GSI Technology(GSIT) - 2024 Q4 - Annual Report

PART I Item 1. Business GSI Technology focuses on AI and HPC associative computing solutions and synchronous SRAMs, experiencing a 27% net revenue decrease in FY2024 while pursuing APU2 development and strategic alternatives Overview GSI Technology focuses on in-place associative computing solutions for AI and HPC markets (natural language processing, computer vision) with its APU products, while also providing high-speed synchronous SRAMs for networking, telecom, military/defense, and aerospace - GSI Technology focuses on in-place associative computing solutions for AI and HPC markets (natural language processing, computer vision) with its APU products, while also providing high-speed synchronous SRAMs for networking, telecom, military/defense, and aerospace[11][12] - The company operates a fabless business model, concentrating resources on R&D, product design, and marketing, leveraging advanced process technologies with minimal capital investment[13] Fiscal Year 2024 Financial Performance | Metric | FY2024 vs FY2023 Change | | :----- | :---------------------- | | Net Revenue | -27% | | Gross Margin | -5.3% | - GSI secured a prototype agreement with the Space Development Agency (SDA) in June 2023 for Next-Generation APU2 development, receiving $297,000 in Q3 2023 and $138,000 in Q4 2023 out of an estimated $1.25 million[17] - In January 2024, AFWERX awarded GSI an SBIR Direct-to-Phase II contract of $1.1 million to develop specialized algorithms for its Gemini® APU2 for U.S. Air Force AI applications, with no payments received as of March 31, 2024[18] - The Gemini-I APU is in full production, with a software stack that accelerates development and allows for API optimization[19] - The second-generation Gemini-II silicon was taped-out at the end of calendar 2023, aiming for market release by the end of calendar 2024 with improved performance[20] Recent Developments GSI secured APU2 development agreements with SDA and AFWERX, completed a headquarters sale/leaseback, and is exploring strategic alternatives Sale/Leaseback of Headquarters GSI sold its Sunnyvale headquarters for $11.65 million in April 2024, leasing it back for 10 years to enhance financial flexibility - In April 2024, GSI entered an agreement to sell its Sunnyvale headquarters for $11.65 million cash, with the closing and a 10-year leaseback (with two 5-year renewal options) occurring in June 2024[24] - The initial base rent is approximately $90,768 per month[24] Exploring Strategic Alternatives GSI initiated a strategic review in May 2024 to maximize stockholder value, considering financing, asset divestiture, licensing, or a company sale - In May 2024, GSI announced a strategic review to maximize stockholder value, considering options such as equity/debt financing, asset divestiture, technology licensing, or a company sale, with Needham & Company, LLC as advisor[25] Industry and Market Strategy GSI's strategy involves commercializing APU solutions in high-growth AI and HPC markets while maintaining its SRAM business, focusing on performance, innovation, and strategic partnerships Associative Processing Unit Computing Market Overview The APU market is projected for significant growth, driven by AI processing demands that expose limitations in traditional CPU/GPU systems, where GSI's APU offers superior performance APU Search Market Projections | Metric | 2024 (Estimated) | 2027 (Projected) | CAGR (2024-2027) | | :----- | :--------------- | :--------------- | :--------------- | | Total Addressable Market (TAM) | ~$232 billion | ~$380 billion | 13% | | Serviceable Available Market (SAM) | ~$7.1 billion | ~$12.8 billion | 16% | - The growth in demand for associative processing computing solutions is driven by increasing AI processing of large data collections, which is exposing limitations of traditional GPU/CPU farms in speed, energy consumption, and handling complex workloads at the edge[27] - GSI's APU outperforms CPUs and GPUs in AI search for large datasets by offering lower latency, increased capacity, smaller form-factor, and lower power consumption, due to its memory line structure (flexible word size) and associative, multi-threaded processing capabilities[28][29] - Commercialization efforts for APU focus on markets where it offers significant improvement, such as similarity search, multi-modal vector search, real-time large database search, and scientific HPC workloads[30] - This includes AI applications like approximate nearest neighbor searches, natural language processing, cryptography, and synthetic aperture radar[32] New Markets for the APU The APU's real-time processing capabilities enable new markets in SAR, image re-registration, and mathematical SSIM, including radiation-tolerant space applications and NLP enhancements - The APU's real-time processing capabilities open new markets in SAR, image re-registration, and mathematical SSIM, enabling edge applications like in-asset aircraft reconnaissance, satellite image processing, and autonomous automotive navigation[33] - GSI's expertise in radiation-tolerant components creates opportunities for AI products in low earth orbit and space applications, where other AI products cannot survive[33] - APU technology can be applied to natural language processing applications like ChatGPT to reduce hallucinations through focused retrieval augmented generation, improving speed and accuracy[34] - For smaller footprint applications, GSI plans to license its APU IP to companies with chip design capabilities and provide design services for integration into custom products[35] APU Board Level Product The Gemini-I APU is available as full-size PCIe and 1U E1.L cards, enabling dense compute appliances and compact edge applications without a host PC - The Gemini-I APU is available as full-size PCIe (Leda-E) and 1U E1.L (Leda-S) cards, enabling dense APU compute appliances[36] - Server offerings include 8 Leda-E cards in a 2U server (10 POPs Boolean) and 16 Leda-S cards in a 1U server (15 POPs Boolean)[36] - The single Leda-S card can be used without a host PC for compact edge applications like quad-copters, location/object recognition, and GPS-denied alternate routing[36] APU SaaS Product GSI offers APU as-a-service via AWS Cognito for packaged or custom APU-accelerated applications, including ANN, multi-modal extensions for OpenSearch, and SAR processing - GSI offers APU as-a-service, accessible via AWS Cognito for packaged or custom APU-accelerated applications[37] - This service provides ANN and multi-modal extension capability to OpenSearch users and supports high-volume searches for custom search engines[38] - SAR processing is also offered as a SaaS product for mapping and analysis services to enhance scalability, speed, and