GSI Technology(GSIT) - 2020 Q4 - Annual Report

Part I Business GSI Technology, a fabless semiconductor company, is transitioning from high-performance SRAM to developing and commercializing its Associative Processing Unit (APU) for AI and big data markets, while maintaining specialized SRAM production - The company's principal strategic objective is the development and commercialization of its Associative Processing Unit (APU) products for applications like similarity search in e-commerce and drug discovery[17] - GSI continues to be a leading provider of high-performance SRAMs, focusing on high-density and radiation-hardened/tolerant products for military, aerospace, and other specialized markets, despite the overall decline in the networking and telecom SRAM market[16][28] - The company utilizes a fabless business model, outsourcing wafer fabrication to partners like TSMC, which allows it to focus on research and development while minimizing capital investment[16][49] Key Customer Concentration (Fiscal Years 2018-2020) | Customer/Channel | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Nokia (End Customer) | ~38% | ~45% | ~36% | | Avnet Logistics (Distributor) | 34.3% | 31.3% | 35.3% | | Sanmina (Contract Mfr.) | 17.4% | 17.7% | 16.0% | | Flextronics (Contract Mfr.) | 14.8% | 21.8% | 14.0% | | Nexcomm (Distributor) | 15.1% | 14.8% | 16.1% | Overview and Strategy GSI's core strategy involves completing the productization of its APU for AI and big data, expanding into new markets for both APU and radiation-tolerant SRAMs, and leveraging its fabless model - The company's primary operational objective is the complete productization of its initial in-place associative computing (APU) product, which is on track for completion in calendar year 2020[40] - A key strategy is to aggressively target the Aerospace & Defense (A&D) markets for its newly qualified radiation-hardened (RadHard) and radiation-tolerant (RadTolerant) SRAMs[40] - The APU technology utilizes process-in-memory (PIM) structures to address performance bottlenecks in traditional CPUs and GPUs, aiming to significantly improve computation speed and reduce power consumption for large dataset processing[23] Products GSI offers high-speed synchronous SRAMs, including radiation-hardened variants for specialized markets, and its new Associative Processing Unit (APU) as a PCIe card for emerging computing applications - The company offers four main families of high-speed synchronous SRAMs: SyncBurst™, NBT™, SigmaQuad™, and SigmaDDR™, which form the basis for approximately 10,000 individual part numbers[29][30] - GSI has developed radiation-hardened (RadHard) and radiation-tolerant (RadTolerant) SRAMs, including 288Mb, 144Mb, and 72Mb devices from its SigmaQuad-II+ family, specifically for aerospace and military applications[37] - The new APU product is currently offered as a half-length PCIe card suitable for servers, with considerations for other form factors to expand its addressable market[26] Manufacturing and Competition GSI employs a fabless model, outsourcing manufacturing to TSMC and ASE, and competes with established SRAM providers and emerging APU developers like NVIDIA and Intel - The company outsources all SRAM wafer manufacturing to TSMC and most packaging to Advanced Semiconductor Engineering (ASE), both located in Taiwan[50][54] - The new in-place associative computing (APU) products will initially be manufactured at TSMC using 28 nanometer process technology[51] - Principal competitors for SRAM products include Cypress Semiconductor, Integrated Silicon Solution, and Micron; for the developing APU products, prospective competitors are NVIDIA Corporation and Intel Corporation[57] Intellectual Property and Employees GSI protects its technology with 85 U.S. patents, including 25 for associative computing, and employs 166 full-time staff, with 108 engineers, across its global facilities - The company holds 85 United States patents, comprising 60 memory patents and 25 associative computing patents, with over a dozen additional applications pending[61] - As of March 31, 2020, the company had 166 full-time employees, including 108 engineers. The employees are located in the US (59), Taiwan (58), and Israel (34)[63] Risk Factors The company faces significant risks including unpredictable results, heavy customer reliance, COVID-19 impacts, APU development challenges, intense competition, single-source supplier dependence, and geopolitical factors - The COVID-19 global pandemic creates uncertainty in customer demand and the worldwide economy, which may decrease sales and revenues, particularly for SRAM products, and could impact the APU product launch[78][80] - The company is heavily dependent on its largest customer, Nokia, which accounted for approximately 38% of net revenues in fiscal 2020. A reduction in purchases from Nokia would significantly harm operating results[79] - Future success is substantially dependent on the successful development and market acceptance of new in-place associative computing products, which entails significant technological, financial, and market-building risks[88][89] - The company depends on single-source suppliers for key components, most notably obtaining all wafers for its Very Fast SRAM and APU products from a single foundry, TSMC, creating significant supply chain risk[95] - As of May 31, 2020, executive officers, directors, and their affiliates beneficially owned approximately 35% of the company's outstanding common stock, allowing them to exercise substantial influence over corporate matters[138] Properties GSI's main operations are in its owned Sunnyvale facility, supplemented by leased spaces in Taiwan for manufacturing support, and smaller offices in Georgia, Texas, and Israel - The company owns its 44,277 sq. ft. principal facility in Sunnyvale, California[145] - A key manufacturing support facility of 25,250 sq. ft. is leased in Hsin Chu, Taiwan, with the lease set to expire in August 2020[145] Legal Proceedings The company reported no material legal proceedings - None[146] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities GSI's