Avago Technologies Limited Announces First Quarter Fiscal Year 2010 Financial Results

Avago Technologies Limited (Nasdaq: AVGO), a leading designer, developer and global supplier of a broad range of analog semiconductor devices with a focus on III-V based products, today reported financial results for its first quarter fiscal year 2010, ended January 31, 2010, and provided guidance for the second quarter fiscal year 2010.

First Quarter Fiscal Year 2010 GAAP Results

Net revenue was $456 million, an increase of 7 percent compared with the previous quarter, and up 24 percent from the same quarter last year.

Gross margin was $194 million, or 42.5 percent of net revenue. First quarter gross margin compares with gross margin of $178 million, or 41.6 percent of net revenue last quarter, and gross margin of $143 million, or 38.9 percent of net revenue in the same quarter last year.

First quarter net income was $38 million, or $0.16 per diluted share. This result includes a $24 million loss on extinguishment of debt. This compares with a net loss of $21 million, or ($0.09) per diluted share last quarter, and net income of $6 million, or $0.03 per diluted share in the same quarter last year.

The Company's cash balance at the end of the first quarter was $144 million, compared to $472 million at the end of the prior quarter. Changes in cash over the quarter include $41 million of cash generated from operations and $364 million used to redeem a significant portion of the Company's debt in December 2009.

First Quarter Fiscal Year 2010 Non-GAAP Results

Gross margin was $209 million, or 45.8 percent of net revenue. This compares with gross margin of $192 million, or 44.9 percent of net revenue last quarter, and gross margin of $164 million, or 44.6 percent of net revenue in the same quarter last year.

Net income was $88 million, or $0.36 per diluted share. This compares with net income of $72 million, or $0.29 per diluted share last quarter, and net income of $37 million, or $0.17 per diluted share in the same quarter last year.

Adjusted EBITDA, as defined in the indenture governing the Company's remaining outstanding debt securities, was $122 million, compared with $111 million last quarter and $81 million in the same quarter last year.

"Our business continued to stage a significant recovery in the first quarter of fiscal 2010, offsetting the typical seasonality that otherwise exists in our wireless and consumer target markets," said Hock Tan, President and CEO of Avago Technologies Limited. "This was driven by inventory replenishment in the supply chain and increased market acceptance of new products in several of our target markets."

Other Quarterly Data

Second Quarter Fiscal Year 2010 Business Outlook

Based on current business trends, the outlook for the second fiscal quarter of 2010, ending May 2, 2010, is expected to be as follows:

Reconciling items include $15 million of amortization of acquisition-related intangibles and $1 million of share-based compensation expenses at the Gross Margin line and $5 million of amortization of acquisition-related intangibles and $5 million of share-based compensation expenses at the Operating Expenses line.

Capital expenditures are expected to be in the range of $15 million to $20 million. Depreciation and amortization are both expected to be approximately $20 million in the second quarter.

In February 2010, the Malaysian government granted us a tax holiday on our qualifying Malaysian income, which is effective for a 10-year period beginning in our fiscal year 2009. However, as a result of receiving this tax incentive, we will be unable to use, and will need to write down in the second quarter of fiscal year 2010, deferred tax assets of $6 million that we previously recorded for this jurisdiction.

The guidance provided above is only an estimate of what the Company believes is realizable as of the date of this release. Actual results will vary from the guidance and the variations may be material. We undertake no intent or obligation to publicly update or revise any of these projections, whether as a result of new information, future events or otherwise, except as required by law.

Avago will be presenting at Morgan Stanley's Technology Conference in San Francisco on March 1, 2010 and at Jefferies' Technology Conference in New York on March 10, 2010. Both of these presentations will be webcast and available for replay on the Investors section of Avago's website.

Financial Results Conference Call

Avago Technologies Limited will host a conference call to review its financial results for the first quarter fiscal year 2010, and to provide guidance for the second quarter of fiscal year 2010, today at 2:00 p.m. Pacific Time. Those wishing to access the call should dial 800-638-4817; International 617-614-3943. The passcode is 51632434. A replay of the call will be available through March 3, 2010. To access the replay dial 888-286-8010; International 617-801-6888 and reference the passcode: 54035168. A webcast of the conference call will be available in the Investors section of Avago's website at www.avagotech.com.

Non-GAAP Financial Measures

In addition to GAAP reporting, Avago reports net income or loss, as well as gross margin and operating expenses, on a non-GAAP basis. This non-GAAP earnings information excludes amortization of acquisition-related intangibles, share-based compensation expense, asset impairment charges, restructuring charges, acquired in-process research and development, debt extinguishment (gains) losses, selling shareholder expenses, and the results of discontinued operations. In addition, Avago also discloses Adjusted EBITDA as measured by the indenture governing our outstanding debt securities. Avago believes this non-GAAP earnings information provides additional insight into the Company's on-going performance and has therefore chosen to provide this information to investors for a more consistent basis of comparison and to emphasize the results of on-going operations. These historical non-GAAP measures are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP net income (loss) and a derivation of Adjusted EBITDA in accordance with the indenture governing its outstanding debt securities are included in the financial tables attached to this press release.