Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (02-04-13 01:49 AM)

Description

Filed with the SEC from Jan 24 to Jan 30:

PLX Technology (PLXT)
Potomac Capital Management urged the company to pursue a sale of itself immediately. Its Jan. 25 letter stated that the stock represents a compelling value and that in order for that value to be realized, "PLX must pursue a strategic direction that maximizes value for shareholders," adding that "we do not believe that PLX should remain an independent public company." Potomac said it owns 2,305,445 shares (5.1% of the total voting stock), and purchased the entire holding from Nov. 13 through Jan. 23 at $3.46 to $4.55 a share.
BUSINESS OVERVIEW

Overview

PLX Technology, Inc. (“We”, "PLX" or the "Company"), designs, develops, manufactures, and sells integrated circuits that perform critical system connectivity functions. These interconnect products are fundamental building blocks for standards-based electronic equipment. The Company markets its products to major customers that sell electronic systems in the enterprise, consumer, server, storage, communications, PC peripheral and embedded markets.

The explosive growth of cloud-based computing has provided a significant opportunity for PLX, since the data centers that house these systems are limited by their ability to offer high performance, low cost, low power, scalable interconnection. The level of integration is increasing, and the need for rapid expansion forces these customers to build their systems using standard-based, off-the-shelf devices. The industry has converged around two general purpose interconnection standards, PCI Express and Ethernet.

The Company is a market share leader in PCI Express switches and bridges. We recognized the trend towards this serial, switched interconnect technology early, launched products for this market long before our competitors, and have deployed multiple generations of products to serve a general-purpose market. In addition to enabling customer differentiation through our product features, the breadth of our product offering is in itself a significant benefit to our customers, since we can serve the complete needs of our customers with cost-effective solutions tailored to specific system requirements. The Company supplies an extensive portfolio of PCI Express switches; PCI Express bridges that allow backward compatibility to the previous PCI standard; and our newest bridge enables seamless interoperability between two of the most popular mainstream interconnects: PCI Express and USB 3.0. Our long experience with PCI Express connectivity products enables PLX to deliver reliable devices that operate in non-ideal real-world, system environments.

PLX has extended its penetration into the overall enterprise market through the introduction of devices that drive 10G Ethernet over industry standard copper cables. In order to address this market, the Company successfully launched our new 10GBase-T PHY products into production during the year, building on our leadership position at previous technology nodes. Based on the market dynamics that occurred at the 1G Ethernet speed, and the widespread copper infrastructure already deployed in data centers, it is expected that these products will become mainstream, growing much more rapidly than the current optical products that currently offer this speed. We expect that by 2015 customers will ship 26 million 10GBase-T ports annually.

Several trends within the data center are putting more emphasis on the performance & features of standard interconnection products. These include:

•
Virtualization , which allows multiple central processing units (CPUs) running heterogeneous operating systems to efficiently connect with mainstream communication and storage subsystems, offering the opportunity to supply proprietary features that can co-exist within the standard interconnection technology.
•
Multi-core CPUs , which increase the bandwidth requirements of the I/O subsystems and interconnection pathways.
•
I/O convergence , which enables different protocols to be delivered on standard, high volume interconnection technologies.
•
Solid State Disk (SSD) growth , which demands high bandwidth interconnection in order to scale effectively, and benefits from interconnection features that reduce overhead and increase performance. The SSD market is growing at 2-3x annually.

In order to offer a complete solution portfolio to our customers, PLX also provides a wide range of connectivity bridges that allow systems that conform to different standards communicate with each other, and to enable low cost customer field-programmable gate arrays (FPGAs) and application-specific integrated circuits (ASICs) with non-standard interfaces to connect up to the mainstream interconnects. Some of the more popular products in this family bridge PCI and USB to other types of interfaces.

PLX offers a complete solution consisting of semiconductor devices, software development kits, hardware design kits, software drivers, and firmware solutions that enable added-value features in our products. We differentiate our products by offering higher performance at lower power, by enabling a richer customer experience based on proprietary features that enable system-level customer advantages, and by providing capabilities that enable a customer to get to market more quickly.