common stock trades on Nasdaq under "GSIT", with no history or plans for cash dividends, and no share repurchases in the most recent quarter - The company's common stock is traded on the Nasdaq Global Market under the symbol "GSIT"[149] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[150] - No shares were repurchased under the company's authorized stock repurchase program during the quarter ended March 31, 2020[151] Selected Financial Data This section summarizes five years of consolidated financial data, showing a net loss of $10.3 million on $43.3 million in revenues for fiscal 2020, a decline from fiscal 2019 Selected Financial Data (Fiscal Years 2018-2020) | Metric | FY 2020 (in thousands) | FY 2019 (in thousands) | FY 2018 (in thousands) | | :--- | :--- | :--- | :--- | | Net Revenues | $43,343 | $51,486 | $42,643 | | Gross Profit | $25,343 | $31,628 | $22,426 | | Loss from Operations | $(10,802) | $(182) | $(4,471) | | Net Income (Loss) | $(10,337) | $163 | $(4,515) | | Diluted EPS | $(0.45) | $0.01 | $(0.21) | | Total Assets (at year-end) | $102,561 | $106,223 | $99,540 | | Total Stockholders' Equity | $89,641 | $93,155 | $86,815 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 15.8% revenue decrease and $10.3 million net loss in fiscal 2020, driven by lower Nokia sales and increased R&D for APU, while maintaining a strong liquidity position Fiscal 2020 vs. Fiscal 2019 Results | Metric | FY 2020 | FY 2019 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $43.3M | $51.5M | -15.8% | | Gross Profit | $25.3M | $31.6M | -19.9% | | Gross Margin | 58.5% | 61.4% | -2.9 pts | | R&D Expenses | $25.2M | $21.4M | +18.1% | | Net Income (Loss) | $(10.3)M | $0.16M | N/A | - The decrease in FY2020 revenue was primarily driven by a $6.8 million decline in direct and indirect sales to Nokia, which fell from $23.1 million in FY2019 to $16.3 million in FY2020[183] - The company is devoting substantial resources to developing its new in-place associative computing products, leading to an 18.1% increase in R&D expenses in fiscal 2020[187][170] - As of March 31, 2020, the company had a strong liquidity position with $70.7 million in cash, cash equivalents, and investments, and no debt. Management believes this is sufficient to meet needs for at least the next 12 months despite COVID-19 uncertainty[160][206] Quantitative and Qualitative Disclosures About Market Risk The company faces minimal foreign currency risk due to USD-denominated transactions and limited interest rate risk on its short-term $70.7 million investment portfolio - The company has relatively little exposure to foreign currency exchange risk because revenues and most expenses are denominated in U.S. dollars. It does not currently engage in currency hedging[234] - Due to the short-term nature of its $70.7 million investment portfolio, the company believes it does not have material exposure to changes in fair value from interest rate fluctuations[236] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal years 2018-2020, including an unqualified opinion from BDO USA, LLP on both financial statements and internal controls - The independent auditor, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of March 31, 2020[239][246] Consolidated Balance Sheet Highlights (as of March 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Total Current Assets | $79,113 | | Cash and cash equivalents | $51,506 | | Total Assets | $102,561 | | Total Current Liabilities | $8,260 | | Total Liabilities | $12,920 | | Total Stockholders' Equity | $89,641 | Consolidated Statement of Operations (Year Ended March 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Net Revenues | $43,343 | | Gross Profit | $25,343 | | Loss from Operations | $(10,802) | | Net Loss | $(10,337) | Notes to Consolidated Financial Statements The notes detail significant accounting policies, including new standard adoptions, customer concentration, tax provisions, MikaMonu acquisition earnouts, stock-based compensation, and confirm single-segment operations - The company adopted ASC 606 (Revenue from Contracts with Customers) in fiscal 2019 and ASC 842 (Leases) in fiscal 2020[279][310] - Due to a cumulative three-year loss, the company recorded a full valuation allowance of $9.4 million against its net deferred tax assets as of March 31, 2020[293][338] - In connection with the MikaMonu acquisition, the company may be required to make future earnout payments, including $2.8 million and $4.0 million if revenue milestones are met by Jan 2021 and Jan 2022 respectively, and up to a maximum of $30.0 million based on a percentage of future product revenues through 2025[403] - As of March 31, 2020, the company had $4.8 million of total unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 1.90 years[393] Controls and Procedures Management and BDO USA, LLP concluded that the company's disclosure controls and internal control over financial reporting were effective as of March 31, 2020, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[410] - Management assessed internal control over financial reporting using the COSO framework and concluded it was effective as of March 31, 2020. This was audited and confirmed by BDO USA, LLP[415][416] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership Information for Items 10-14, covering governance, compensation, and security ownership, is incorporated by reference from the company's forthcoming 2020 proxy statement - Information for Part III (Items 10-14) is incorporated by reference from the company's definitive proxy statement for its 2020 annual meeting of stockholders[420] Part IV Exhibits and Financial Statement Schedules This section provides a comprehensive list of all exhibits and financial statement schedules filed with the Form 10-K, including corporate documents, equity plans, and certifications - This section contains the list of all financial statements, schedules, and exhibits filed with the Form 10-K[428] - Filed exhibits include key corporate documents, equity compensation plans (2007, 2016), the 2015 MikaMonu stock purchase agreement, and CEO/CFO certifications[431][432]