product offerings[38] APU Commercialization Risk Commercialization of APU products has been slower than anticipated, risking insufficient revenue to offset development costs and potential intangible asset impairment - Commercialization of APU products has been slower than anticipated, primarily remaining in research and academic areas[39] - Failure to materially commercialize APU products could lead to insufficient revenue to offset development costs, negatively impacting business and potentially resulting in intangible asset impairment[39] High-Speed Synchronous SRAM Market Overview Demand for high-speed synchronous SRAMs is shifting from networking to military/defense and aerospace, where GSI is well-positioned with high-density, radiation-tolerant products - Demand for high-speed synchronous SRAMs in networking and telecom is declining due to increased on-chip SRAM integration[40] - Growth is now driven by military/defense and aerospace, which require high densities and transaction rates, a segment GSI is well-positioned to serve with monolithic 288Mb densities and 1866 MT/s transaction rates[40] - GSI is focusing on qualifying products for space/satellite applications to capitalize on opportunities in near-earth orbiting satellite mega constellations and traditional geo-stationary platforms[40] High-Speed Synchronous SRAM Products GSI offers four families of high-speed synchronous SRAMs with approximately 10,000 part numbers, including radiation-hardened versions for military, defense, and aerospace applications - GSI offers four families of high-speed synchronous SRAMs (SyncBurst™, NBT™, SigmaQuad™, and SigmaDDR™) with approximately 10,000 individual part numbers, featuring high density, transaction rate, bandwidth, low latency, and low power consumption[41] - Products are sold to OEMs for networking, telecom, military/defense, aerospace (radar, guidance systems, satellites), test and measurement, high-performance computing, and medical applications (ultrasound, CAT scan)[41] - GSI has introduced radiation-hardened (RadHard) and radiation-tolerant (RadTolerant) SRAMs (288Mb, 144Mb, 72Mb SigmaQuad-II+; 144Mb, 72Mb, 32Mb SyncBurst and NBT) for military/defense and aerospace, including space/satellite applications, with special fabrication processes to diminish radiation effects[42][44] SRAM Leadership in the High Performance Memory Market GSI aims for SRAM market leadership through product performance, innovation, a broad portfolio, master die methodology for rapid fulfillment, and customer responsiveness - GSI aims for SRAM market leadership through product performance, innovation (highest density RadHard SRAM), a broad portfolio, master die methodology for rapid fulfillment, and customer responsiveness[45] Business Transformation Strategy GSI's strategy is to market new in-place associative computing technology in high-growth markets while increasing its share of the external SRAM market - GSI's strategy is to market new in-place associative computing technology in high-growth markets while increasing its share of the external SRAM market[45][46] - Key elements include product performance leadership, innovation, a broad product portfolio, master die methodology, and customer responsiveness[46] - Strategic objectives include completing productization of initial in-place associative computing products, developing new differentiated APU markets (AI, HPC, natural language processing, computer vision, cybersecurity, similarity search), and rapidly increasing sales of RadHard and RadTolerant SRAMs in military/defense and aerospace[46] - The company also plans to expand SRAM sales in military, industrial, test, and medical markets, collaborate with TSMC for advanced process technologies, and seek new market opportunities through acquisitions or strategic partnerships[46][52] Customers GSI targets AI and HPC markets for associative computing and network/telecom OEMs and military/defense for SRAMs, with Nokia being the largest customer - For associative computing solutions, GSI targets AI and HPC markets, focusing on natural language processing, computer vision, synthetic aperture radar, and similarity search acceleration in fast vector search and real-time mobile aerospace/defense applications[49] - In the SRAM market, sales focus on network/telecom OEMs and military/defense/aerospace with radiation-hardened and radiation-tolerant products[50] - Nokia was the largest customer in FY2024, FY2023, and FY2022, accounting for 21%, 17%, and 29% of net revenues, respectively[53] Net Revenue by Direct Customer Type (FY2022-FY2024) | Customer Type | FY2024 | FY2023 | FY2022 | | :-------------- | :----- | :----- | :----- | | Contract Manufacturers | 20.5% | 19.8% | 31.0% | | Distributors | 76.3% | 77.5% | 66.8% | Key Direct Customers (≥10% Net Revenue) | Customer | FY2024 | FY2023 | FY2022 | | :--------- | :----- | :----- | :----- | | Flextronics Technology (Contract Manufacturer) | 13.5% | 10.4% | 16.0% | | Sanmina (Contract Manufacturer) | 5.9% | 8.8% | 11.2% | | Avnet Logistics (Distributor) | 50.6% | 48.1% | 38.0% | | Nexcomm (Distributor) | 9.3% | 16.6% | 17.2% | Sales, Marketing and Technical Support GSI sells products globally through independent sales representatives and distributors, focusing marketing on APU solutions and radiation-tolerant SRAMs with technical support - GSI sells products through a worldwide network of independent sales representatives (over 200) and distributors, with 16 internal sales and marketing personnel as of March 31, 2024[54] - Regional sales offices are in China, Hong Kong, Israel, and the U.S[54] - Customer purchasing decisions are based on product performance, low power consumption, availability, features, quality, reliability, price, manufacturing flexibility, and service[54] - Marketing efforts are focused on in-place associative computing solutions and radiation-tolerant/hardened space-grade SRAMs, supported by technical teams providing product presentations, datasheets, application notes, and FPGA controller IP[56][59] Manufacturing GSI employs a fabless model, outsourcing wafer fabrication, assembly, and testing to TSMC and ASE, utilizing master die methodology for efficient production - GSI employs a fabless model, outsourcing wafer fabrication, assembly, and wafer sort testing to focus on design, minimize fixed costs, and access advanced manufacturing technologies[60] - All SRAM and APU wafers are manufactured by TSMC (Taiwan Semiconductor Manufacturing Company) under negotiated purchase orders, without a long-term supply contract[61] - APU products use 28nm and 16nm process technology, while most SRAM products use 0.13 micron, 90nm, 65nm, and 40nm processes on 300mm wafers[62] - The master die methodology allows multiple products from a