market have you current which dollars is, product probably a have. which believe SKUs. various to line will We products, several the got another a M.X, And product factor. hundred AIC the probably, later on annually form a we bring bringing dollars are probably We hundred second is capacity, then half so that line dozen year. for this M.X the million It’s for million several market that

Richard Shannon

of to maybe one be early a And execute of implied kind you there or what is share if following in on gather could could Suji’s at questions you kind at up the Okay. year getting like and here well? think terminal might questions that earlier two you of you continue of here, least share a stages

Chuck Hong

are we terms in the in think targeting that’s conservative. of teens I relatively share low market

SSDs. the end in the life are either there many deemphasized particular them factor NVMe these of have gone or vendors of have but As major space, of form

I become the for us category terms market. low of would teens in of to share -- But be have NVMe is a will category. growing largest as a interface reasonable probably and target think rapidly category

Richard Shannon

Okay. quarter kind ASIC in an the optimistic and and timeframe moving maybe tested? HybriDIMM, talked of qualified be an full That’s by which the you or catalysts a to What fair And MoU restrictions of in ready jumping be of to ongoing. over or along could enough. are you to what way still are here? Chuck its last would the partner field obstacles an the discussions about agreement kind have said

Chuck Hong

have is, those a I Well, but couple a that MoU, to do And not, over agreement kind as an can potential partners. got that next will the two areas. look have got of we different partners with I close of will we we partners. potential where at One we three think, of One of think, have where at we be -- look able a we one trying close couple couple we to months. one

been done doing a obstacle technical has of I that, lot And the to that. think, there on diligence

we through. economic becomes matter -- a negotiation it well step it’s So we It’s the got are now a basically on have just that’s our and of that way. process to terms

is good months. controller a the that that will JEDEC will done, XX have will embark take ASIC parallel, once working on us this on the of And we will parties been design of and And finalized. module the XX months a be version standard that time, will the probably or In -- including design. ASIC by to

XX now a on is, we with there to some noted them many I of this As we task -- started major are up handful and of being members, XX group. members companies users this NVDIMM-H

the formed So sale product able believe the have shipping will we will once is start to been and we product. available be ecosystem to

Richard Shannon

Okay.

fourth of you -- in all the growth incremental get Last That’s kind us I from for is SSDs. think Gail can Any the are entirely margins. margin I quarter probably, quarter? for from coming are sense expect this expecting growth what this you of a there. what the to on is coming sense gross NVMe helpful. assuming me, we give am on you question you expecting that here

Gail Sasaki

it’s wouldn’t SSDs. completely say that from NVMe Yeah. Sure. I

growth and margins would We But product increase in quarters. resale the the looking about DIMM areas gross at between some conservatively I well. have think in margin as XX% the be a from we specialty the probably seen

Richard Shannon

That’s to guys. much, Okay. you know. need all Thank very I

Chuck Hong

Okay.

Gail Sasaki

Thanks, Richard.

Operator

conference concludes you This presentation. concluded. The session. Thank is for today’s attending our now question-and-answer

now disconnect. may You

Netlist (NLST) 4 Nov 192019 Q3 Earnings call transcript