MIPS Beats, Yet In Red - Analyst Blog

MIPS Technologies, Inc. (MIPS) has reported first-quarter 2013 loss of 4 cents per share, better than the Zacks Consensus Estimate of 7 cents loss per share. The adjusted earnings per share exclude one-time items, but include stock-based compensation expense.

Revenue

Revenue of $13.9 million was down 63.8% sequentially and 19.2% year over year. Around 75.1% of first quarter revenue came from royalties and the remaining 24.9% came from licensing business.

Royalty revenue in the first quarter was $10.5 million versus $10.6 million in the prior quarter. The royalty per unit was $0.058 compared to $0.06 in the fourth quarter. The decrease in royalty per unit was due to decrease in certain customers average selling prices.

License revenues were $3.4 million in the first quarter compared to $27.8 million in the fourth quarter.

Management expects increasing unit growth in networking, especially in wireless LAN which is a major contributor to royalty unit growth.

Margins

Reported gross margin for the quarter was 97.4%, down 110 basis points (bps) year over year. A favorable mix led to higher gross margin in the quarter.

Operating expenses of $18.3 million increased 14.4% year over year. The reported operating margin decreased significantly from the year-ago quarter. All three, R&D, S&M, and G&A expenses increased as a percentage of sales from the year-ago quarter. Moreover, lower gross margins led to the decrease in the operating margin.

The quarter's GAAP net loss was $4.3 million or loss per share of 8 cents, down from a net income of $0.52 million or 1 cent earned in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net loss was $2.3 million or loss per share of 4 cents compared with net income of $1.1 million or earnings of 2 cents a share in the year-ago quarter.

Balance Sheet

The company has a fairly strong balance sheet, with cash and cash equivalents, and marketable securities of $130.3 million, up from $110.8 million in the prior quarter. Trade receivables were $2.6 million, down from $27.0 million in the prior quarter.

Cash flow from operations was $19.6 million versus ($2.6) million in the year-ago quarter. Capex was $0.6 million versus $0.4 million in the year-ago quarter.

Conclusion

MIPS Technologies, Inc. provides industry-standard processor architectures and cores for home entertainment, networking, mobile, and embedded applications. Though the company reported a disappointing quarter, it surpassed our earnings expectations.

In the quarter, the company performed poorly with both its royalties and licensing revenue decreasing from the prior quarter. Though the management remains bullish about its new products, absence of guidance implies lack of clarity on MIP's patents.

However, we remain optimistic about the company's decision to see potential strategic alternatives ranging from long-term licensing of its patent portfolio with key customers, the sale of key patents, and sale of the entire company.

The company faces stiff competition, particularly from ARM Holdings plc (ARMH), IBM Microelectronics and Intel Corporation (INTC).

Currently, MIPS Technologies has a Zacks #3 Rank, implying a short-term Hold recommendation.