single mask set, enabling a two-phase manufacturing process (13-15 weeks for wafers, 8-10 weeks for final processing, assembly, burn-in, and test) to shorten lead times and increase product availability[63] - Wafer testing and most packaging are done at Advanced Semiconductor Engineering (ASE) in Taiwan[64] - APU product boards are manufactured by Wistron Neweb Corporation in Taiwan[64] - Radiation-hardened products are assembled and tested at Silicon Turnkey Solutions Inc. in California[64] Research and Development GSI has invested significantly in APU product development over eight years, with R&D staff experienced in high-speed circuit design and a dedicated software team in Israel - GSI has invested substantial resources in APU product development over the last eight years, with a R&D staff experienced in high-speed circuit design (APU, SRAM) and systems-level networking/telecom equipment design[65][67] - A team of software development experts in Israel is dedicated to creating the necessary software levels for APU products[67] Competition GSI faces competition from major companies like NVIDIA and Intel for APU solutions and Infineon for SRAMs, competing on performance, features, quality, and price - GSI faces competition from large domestic and international companies like NVIDIA and Intel for associative computing solutions, and Infineon Technologies AG, Integrated Silicon Solution, and REC for SRAM products[68][69] - Competitive advantages are based on product performance, features (low power), quality, reliability, price, manufacturing flexibility, product availability, customer service, software tools, new product timing, and adherence to industry standards[70][73] - The networking memory market is highly competitive, characterized by technological change, declining average selling prices, and product obsolescence[71] - GSI is vulnerable to advances in SRAM, DRAM, and new memory technologies[72] Intellectual Property GSI protects its proprietary technology with 128 U.S. patents, copyrights, trademarks, and trade secrets, but faces ongoing risks of intellectual property litigation - GSI protects its proprietary technology through 128 U.S. patents (60 memory, 68 associative computing) and pending applications, along with copyrights, trademarks, trade secrets, and contractual agreements[75] - The semiconductor industry is prone to intellectual property litigation[76] - GSI has been involved in past patent infringement cases and may face future claims, which could lead to substantial damages, injunctions, or costly licensing requirements[76] Human Capital Resources GSI employs 148 full-time staff, including 101 engineers, offering competitive compensation and benefits, and is committed to diversity, inclusion, and ethical governance Employee Breakdown (as of March 31, 2024) | Category | Number of Employees | Details | | :------- | :------------------ | :------ | | Total Full-time Employees | 148 | | | Engineers | 101 | 64 in R&D, 45 with PhD/MS degrees | | Sales and Marketing | 16 | | | General and Administrative | 10 | | | Manufacturing | 59 | | | Location Breakdown: | | | | Sunnyvale, CA | 50 | | | Taiwan | 54 | | | Israel | 30 | | - GSI offers competitive compensation and benefits, including a 401(k) Plan, stock options for all employees, flexible spending accounts, and paid time off, to attract, motivate, and retain talent[78][80] - The company is committed to diversity, inclusion, and belonging, with policies and training guided by executive leadership[81][82][83] - It also emphasizes ethical organizational governance and a safe, healthy workplace[83] Investor Information Financial reports, corporate governance documents, and other investor information are available free of charge on GSI's website and the SEC's website - Financial and other information, including annual reports (10-K), quarterly reports (10-Q), current reports (8-K), and amendments, are available free of charge in the Investor Relations section of GSI's website (www.gsitechnology.com) and on the SEC's website (www.sec.gov)[84](index=84&type=chunk)[86] - Corporate governance documents, including charters for the Audit, Compensation, and Nominating and Governance Committees, and the Code of Business Conduct and Ethics, are also available on the company's website[85] Information About Our Executive Officers This section lists GSI's executive officers as of June 1, 2024, including President and CEO Lee-Lean Shu, and details their key roles and experience Executive Officers (as of June 1, 2024) | Name | Age | Title | | :----------- | :-- | :------------------------------------ | | Lee-Lean Shu | 69 | President, Chief Executive Officer and Chairman | | Avidan Akerib | 68 | Vice President, Associative Computing | | Patrick Chuang | 74 | Senior Vice President, Memory Design | | Didier Lasserre | 59 | Vice President, Sales | | Douglas Schirle | 69 | Chief Financial Officer | | Bor-Tay Wu | 72 | Vice President, Taiwan Operations | | Ping Wu | 67 | Vice President, U.S. Operations | - Lee-Lean Shu co-founded GSI in 1995 and has served as President, CEO, and Chairman since inception[87] - Avidan Akerib, VP of Associative Computing, joined after the MikaMonu acquisition in 2015 and holds over 50 patents in parallel and in-memory associative computing[88] - GSI Technology provides in-place associative computing solutions for AI and HPC, including natural language processing and computer vision, using its Associative Processing Unit (APU) products[11][12] - It also maintains a commitment to the synchronous SRAM market, using revenue from SRAM sales to fund APU development[11][12] Fiscal Year 2024 Financial Highlights (YoY) | Metric | FY2024 vs FY2023 Change | Primary Reason | | :----- | :---------------------- | :------------- | | Net Revenue | -27% | Cautionary customer spending, prior supply chain purchases, economic environment (rising interest rates, inflation), decline in SRAM demand, APU productization delays | | Gross Margin | -5.3% | Product mix and impact of lower revenue on fixed costs | - GSI received a prototype agreement with the Space Development Agency (SDA) in June 2023 for Next-Generation APU2 development, with estimated milestone payments of $1.25 million[17] - $297,000 was received in Q3 2023 and $138,000 in Q4 2023[17] - In January 2024, GSI was selected by AFWERX for an SBIR Direct-to-Phase II contract worth $1.1 million to demonstrate high-data computation use cases for its APU2, focusing on AI applications for the U.S. Air Force Research Laboratory[18] - The company completed a sale/leaseback of its Sunnyvale headquarters in June 2024 for $11.65 million cash, entering a 10-year lease with two 5-year renewal options, to enhance financial flexibility[24] - In May 2024, GSI initiated a strategic