The Company has enhanced its systems and software capability in particular over the past several years on both its PCI Express and Ethernet product lines. This has become important, since the high level of integration of the silicon devices has driven more of the intelligence of the system into fewer devices. This has made the architecture of the building blocks critical to overall system performance, and necessitates a closer relationship between the vendor and customer to achieve aggressive system operating goals. In addition, the highly integrated solutions have become more complex, and both time-to-market goals and performance targets can only be reasonably attained if the device vendor supplies the appropriate software as part of the overall solution. PLX’s customers view the Company as a resource from the start of their system development, choosing their architecture and making their trade-offs based on the features available in the PLX products.

Industry Background

High speed interconnect technology has largely consolidated over the past decade, converging on several mainstream standards that serve different roles within the system. PCI Express has become the dominant interconnect within individual electronic systems (sometimes referred to as “within the box”), and Ethernet and USB are the primary general purpose interconnect technologies between individual electronic systems (sometimes referred to as “box to box”). Although there are other standards and proprietary technologies that exist for specific purposes, they are limited to narrow functions, and the industry continues to converge on just a few general purpose interconnects.

This is happening due to the inherent cost and power advantages that accrue when many companies compete based on standards-based interconnect, and has been enabled by the mainstream standards being expanded to allow them to be used in a wider variety of usage models.

Customers today build up their systems based on off-the-shelf, standards-based products, supported by the appropriate software, all delivered by the vendors that compete for their business. This building block approach allows them to get to market quickly, with a vastly lower cost of development. Specifically, the software base that has been built up around the standards enables designers to focus on their own added value, rather than recreating the basic plumbing necessary to move data around.

Cloud-based computing, where basic storage and computational functions have been consolidated into a smaller number of extremely large compute and storage farms, has invigorated the enterprise market in particular, and has put renewed focus on the ability to move data around quickly and efficiently, and within very aggressive cost and power envelopes. This industry shift has made interconnect into a key differentiator, and has made a standards-based approach crucial to success.

The need to achieve ambitious price points is important, since the vendors who supply the cloud services are all competing with each other, and this can only be accomplished by spreading the development cost of the subsystems over a broad customer base. This is only possible within the framework of a standards-based approach that allows the industry at large to use the same basic building blocks.

Power dissipation has become critical, since the density of computing and storage has reached the point where there are tangible, significant costs associated with supplying power to the computer room, and in cooling the equipment to some reasonable temperature. It is challenging just to dissipate the power that is generated within the powerful computing subsystem. This need for lower power pushes the industry toward even deeper submicron fabrication technologies, and the costs of this move also favor those who can amortize their development costs over a wide customer base. This, too, is possible only through a framework based on standards.

PLX delivers high speed interconnection products based on high volume, standard connection points. The connections are based on industry standards that allow interoperability between vendors, but PLX differentiates our products by offering lower overall system cost, lower power, higher performance, and a rich feature set, all while conforming to the connection points that have become mainstream. The company is focused on two main standards: PCI Express and Ethernet. In order to supplement the usage of these two standards, the company also offers a variety of other bridging connections, the most significant of which is USB.

PCI Express is the primary interconnection mechanism inside computing systems today. By remaining software compatible with the previous, ubiquitous parallel technology, the switched serial PCI Express technology quickly became the connection of choice for the majority of devices in the industry. Since there is at least one, and sometimes many, PCI Express ports on almost every system building block, the least costly and highest performance approach for connecting the devices together is through this interconnection pathway. To provide appropriate connection between subsystems in complex multi-chip systems, a switch is the most cost-effective approach. The switch is thus a fundamental building block for the system, carrying data to and from the subsystems without impeding the native performance of the underlying devices. For those few end points which do not have native PCI Express connections, PLX also provides bridges to translate the protocol.

During the fourth quarter of 2010, PLX entered the high growth market for 10G Ethernet over standard copper cables. The cloud-based dynamics that were discussed earlier have caused an explosion in bandwidth necessary to satisfy the needs of the large and growing server and storage farms. The current infrastructure is largely served by 1G Ethernet, but this has become inadequate as the demand for throughput is growing more rapidly than the ability of the data center to scale effectively.

