Quarterly Recap - Feedback from the Investment Community

June Earnings Release

What they liked:

1) CEO comments that (Company) business for the first week of July was stronger than first week of April. 2) December quarter guidance of >5% sequential growth. This was perceived positively due to the fact that we don't typically give guidance beyond the current quarter. 3) Gross margin was 66%, two percentage points higher than our guidance of 64%. 4) Inventory explanation. While inventory build is not perceived positively in this environment, the fact that the build was related in large part to improved yields was consistent with Product A inventory discussion in their recent conference call. Also they liked the fact that the majority of the build was in die bank for new products with solid demand.

What they didn't like:

1) Internal inventories increased significantly during the quarter and financial community questions whether end demand is strong enough to support the level of inventory increase (ie; they don't want another write down). 2) Storage & servers sector decreased substantially during the quarter (-21%) and continues to be a drag on overall revenues. Product B, on the other hand, reported an 8% sequential increase in this category and indicated that they have yet to see share gains from Product C (ie, storage can continue to grow for them). 3) Operating expenses were considerably higher than guided due to acquisition related charges, tax litigation, Sarbanes Oxley programs. The financial community is also carefully watching R&D spending trends, which have increased considerably since three years ago when we reported a record $450 million in revenues. R&D, which was at $56 million three years ago, is expected to increase to approx. $74 million in the September quarter, while revenues are expected to remain below $450 million. 4) This was our second consecutive quarter of market share loss to Product D. Product E new products increased 35% sequentially, while ours increased 10% sequentially. Although we both gave the same sequential revenue guidance for the September quarter (2% - 4%), the Street is questioning whether design win momentum is shifting in Product F favor.

March Earnings Release

What they liked:

1) Gross margin increase of 290 basis points sequentially to 64.7% was better than expected. 2) Product G sales doubling sequentially and Product H approaching $2 million in revenues and exceeding internal forecasts. While we don't have definitive Product I and Product J numbers, there's no doubt that Product K and Product L grew considerably faster (albeit off of a lower base) than competing Product M products. 3) Strength in Europe and strength in communications. The increase in European business is viewed favorably and echoes what the rest of the industry is saying. Our communications business was considerably strong than Product N (up 14% vs. 1% sequentially). An increase in communications business is generally believed to benefit (Company) more than Product O because of our higher exposure to Product P and better concentration of legacy Product Q business. 4) Tax rate reduction to 23% positively impacts consensus estimates.

1) We did not meet the "whisper" numbers which called for up to 15% sequential revenue growth in the March quarter and 10% sequential revenue growth in the June quarter. 2) Decrease in storage. Sales from the storage and servers category decreased 22% sequentially, representing 14% of total revenues, down from 25% a year ago. Although we had factored this decrease into our guidance and communicated it to the Street, it comes at a time when Product R is increasing their storage guidance, leading the Street to believe they are gaining market share in this sector. 3) Inventory/lead times. (Company) total inventory increased and our lead times stabilized (rather than increased), which the investment community views as a leading indicator of business deceleration. This is a big negative for investors, especially when coupled with our lower turns guidance of 50%, down from 60% in the prior quarter. 4) Operating expenses, particularly R&D, increased significantly in the June quarter. While this is explainable, it impacts analyst models and thus their consensus estimates for the year out.

December Earnings Release

What they liked:

1) The magnitude of the upside. The Street was generally expecting us to beat our 6-9% guidance, but not to the extent that we did. - Not only did we blow away their December consensus estimates, we also blew through their March estimates. 2) Our March quarter sequential revenue guidance of 7-10% was higher than expected (most analysts had us growing 5-6% for the March quarter). 3) Growth returning to the Product S and Product T families. This is yet another datapoint supporting overall macroeconomic recovery and also positively contributes to (Company) gross margin. 4) Improvement in communications business. Improvement in the communications sector bodes well for the PLD stocks and (Company) in particular because of the heavy exposure of our legacy products.

1) DOI decreasing to 90 days at (Company) and distribution. With the demand picture improving and lead times stretching out, inventory is now a good thing. Many analysts asked the question, "With your lower inventory levels, how much upside could you potentially deliver?" 2) Higher than expected operating expenses in the December and March quarters. While we can explain most of this increase through our higher sales level, the amount of the increase was surprising to many. 3) Storage sector declining as a % of total revenues. The storage sector isn't seasonally strong in the March quarter. However, our strong growth over the past couple of years and our well-known exposure to Product U prompted a number of questions.

September Earnings Release

What they liked: 1) Improving cost structure. The Street likes our new gross margin guidance and views our leadership on Product V as a competitive advantage. 2) Growth in Product W products. Growth in the older products is considered a leading indicator of economic recovery. Additionally, most investors realize that growth in these products will positively impact our gross margin. 3) Strong start to the December quarter. Higher beginning quarter backlog coupled with Product X comments about strong October business were viewed positively. 4) Strong sales growth from Product Y.

1) Top line growth for September quarter of 1% was less than the whisper of 3%. 2) 4% revenue growth guidance for the December quarter was slightly less than 5% consensus. 3) Higher opex in December quarter was not offset by higher revenue growth, resulting in a $0.01 hit to December quarter EPS. 4) Slowdown in sales to the consumer end market. Our lack of growth in this sector was a big disappointment. The Street ultimately believes that the industry recovery will be driven by the consumer sector and that stocks with greater participation in this sector will recover faster.