review to maximize stockholder value, considering options like equity/debt financing, asset divestiture, technology licensing, or a company sale, advised by Needham & Company, LLC[25] Item 1A. Risk Factors GSI Technology faces numerous risks, including unpredictable operating results, significant customer concentration, and uncertainties related to its strategic review, compounded by macroeconomic and geopolitical factors Risk Factor Summary Key risks include unpredictable operating results, customer concentration, strategic review uncertainties, adverse global economic conditions, and a history of significant losses - Key risks include unpredictable operating results, significant customer concentration, uncertainties from strategic alternatives, adverse impacts from global economic conditions (inflation, interest rates, conflicts), and a history of significant losses[96] - Operational risks involve dependence on SRAM sales during business transformation, challenges in introducing new APU products, reliance on single-source suppliers, and the need to develop new products to respond to rapid market changes[96][100] - Other risks include difficulties in managing distribution channels, declining average selling prices, dependence on senior management, cybersecurity threats, lengthy sales cycles, and potential negative effects from activist stockholders or acquisitions[96][100] - International risks stem from geopolitical instability (Israel, Taiwan), natural disasters in the Pacific Rim, potential changes in international trade agreements, and reduced military spending affecting product demand[100][101] Risks Related to Our Business and Financial Condition GSI faces fluctuating operating results, high customer concentration, strategic review uncertainties, adverse macroeconomic conditions, and a history of net losses, impacting future financial stability - GSI's operating results fluctuate significantly, with quarterly net revenues between $5.2 million and $9.0 million and operating losses from $2.9 million to $6.7 million in the last 12 quarters, making future performance unpredictable[103] - Nokia accounted for 21%, 17%, and 29% of net revenues in fiscal 2024, 2023, and 2022, respectively[108] - A reduction in purchases by this or other major customers, or failure to pay, would significantly harm GSI's operating results[108] - The ongoing strategic review, announced in May 2024, may not result in any particular outcome and could distract management, affect employee retention, and cause stock price volatility[109] - Higher interest rates, global inflation, and geopolitical conflicts (Middle East, Ukraine) are expected to adversely affect GSI's revenues, particularly SRAM sales, and impact the launch of APU products[107][110][111] Net Losses (FY2022-FY2024) | Fiscal Year | Net Loss (in millions) | | :---------- | :--------------------- | | 2024 | $(20.1) | | 2023 | $(16.0) | | 2022 | $(16.4) | - GSI remediated a material weakness in internal control over financial reporting as of March 31, 2024, related to the review of forecasts for contingent consideration and goodwill impairment[114][115] - However, future deficiencies could still impact financial reporting[115] - The company's future success depends on the successful introduction of new in-place associative computing products, a process involving significant technological, market, and customer relationship risks[119] Risks Related to Manufacturing and Product Development GSI is vulnerable to single-source supplier disruptions, challenges in new product development, rising manufacturing costs, market cyclicality, intense competition, and intellectual property infringement claims - GSI is dependent on single-source suppliers, primarily TSMC for wafers and ASE for packaging[120] - Any supply disruptions, manufacturing failures, or yield shortfalls from these suppliers could harm business and growth prospects[121] - Failure to successfully develop new products and respond to rapid market changes and evolving industry standards, especially in networking and telecommunications, could harm GSI's business[122] - This includes vulnerability to new SRAM architectures and other memory technologies[122] - Increased wafer fabrication and assembly costs, driven by inflationary pressures and supply chain constraints, may not be offset by increased average selling prices, leading to reduced gross margins[123] - The highly cyclical nature of the networking and telecommunications markets, where GSI's Very Fast SRAM products are used, causes significant fluctuations in business and operating results[124][125] - The market for Very Fast SRAMs is highly competitive, characterized by price erosion and rapid technological change[126] - GSI faces competition from companies with greater resources and in-house fabrication facilities[127] - GSI relies heavily on distributors, with Avnet Logistics accounting for 50.6% of net revenues in FY2024[128][137] - Inaccurate sales forecasts through distributors or channel conflicts could negatively impact business[137] - The average selling prices of GSI's products are expected to decline over time[129] - Maintaining net revenues and gross margins requires increasing unit sales, introducing lower-cost versions, and launching new, higher-priced products[130] - GSI's future success is substantially dependent on its senior management and key personnel[131] - The loss of key individuals like the CEO or VP of Associative Computing could significantly delay strategic objectives[131] - System security risks, cyber-attacks, and data breaches could disrupt operations, harm reputation, and lead to financial losses[132] - The costs of addressing these issues can be significant[133] - Demand for GSI's products is tied to the success of its OEM customers' products[139] - Difficulties faced by OEMs in manufacturing, marketing, or selling their products could decrease demand for GSI's components[139] - GSI's products have lengthy sales cycles (up to 24 months), making expense planning and forecasting difficult[140] - The new subscription business model for APU products also introduces execution risks and customer retention challenges[144] - Actions by activist stockholders could be costly, time-consuming, and disruptive, diverting management attention and creating uncertainty that may affect employee and customer relationships[145] - Acquisitions, like MikaMonu and Sony's SRAM line, pose integration challenges, diversion of resources, and risks of overpaying or misjudging strategic fit, potentially diluting stockholder value[146][149] - Failure to recruit and retain qualified technical, managerial, sales, and marketing personnel could harm GSI's business and product development efforts due to intense competition for talent[150] - Claims