As with the previous major migration to 1G Ethernet, the early products at the higher speed are served by optical interconnects. However, as copper solutions become available and power-efficient, the flexibility and cost points of the copper solutions, and their ability to upgrade a system while providing backward compatibility with the current infrastructure, cause the copper solutions to dominate. The demand for the mainstream version of this technology, called 10GBbase-T, has already started, and is expected to accelerate over the next several years, as it did for 1G copper during the last major transition. We expect that by 2015, customers will ship 26 million 10GBase-T ports annually.

The Ethernet products that PLX develops are the final stage in the data delivery pipeline, where the data is taken from a controller in the largely digital domain, and translated to the analog domain for transmission across the cables that inhabit the enterprise data center. The devices are called PHYs (for physical layer devices), and are the most difficult to deploy reliably in production in the harsh and unpredictable enterprise environment. A successful product relies not just on solid engineering, where modern design tools and methodologies provide significant assistance in achieving successful operation, but on an intimate knowledge of how actual systems behave in a real world analog environment. The products that PLX offers are the result of multiple generations of products, and the knowledge that has been gained by deploying actual silicon in customer systems. This knowledge, and the unique design and validation methodologies that it has led to, provides a proprietary advantage to the Company.

The Universal Serial Bus (USB) was designed to replace the expensive, slow, unreliable, and unscalable parallel interconnects of the time, originally to connect PCs with peripherals such as printers and external storage. Its speed has been upgraded continuously since its initial rollout, and USB has become the most popular interconnect between electronic systems in the consumer market. USB has become the natural way that users upgrade their system with peripherals, eliminating the need to open the case and add plug-in cards.

There are several trends which have accelerated the penetration of PLX products in the enterprise market. The first is the rapid growth of SSD memory to either replace or augment the more traditional hard-disk based storage. The SSD market is growing rapidly. PCI Express has become the interface of choice for enterprise level SSD controllers, and PCI Express switches are used to create the large banks of storage that make up the dense subsystems in the data center. This has led to PLX supplying a common building block in these systems, and has enabled the company to identify methods to improve the performance of these systems and make them easier to build.

The second industry trend that favors the PLX product focus is the continued increase in multi-CPU cores and multi-processor systems. As the processing speeds of the system increase, the demand for greater bandwidth in the I/O subsystem follows, especially the communication and storage subsystems. Since PLX is a leader in the mainstream interconnection technologies both inside the box (PCI Express) and outside the box (Ethernet), the company is in a solid position to offer both higher performance and added-value features to our customers. Supplying the entire connectivity pipeline also enables the company to identify and deploy products that take advantage of the synergies between the two.

The trend toward greater processing power has been paralleled by several other trends: virtualization and fabric convergence. Computing systems have long used the concept of virtualization to enable individual users on a system to appear to have all of the processor, I/O, and storage. This was managed by the hardware and operating system. As the processing power increased, and as standard operating systems such as Windows and Linux became dominant, virtualization was expanded to include even the operating system, and not only would users believe that they had all of the resources, they could also write their code based on one of the supported operating systems, and users would all co-exist without knowledge that another user was “running” on something entirely different. Both of these improvements lead to hardware features supported by software, and they have become common.

The initial I/O virtualization systems generally used a software approach. However, this approach yielded poor performance and took up more of the processing subsystem than was acceptable. It did not scale as easily because of this. As with the other virtualization initiatives, hardware has become available to offload some of the tasks, and today there are systems deployed that allow a single host processor to share a limited number of I/O and storage subsystems with efficient hardware assistance.

The next phase of this evolution is to enable multiple host processors to share all of the I/O subsystem in the same way. Today, there is no standard, widely deployed method to do this with hardware assistance. The existing solutions are either proprietary or niche. The most effective place for this multi-host I/O virtualization to exist is in the fabric that connects together the host processors and I/O. This fabric is created by the products that PLX supplies, and the company is currently designing solutions that include hardware and software that enable this next phase of the virtualization capability. To be successful, the solution needs to allow a step-by-step migration from the current system to the new, more powerful system, and that is the approach the Company is taking.

The final pertinent migration trend in the data center is fabric convergence. The benefits of consolidation and standardization have been discussed several times, and they especially apply to the pathways that information travels to and from the processing system. The economies of scale, rapid deployment, redundancy, and development cost advantages are significant when a wide range of different communication and storage protocols – each one well suited to a specific purpose – can share a mainstream, high performance connectivity technology. Within the data center, the Fibre Channel over Ethernet (FCoE) standard is an example of this convergence. FCoE allows I/O subsystems to be built that encapsulate a mainstream storage networking protocol (Fibre Channel) within the low cost, high performance communications transport mechanism (Ethernet). Other methods of enabling protocol convergence using either PCI Express or Ethernet are being developed.

Strategy

PLX provides standards-based, off-the-shelf interconnect solutions to enable high performance, low cost, added-value features and rapid customer time-to-market. Although the external connections are standard in order to enable high volume markets, the products themselves offer proprietary advantages through innovative technology.

Technology

PLX focuses on providing differentiated products to customers that are leaders in their market. In order to achieve this, we have developed unique core competencies in the underlying technologies necessary for success.

Semiconductor Design. Our engineers have substantial expertise in designing complex, reliable, high performance products. We utilize state-of-the-art EDA tools and techniques for the entire design pipeline, and have developed proprietary verification mechanisms to ensure robust operation prior to committing to silicon. It is relatively straightforward to get a device to operate in normal, error free environments. It is much more challenging to have that device operate predictably and reliably in environments where errors occur in the system, and where unexpected or complex combinations of transactions occur. PLX has built up an industry-leading suite of tests that ensure such reliable operation in real-world customer systems.

In addition to software-based simulation techniques, we have also invested in a flexible hardware-based emulation platform that enables our designers to run real software on a version of our design prior to committing to silicon. This allows our products to operate in more complex system-level environments, where subtle and undocumented behaviors often exist.

CEO BACKGROUND

D. James Guzy has served as our Chairman of the Board since 1986. He has been Chairman of Arbor Company, a limited partnership engaged in the electronics and computer industry, since 1969 and Co-founder and Chairman of SRC Computers LLC, a developer of reconfigurable processor-based computers, since 1996. Mr. Guzy also serves on the board of Alliance Bernstein Core Mutual Fund since 1982. He has served as a director of Cirrus Logic, a developer of high-precision analog and mixed-signal integrated circuits, from 1984 to 2011, a director of Intel, a semiconductor chip maker, from 1969 to 2008, a director and director emeritus of Novellus Systems, a developer and manufacturer of systems used in the fabrication of integrated circuits, from 1990-2003 and 2004-2006 respectively, a director and director emeritus of Micro Component Technology, Inc., a semiconductor test equipment manufacturer, from 1993-2004 and 2005-2008 respectively, a director and director emeritus of LogicVision, a provider of semiconductor built-in-self- test BIST and diagnostic solutions , from 1999-2004 and in 2005 respectively , and a director and director emeritus of Tessera Technologies, a developer of miniaturization technologies for chip-scale, multichip, and wafer-level packaging, from 2000-2004 and in 2005 respectively. Mr. Guzy received a B.S. from the University of Minnesota and an M.S. from Stanford University. The Board selected Mr. Guzy to serve as a director because of his long experience with the Company, experience with public company governance and knowledge of the semiconductor industry. He was a founding investor of the Company and served as Chairman since the beginning and is therefore very familiar with the Company’s markets, customers and competition. Furthermore he has over 40 years of experience serving as an investor and director of numerous public companies, including many leading semiconductor companies.

Michael J. Salameh co-founded PLX and served as our Chief Executive Officer and as a member of the Board of Directors from PLX's inception in May 1986. He retired from his position as CEO in November 2008 and continues to serve as a director. In addition to serving as PLX’s CEO for 22 years, he personally participated in many of the key company functions including sales, marketing, engineering, accounting, quality assurance, operations and compensation. He is familiar with the company’s critical business processes, the key people and the business landscape including customers, markets, suppliers and competition. Mr. Salameh currently performs management consulting for private technology companies. He has more than 25 years of chief executive and marketing experience in the semiconductor industry. From 1980 through 1986, Mr. Salameh was employed in various marketing management positions with Hewlett-Packard Company. Mr. Salameh received a B.S. in Engineering and Applied Science from Yale University and an M.B.A. from Harvard Business School. The Board selected Mr. Salameh to serve as a director because of his industry experience and knowledge of the Company.