of intellectual property infringement by third parties could lead to costly litigation, substantial damages, injunctions, or the need to redesign products or obtain expensive licenses[151][152] - GSI's ability to protect its proprietary technology through patents, trade secrets, copyrights, and trademarks is crucial[156] - Enforcement can be costly, and protection may be weaker in foreign countries[156] - Significant order cancellations or deferrals, which customers can make on short notice, could adversely affect operating results by leading to excess inventory, reduced profit margins, and funding restrictions[157] - Business growth could strain management systems, infrastructure, and resources, requiring significant capital investment and potentially exposing inadequacies in operational, financial, and management controls[158] - Difficulties in transitioning to smaller geometry process technologies and advanced manufacturing processes could result in reduced manufacturing yields, delayed product deliveries, and increased expenses[159][161] - Manufacturing process technologies are subject to rapid change and require significant R&D expenditures, such as the $2.4 million incurred for a pre-production mask set for APU2 in Q3 FY2024[162] - Complex product design and manufacturing carry the risk of defects, which could lead to revenue loss, market share decline, significant warranty costs, and harm customer relationships[163] Risks Related to Our International Business and Operations GSI's international operations face risks from geopolitical conflicts (Israel, Taiwan), political/economic instability, trade barriers, currency fluctuations, and natural disasters in the Pacific Rim - GSI's software development and regional sales for APU products are based in Israel[164] - The evolving military conflict with Hamas poses a risk to business performance, customers, employees, and operations in the region[164] - Much of GSI's manufacturing and testing occurs in Taiwan[165] - Changes in Taiwan's political, social, and economic environment, including potential armed conflict with the People's Republic of China, could severely damage business[167] - International business (47.3% of net revenues in FY2024) exposes GSI to risks like political/economic instability, trade barriers, foreign laws, staffing challenges, difficulties in collecting receivables, and limited IP protection in some countries[168] - Currency exchange rate fluctuations, particularly for the New Taiwanese dollar and Israeli Shekel, can impact operating results, as GSI does not currently engage in currency hedging[169] - Suppliers and operations in the Pacific Rim are vulnerable to natural disasters (earthquakes, typhoons) and outbreaks of contagious diseases, which could cause significant production delays and supply chain disruptions[170][171][172] - Changes in U.S. international trade agreements or tax provisions related to global manufacturing and sales could adversely affect GSI's business and financial condition[174] - Demand for GSI's products in advanced military electronics could decrease if U.S. military operations are scaled back or governmental appropriations for military purchases are reduced[175] Risks Relating to Our Common Stock and the Securities Market GSI's stock price is volatile, the company may need additional capital, and executive/director ownership can influence corporate actions, potentially affecting stockholder value - The trading price of GSI's common stock is subject to significant fluctuation and volatility due to factors like operating results, analyst recommendations, legal proceedings, new product announcements, and market conditions[176][182] - GSI may need to raise additional capital in the future, which might not be available on favorable terms or at all, potentially leading to dilution for existing stockholders or requiring a reduction in operating costs[179] - Executive officers, directors, and their affiliates beneficially owned approximately 33% of outstanding common stock as of May 31, 2024, allowing them substantial influence over stockholder-approved matters, potentially delaying or preventing acquisitions[180] - Provisions in GSI's charter documents, such as the Board's authority to issue preferred stock and restrictions on stockholder actions (no written consent, no special meetings), could inhibit potential acquisition bids and affect the market price of common stock[181][184] - Stock repurchases, totaling $60.7 million for 12,004,779 shares since November 2008, present risks such as reduced public float, lower trading liquidity, and reduced cash available for strategic business opportunities[185][188] - GSI's operating results are subject to unpredictable fluctuations, with net revenues ranging from $5.2 million to $9.0 million and operating losses from $2.9 million to $6.7 million in the last twelve fiscal quarters, making period-to-period comparisons unreliable for future performance prediction[103] - Nokia is GSI's largest customer, accounting for 21%, 17%, and 29% of net revenues in fiscal 2024, 2023, and 2022, respectively[108] - Significant dependence on Nokia and other key OEM customers, without long-term contracts, poses a risk to operating results[108] - The ongoing strategic review, initiated in May 2024, creates uncertainty regarding the company's future, potentially affecting employee retention, customer relationships, and stock price volatility[109] - Higher interest rates, worldwide inflationary pressures, and geopolitical conflicts (Middle East, Ukraine) are expected to adversely impact GSI's revenues, operating results, and financial condition, particularly affecting SRAM sales and the launch of APU products[107][110][111] Net Losses (FY2022-FY2024) | Fiscal Year | Net Loss (in millions) | | :---------- | :--------------------- | | 2024 | $(20.1) | | 2023 | $(16.0) | | 2022 | $(16.4) | - GSI relies on single-source suppliers, primarily TSMC for wafers and ASE for packaging[120] - Disruptions from manufacturing failures, natural disasters, military action, or political instability could severely harm business and curtail growth[121] - International operations, with products shipped outside the U.S. accounting for 47.3% of net revenues in FY2024, expose GSI to risks including political/economic instability, trade barriers, foreign laws, and currency fluctuations (Taiwanese dollar, Israeli Shekel)[168][169] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report for GSI Technology, Inc - The company has no unresolved staff comments[186] Item 1C. Cybersecurity GSI Technology implements a comprehensive cybersecurity program, including risk management, incident response, and Board oversight, to protect against operational and data security threats Cybersecurity