John H. Hart has been a director of PLX since April 1999. He is a former senior vice president and Chief Technology Officer of 3Com. At 3Com, Mr. Hart was responsible for the overall strategic direction of the company during the 10 year period from 1990 to 2000 in which it grew annual revenue from $400 million to almost $6 billion. He architected and led 3Com’s “Fast, Cheap and Simple” (FCS) first/last mile networking strategy and was responsible for 3Com’s Advanced Development Lab which pioneered Ethernet adapter and switch solutions, 802.11 solutions, and cable modems/low cost routers. Prior to 3Com, Mr. Hart was Vice President of Engineering at Vitalink Communications Corporation where he led the group that invented, patented and shipped the industry’s first Ethernet switching products. He has experience in determining successful strategic directions. Mr. Hart currently serves on the board of Plantronics Inc. since 2006, and previously served on the boards of Coherent Inc. from 2000-2010, and Clearspeed Technology PLC from 2002-2008. He holds a Bachelor of Science in Mathematics from the University of Georgia. The Board selected Mr. Hart to serve as a director because of his technology experience and perspective. Many of the technology and market trends and business issues that Mr. Hart experienced at 3Com are directly relevant to PLX’s business.

Thomas Riordan was appointed to the Board of Directors in November 2004 and has more than 30 years of experience in the solid-state electronics industry. In May 2011, Mr. Riordan was appointed Chief Operating Officer of MoSys, Inc., a provider of serial chip-to-chip communications products. Prior to joining MoSys Inc., Mr. Riordan was president and CEO of Exclara, a fabless semiconductor supplier of ICs for solid-state lighting, from 2006 until 2010. Before that, he was vice president of the microprocessor division of PMC-Sierra, Inc., a semiconductor company, from 2000 to 2004. From August 1991 to August 2000, Mr. Riordan was chief executive officer, president and a member of the board of directors of Quantum Effect Devices, Inc. (QED), a semiconductor design company that Mr. Riordan co-founded. QED went public on NASDAQ in 1999 and was subsequently acquired by PMC-Sierra. From February 1985 to June 1991, Mr. Riordan served in various design and managerial roles, most recently as director of research and development at MIPS Computer Systems, Inc., a semiconductor design company. From March 1983 to January 1985, Mr. Riordan served as a design engineer at Weitek Corporation, a semiconductor company. From October 1979 to February 1983, Mr. Riordan was a design engineer at Intel Corporation. Mr. Riordan also serves on the boards of directors of Mellanox Technologies Ltd., a semiconductor company since 2003, and several private companies. Mr. Riordan holds Bachelor of Science and Master of Science degrees in Electrical Engineering as well as a Bachelor of Arts degree in Government from the University of Central Florida and has done post-graduate work in Electrical Engineering at Stanford University. The Board selected Mr. Riordan to serve as a director largely because of his experience in building QED into a leading microprocessor company. QED (now part of PMC-Sierra) and PLX are both complex digital chip fabless semiconductor companies and therefore have many common characteristics such as design and manufacturing methodologies, supply chain systems and marketing and sales processes.

Robert H. Smith has been a director of PLX since November 2002. Mr. Smith has extensive experience in a variety of industries, including the semiconductor industry and has had management experience in a variety of roles. His experience as Chief Financial Officer of publicly held companies also provides valuable knowledge of financial statement preparation and regulatory compliance. From May 1995 to August 2002, Mr. Smith worked at Novellus Systems Inc., a semiconductor equipment manufacturer, where his last position was Executive Vice President of Administration in the Office of the CEO and board member. In 1994, Mr. Smith held the position of chairman of the board of directors for Micro Component Technology, Inc., a semiconductor test-equipment manufacturer. From 1986 through 1990, Mr. Smith served as the president of Maxwell Graphics, Inc., a printing company. From 1982 through 1986, Mr. Smith held chief financial officer positions with Maxwell Communications of North America Corp. and R. R. Donnelley and Sons, printing companies. He previously also held executive positions with Honeywell, Inc., Memorex Corp. and Control Data Corp. Mr. Smith is currently a member of the board of directors for ON Semiconductor Corporation and Cirrus Logic, Inc., semiconductor companies. He was also a member of the board of directors for Epicor Software Corporation, a software company from 2003 to 2011 and Virage Logic Corporation, a semiconductor company from 2003 to 2010. The Board selected Mr. Smith to serve as a director because he has served as chief financial officer, audit committee chairman and audit committee member for a variety of companies and he has an extensive understanding of the internal and external financial reporting of public companies.