Risk Management and Strategy GSI identifies and manages cybersecurity risks through its Enterprise Risk Management program, network monitoring, vulnerability assessments, and an incident response plan - GSI identifies and manages cybersecurity risks, including operational, system security, data protection, IP theft, fraud, and reputational risks, through its Enterprise Risk Management program and tools like network monitoring and vulnerability assessments[189][190] - The company uses internal security controls aligned with ISO standards, conducts regular reviews of data protection laws, simulates incident responses for training, and provides information security training to employees[191] - GSI has an incident response plan to prepare for, detect, respond to, and recover from cybersecurity incidents, including processes for triage, severity assessment, escalation, containment, investigation, and remediation[191] Cybersecurity Governance GSI's Board of Directors, particularly the Audit Committee, oversees cybersecurity risk management, receiving quarterly updates on threat management and response readiness - Cybersecurity is a key focus for GSI's Board of Directors and management, with the Board overseeing the Enterprise Risk Management framework and regularly consulting with management on strategic direction and risks[193][195] - The Audit Committee is designated with the responsibility to regularly review the company's cybersecurity risk management processes and procedures, receiving quarterly updates from management on threat management and response readiness[196][197] - Board and Audit Committee members are encouraged to engage in ad hoc discussions with management on cybersecurity news and program updates[198] - GSI has implemented cybersecurity processes, technologies, and controls to identify, assess, and manage material risks, including internal operational risks, system security, data protection, IP theft, fraud, and reputational risks[189] - Risk identification and assessment involve an Enterprise Risk Management program, regular network/endpoint monitoring, and vulnerability assessments, with controls designed to align with ISO standards[190][191] - The company conducts exercises to simulate incident responses, provides security and privacy training, and carries information security risk insurance[191] - The Board of Directors oversees the Enterprise Risk Management framework, with the Audit Committee specifically responsible for reviewing cybersecurity threat risks and incidents at least annually, receiving quarterly updates from management[193][195][196][197] Item 2. Properties GSI's executive offices were sold and leased back in Sunnyvale, California, with additional leased facilities in Taiwan, Georgia, Texas, and Israel for operations and manufacturing support - GSI's headquarters in Sunnyvale, California (44,277 sq ft) was sold in April 2024 for $11.65 million and subsequently leased back for an initial ten-year term, with an initial base rent of approximately $90,768 per month[199] - The company also occupies a 25,250 sq ft facility in Hsin Chu, Taiwan, under a lease expiring in August 2026, supporting outsourced manufacturing activities[200] - Additional leased spaces are located in Georgia, Texas, and Israel, with an aggregate annual gross rent of approximately $734,000 in fiscal 2024[200] Item 3. Legal Proceedings GSI Technology, Inc. has no material legal proceedings to report - There are no material legal proceedings to report[201] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to GSI Technology, Inc - Mine Safety Disclosures are not applicable[202] PART II Item 5. 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 approximately 21 record holders, no cash dividends paid, and remaining authorization for $4.3 million in stock repurchases - GSI Technology's common stock is traded on the Nasdaq Global Market under the symbol 'GSIT'[204] - As of May 31, 2024, there were approximately 21 holders of record for the common stock[205] - The company has never declared or paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future[205] - No shares were repurchased under the stock repurchase program during the quarter ended March 31, 2024[206] - As of March 31, 2024, the Board authorized up to an additional $4.3 million for common stock repurchases[185][206] Item 6. Reserved This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations GSI is transitioning to AI/HPC solutions, with FY2024 net revenues decreasing by 26.7% to $21.8 million and a net loss of $20.1 million due to economic factors, while maintaining strong liquidity Overview GSI provides high-performance memory solutions for AI/HPC and SRAMs, with revenues impacted by industry cycles and customer concentration, using SRAM sales to fund APU development - GSI Technology provides high-performance semiconductor memory solutions for in-place associative computing (AI, HPC) and Very Fast SRAMs for networking, telecom, military/defense, and aerospace markets[210] - The company's revenues are significantly impacted by the cyclical semiconductor industry and fluctuations in sales to its largest customer, Nokia[210] - SRAM sales revenue is used to finance the development of new in-place associative computing solutions and radiation-hardened/tolerant SRAMs[210] - Worldwide inflationary pressures, higher interest rates, and a decline in the global economic environment have adversely impacted GSI's business and financial condition, leading to decreased revenues in fiscal 2023 and 2024[211] - As of March 31, 2024, GSI had $14.4 million in cash and cash equivalents with no debt[212] - The sale of its Sunnyvale property is anticipated to provide further financial flexibility[212] Revenues Substantially all revenues derive from Very Fast SRAM products, with networking and telecommunications OEMs being key customers, and Nokia representing a significant portion of sales - Substantially all revenues are from Very Fast SRAM products, with networking and telecommunications OEMs accounting for 32% to 49% of net revenues over the last three fiscal years[214] - GSI's ability to increase net revenues depends on increasing unit sales of existing products and introducing new products with higher average selling prices to offset typical product price declines[215] - Quarterly net revenues fluctuate due to cancelable purchase orders, timing of product releases, and customer delivery delays[216] - Revenue is recognized upon product shipment[217] Net Revenue by Customer Type (FY2022-FY2024) | Customer Type | FY2024 (in thousands) | FY2023 (in thousands) | FY2022 (in thousands) | | :-------------- | :-------------------- | :-------------------- | :-------------------- | | Contract Manufacturers | $4,450 (20.5%) | $5,882 (19.8%) | $10,354 (31.0%) | | Distribution | $16,636 (76.4%) | $23,023 (77.5%) | $22,289 (66.8%) | | OEMs | $679 (3.1%) | $786 (2.6%) | $741 (2.2%) | | Total Net Revenues | $21,765 | $29,691 | $33,384 | - Nokia was the largest customer, representing approximately 21%, 17%, and 29% of net revenues in fiscal 2024, 2023, and 2022, respectively, with sales expected to continue fluctuating significantly[219] Cost of Revenues Cost of revenues primarily includes outsourced wafer fabrication, assembly, and testing, subject to cyclical fluctuations and supply chain constraints, impacting gross margins - Cost of revenues primarily includes outsourced wafer fabrication, wafer sort, assembly, test, and burn-in expenses, amortized production mask sets, stock-based compensation, and materials/overhead[220] - These costs are subject to cyclical fluctuations in semiconductor demand and have increased due to supply chain constraints[220] - GSI reviews costs and passes increases to customers when feasible[220] Gross Profit Gross profit margins vary by product, influenced by product mix, average selling prices, and the ability to control outsourced manufacturing costs - Gross profit margins vary by product, generally higher for radiation-hardened/tolerant SRAMs, higher density products, and higher speed/industrial temperature products[221] - Overall gross margins fluctuate due to shifts in product mix, changes in average selling prices, and the ability to control cost of revenues (outsourced wafer fabrication, assembly, testing)[221] Research and Development Expenses R&D expenses, including salaries, prototype costs, and consultant fees, are expensed as incurred, with continued substantial investment expected for in-place associative computing products - R&D expenses include salaries, stock-based compensation, prototype costs, and consultant fees[222] - All R&D expenses are charged to operations as incurred, except for production mask costs which are amortized over 12 months[223] - Costs related to pre-production mask sets, not used in production, are expensed immediately, causing quarterly fluctuations[223] - For example, $2.4 million was charged for an APU2 pre-production mask set in Q3 FY2024[224] - Continued investment in R&D, particularly for in-place associative computing products, is critical and expected to remain substantial, potentially leading to operating losses[224] Selling, General and Administrative Expenses SG&A expenses, comprising sales commissions, salaries, and professional fees, are expected to increase in absolute dollars but decline as a percentage of net revenues - SG&A expenses primarily consist of sales commissions, salaries, stock-based compensation, professional fees, and marketing costs[225] - These expenses are expected to increase in absolute dollars with growth but decline as a percentage of net revenues[225] Acquisition GSI acquired MikaMonu Group Ltd. in 2015 for its in-place associative computing patents, with potential earnout payments up to $30.0 million contingent on revenue targets - On November 23, 2015, GSI acquired MikaMonu Group Ltd., an Israel-based company specializing in in-place associative computing, to gain access to its patents and new markets[226][227] - The acquisition included potential earnout payments to former MikaMonu shareholders, up to $30.0 million, based on achieving certain revenue targets for MikaMonu-technology products through December 31, 2025[229][416][417] - No earnout payments have been made as of March 31, 2024[417] - The contingent consideration liability, initially valued at $5.8 million, was re-measured to $160,000 as of March 31, 2024, down from $1.1 million at March 31, 2023, due to revisions in expected revenue, timing, and probability of achievement[230][418][419] - The purchase price allocation included $3.5 million for patents and $8.0 million for goodwill[232][355] - Goodwill is tested annually for impairment, with no impairment found in fiscal 2024[355] Results of Operations This section details GSI Technology's financial performance, including net revenues, cost of revenues, gross profit, and operating expenses, for fiscal years 2023 and 2024 Fiscal Year Ended March 31, 2024 Compared to Fiscal Year Ended March 31, 2023 Net revenues decreased by 26.7% to $21.8 million in FY2024 due to cautionary spending, while gross profit declined by 33.1% to $11.8 million and net loss increased to $(20.1) million Statement of Operations Data as Percentage of Net Revenues | Metric | FY2024 | FY2023 | | :-------------------------- | :----- | :----- | | Net revenues | 100.0% | 100.0% | | Cost of revenues | 45.7% | 40.4% | | Gross profit | 54.3% | 59.6% | | Research and development | 99.7% | 79.3% | | Selling, general and administrative | 48.5% | 33.5% | | Total operating expenses | 148.2% | 112.8% | | Loss from operations | (93.9%) | (53.2%) | | Interest and other income, net | 1.9% | 0.7% | | Loss before income taxes | (92.0%) | (52.5%) | | Provision for income taxes | 0.3% | 1.3% | | Net loss | (92.3%) | (53.8%) | Net Revenues (FY2023-FY2024) | Metric | FY2024 (in millions) | FY2023 (in millions) | Change (%) | | :----- | :------------------- | :------------------- | :--------- | | Net Revenues | $21.8 | $29.7 | -26.7% | | Units Shipped | -39.3% | | | | Overall Average Selling Price | +20.8% | | | - The decrease in net revenues was due to cautionary customer spending, prior supply chain purchases, and the current economic environment (inflation, interest rates)[234] - Networking and telecommunications markets represented 34% of shipments in FY2024[234] - Direct and indirect sales to Nokia decreased by $0.5 million, from $5.0 million in FY2023 to $4.5 million in FY2024[234] Cost of Revenues (FY2023-FY2024) | Metric | FY2024 (in millions) | FY2023 (in millions) | Change (%) | | :------------- | :------------------- | :------------------- | :--------- | | Cost of Revenues | $9.9 | $12.0 | -17.2% | | Inventory Provision | $0.18 | $0.226 | -20.4% | | Stock-based Compensation | $0.228 | $0.202 | +12.9% | Gross Profit and Margin (FY2023-FY2024) | Metric | FY2024 (in millions) | FY2023 (in millions) | Change (%) | | :--------- | :------------------- | :------------------- | :--------- | | Gross Profit | $11.8 | $17.7 | -33.1% | | Gross Margin | 54.3% | 59.6% | -5.3 percentage points | Operating Expenses (FY2023-FY2024) | Expense Category | FY2024 (in millions) | FY2023 (in millions) | Change (%) | | :------------------------ | :------------------- | :------------------- | :--------- | | Research and Development | $21.7 | $23.6 | -7.9% | | Selling, General and Administrative | $10.6 | $9.9 | +6.3% | - R&D decrease was due to $2.2 million lower payroll and $1.4 million lower consulting for APU-2, partially offset by $2.4 million higher pre-production