Ralph Schmitt served as our President and Chief Executive Officer, and has been a member of our board of directors, since November 2008. He resigned from his position as CEO in October 2012 and continues to serve as a director. He has been involved in the semiconductor industry for more than 25 years in various diversified areas such as design, application, sales, marketing and general management. Mr. Schmitt has served on multiple semiconductor boards and has run four different semiconductor companies. In October 2012, Mr. Schmitt was appointed Chief Executive Officer of OCZ Technology group, which designs, manufactures, and distributes solid state drives and computer components. In April 2011, he joined the board of OCZ Technology Group and has chaired the Global Semiconductor Alliance (GSA) Emerging Company Council since 2008. Prior to joining our company, Mr. Schmitt consulted with a variety of venture capitalists, as well as acted as chief executive officer of Legend Silicon, a privately funded Chinese terrestrial digital TV semiconductor company. From June 2005 to August 2007, Mr. Schmitt served as the chief executive officer of Sipex, an analog semiconductor company, which merged with Exar Corporation in August 2007. Upon the completion of the merger, he was appointed chief executive officer and a director of Exar, positions he held until the end of 2007. From 1999 to 2005, Mr. Schmitt was the Executive Vice President of Sales, Marketing and Business Development for Cypress Semiconductor, a seller of a broad range of semiconductor products to global markets. He has also served on the boards at Cypress subsidiaries and other privately held semiconductor and systems companies. Mr. Schmitt received his BSEE from Rutgers University. The Board previously selected Mr. Schmitt to serve as a director because he was the chief executive officer of the Company, and is currently proposing his nomination as a director based on his experience in the semiconductor industry and his relationships with many executives and senior management at semiconductor companies throughout the United States.

Patrick Verderico has been a director of PLX since November 2004. He is an operations and financial executive with more than 25 years of industry and consulting experience with high technology companies. Mr. Verderico has extensive line experience in manufacturing, finance, planning, and international operations with service as a corporate officer in seven high technology companies in manufacturing, finance and executive management. Mr. Verderico’s international experience includes expatriate assignments in Latin America and Asia. He has served on the Board of Directors of three publicly traded semiconductor companies before joining the Board of PLX. Mr. Verderico is a certified public accountant and has both audit and compensation board committee experience. From 1992 to 2008, Mr. Verderico served as a director of Micro Component Technology, Inc., a semiconductor test equipment manufacturer. He also previously served on the board of directors of OSE USA, Inc., a semiconductor-packaging foundry, from 1997-2006 and Catalyst Semiconductor, a programmable integrated circuit manufacturer, from 1996-2000. From January 2001 to January 2003, he was Chief Financial Officer of Ubicom, an Internet processor and software company. From April 1997 to November 2000, he worked at OSE USA, Inc. where his last position was President and Chief Executive Officer. Prior to 1997, Mr. Verderico held executive positions with Maxtor as Chief Operating Officer, Creative Technology as Chief Financial Officer, Cypress Semiconductor as Chief Financial Officer, Philips Semiconductors as Vice President of Assembly Operations, National Semiconductor as Corporate Controller, and a former partner of Coopers & Lybrand. Mr. Verderico received a B.A. from the University of Akron and a Masters of Public Administration (M.P.A.) from Pennsylvania State University. The Board selected Mr. Verderico to serve as a director because he has broad financial and operational management experience with high technology companies, and has experience with board committee functions such as audit and compensation.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