mask costs for APU-2 and $0.435 million funding from a Direct to Phase II award[236] - SG&A increase was due to a smaller decrease in contingent consideration liability ($0.892 million vs $1.7 million), partially offset by lower payroll and sales commissions[237] Net Income/Loss (FY2023-FY2024) | Metric | FY2024 (in millions) | FY2023 (in millions) | | :------- | :------------------- | :------------------- | | Interest Income, Net | $0.414 | $0.202 | | Other (Expense), Net | $(0.127) | $(0.121) | | Provision for Income Taxes | $0.070 | $0.372 | | Net Loss | $(20.1) | $(16.0) | Liquidity and Capital Resources GSI's cash and cash equivalents decreased to $14.4 million by March 31, 2024, but the $11.2 million net proceeds from the headquarters sale are expected to provide sufficient liquidity Cash and Cash Equivalents (FY2023-FY2024) | Metric | March 31, 2024 (in millions) | March 31, 2023 (in millions) | | :---------------------- | :--------------------------- | :--------------------------- | | Cash and Cash Equivalents | $14.4 | $27.2 | | Short-term Investments | — | $3.4 | | Foreign Held Cash | $9.4 | | Net Cash Flows (FY2023-FY2024) | Activity | FY2024 (in millions) | FY2023 (in millions) | | :-------------------- | :------------------- | :------------------- | | Operating Activities | $(17.4) | $(16.8) | | Investing Activities | $2.8 | $6.7 | | Financing Activities | $1.8 | $0.402 | - Primary uses of cash in operating activities for FY2024 were net loss ($20.1 million) and a decrease in accrued expenses ($1.6 million)[242][244] - Non-cash items like stock-based compensation ($2.8 million) and depreciation ($0.927 million) reduced the impact of net loss[242][244] - Investing activities in FY2024 were primarily driven by maturity of certificates of deposit and agency bonds ($3.4 million), partially offset by property and equipment purchases ($0.645 million)[246] - Cash from financing activities in FY2024 included net proceeds from common stock sales under employee stock plans ($1.654 million) and an At-the-Market offering ($0.153 million)[248] - GSI believes existing cash, expected cash flow from operations, and $11.2 million net proceeds from the headquarters sale (closed June 2024) will be sufficient for working capital and capital expenditures for at least the next 12 months[248] - As of March 31, 2024, purchase obligations totaled $2.2 million, with $1.2 million payable in the next 12 months[249] - The contingent consideration liability for the MikaMonu acquisition was $160,000[251] Critical Accounting Estimates Critical accounting estimates, including inventory valuation and contingent consideration, require significant judgment and are influenced by global economic uncertainties - Critical accounting estimates include the valuation of inventories and contingent consideration, which require significant judgment and are made more difficult by global economic uncertainties[252] - Inventory valuation involves establishing allowances for excess and obsolete inventory based on forecasted customer demand (typically 12 months)[253] - Errors in these estimates could materially impact financial statements[253] - The fair value of contingent consideration liability (from MikaMonu acquisition) is re-measured each period using unobservable inputs like estimated future revenue, probability of achievement, and a risk-adjusted discount rate[254] - Revisions led to a $0.9 million decrease in FY2024[254] Recent Accounting Pronouncements GSI adopted ASU No. 2016-13 on credit losses without material impact and is evaluating ASU No. 2023-07 on segment reporting for future disclosures - GSI adopted ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326)" on April 1, 2023, which replaces the incurred loss model with an expected credit loss model[332] - This adoption did not materially impact the consolidated financial statements[332] - The company is evaluating ASU No. 2023-07, "Segment Reporting (Topic 280)," issued in November 2023, which will require disclosure of significant segment expenses and information about the Chief Operating Decision Maker (CODM)[333][335] - GSI Technology is transitioning its business focus from Very Fast SRAMs (current primary revenue source) to in-place associative computing solutions for AI and HPC markets[210] - Net revenues decreased by 26.7% from $29.7 million in fiscal 2023 to $21.8 million in fiscal 2024, driven by cautionary customer spending, prior supply chain purchases, and a decline in the global economic environment[234] - Gross profit decreased by 33.1% from $17.7 million in fiscal 2023 to $11.8 million in fiscal 2024, with gross margin declining from 59.6% to 54.3% due to product mix shifts and fixed overhead impact on lower shipment levels[235] - Research and development expenses decreased by 7.9% to $21.7 million in fiscal 2024, reflecting cost reduction measures, but were partially offset by a $2.4 million increase in pre-production mask costs for the APU2 product[236] Net Loss (FY2023-FY2024) | Fiscal Year | Net Loss (in millions) | | :---------- | :--------------------- | | 2024 | $(20.1) | | 2023 | $(16.0) | - As of March 31, 2024, GSI had $14.4 million in cash and cash equivalents with no debt[212][241] - The recent sale of its Sunnyvale headquarters (net proceeds of ~$11.2 million) is expected to provide further financial flexibility for at least the next 12 months[212][248] Item 7A. Quantitative and Qualitative Disclosures About Market Risk GSI Technology has minimal foreign currency exchange risk as most revenues and expenses are USD-denominated, except for operations in Israel and Taiwan. The company does not currently use hedging instruments. Interest rate sensitivity is low due to short-term investments in money market funds, and a hypothetical 100 basis point increase in interest rates would not materially affect the fair value of its interest-sensitive financial instruments - GSI has relatively little foreign currency exchange risk as most revenues and expenses are U.S. dollar-denominated, except for operations in Israel and Taiwan[256] - The company does not currently engage in currency hedging[256] - As of March 31, 2024, GSI had $14.4 million in cash and cash equivalents, primarily invested in money market funds[257] - Due to the short-term nature of these investments, the company believes it has no material exposure to changes in the fair value from interest rate fluctuations[257] - A hypothetical 100 basis point increase in interest rates would not materially affect the fair value of GSI's interest-sensitive financial instruments, though declines in interest rates would reduce future investment income[257] [Item 8. Financial Statements and Supplementary Data](index=84&type=section&id=Item%208.%20Financial%20Statements%20and%2