PLX was founded in 1986, and between 1994 and 2002 we focused on development of I/O interface semiconductors and related software and development tools that are used in systems incorporating the PCI standard. In 1994 and 1995, a significant portion of our revenues were derived from the sale of semiconductor devices that perform similar functions as our current products, except they were based on a variety of industry standards. Our revenues between 1996 and 2007 were derived predominantly from the sale of semiconductor devices based on the PCI standard to a large number of customers in a variety of applications including enterprise, consumer, server, storage, communications, PC peripheral and embedded markets. In 2002, we shifted the majority of our development efforts to PCI Express. In September 2004, we began shipping products based on the PCI Express standard for next-generation systems. Between 2004 and 2007, an industry-wide adoption of the PCI Express standard took place. PCI Express went from being one of many new protocols in the market to becoming the interconnect of choice and a basic building block of systems. Being a market leader in PCI Express, our line of PCI Express switches and bridges followed suit and also gained traction in the market. PCI Express was so well accepted that a follow-on was called for. In December of 2006, PCI Express Rev 2.0 (commonly referred to as “PCIe Gen 2”) was released. The Gen 2 protocol doubled the bandwidth supported by PCI Express Gen 1 (from 2.5 Gigabits per second to 5.0 Gigabits per second) and incorporated a number of other protocol enhancements. In September 2007, we announced the addition of the Gen 2 switches to our PCI Express product family and began shipping in January 2008. We are currently ramping into production our newest products based on the Gen 3 specification.

PLX has extended its penetration into the overall enterprise market through the acquisition of Teranetics on October 1, 2010 and the introduction of devices that drive 10G Ethernet over industry standard copper cables. In order to address this market, we successfully launched our new 10GBase-T PHY products into production during the year, building on our leadership position at previous technology nodes.

We utilize a “fabless” semiconductor business model whereby we purchase wafers and packaged and tested semiconductor devices from independent manufacturing foundries. This approach allows us to focus on defining, developing, and marketing our products and eliminates the need for us to invest large amounts of capital in manufacturing facilities and work-in-process inventory.

We rely on a combination of direct sales personnel, distributors and manufacturers’ representatives throughout the world to sell a significant portion of our products. We pay manufacturers’ representatives a commission on sales while we sell products to distributors at a discount from the selling price.

Our gross margins have fluctuated in the past and are expected to fluctuate in the future due to changes in product and customer mix, provisions and recoveries of excess or obsolete inventory, the position of our products in their respective life cycles, and specific product manufacturing costs.

The time period between initial customer evaluation and design completion is generally between six and twelve months, though is can be longer in some circumstances. Furthermore, there is typically an additional six to twelve month or greater period after design completion before a customer requests volume production of our products. Due to the variability and length of these design cycles and variable demand from customers, we may experience significant fluctuations in new orders from month to month. In addition, we typically make inventory purchases prior to receiving customer orders. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our results for that quarter and potentially future quarters would be materially and adversely affected.

Our long-term success will depend on our ability to introduce new products. While new products typically generate little or no revenues during the first twelve months following their introduction, our revenues in subsequent periods depend upon these new products. Due to the lengthy sales cycle and additional time before our customers request volume production, significant revenues from our new products typically occur twelve to twenty-four months after product introduction. As a result, revenues from newly introduced products have, in the past, produced a small percentage of our total revenues in the year the product was introduced. See “Item 1A, Risk Factors - Certain Factors That May Affect Future Operating Results -- Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected Revenues” in this Form 10-K.

Liquidity and Capital Resources

Cash and Investments . We invest cash not needed for current operations predominantly in debt instruments that are highly liquid, of high-quality investment grade and predominantly have maturities of less than one year with the intent to make such funds readily available for operating purposes. As of December 31, 2011 cash, cash equivalents, short and long-term marketable securities were $19.8 million, a decrease of $3.8 million from $23.6 million at December 31, 2010, and a decrease of $20.2 million from $40.0 million at December 31, 2009.

Operating Activities . Cash used in operating activities primarily consists of net loss adjusted for certain non-cash items including depreciation, amortization, share-based compensation expense, impairments, fair value remeasurements, provisions for excess and obsolete inventories, other non-cash items, and the effect of changes in working capital and other activities. Cash used in operating activities in 2011 was $2.7 million compared to cash used in operating activities of $0.5 million in 2010. The increase in cash used in operations in 2011 was primarily due to the increased net loss in connection with the Teranetics acquisition and Network PHY operations and changes in our working capital. Our days sales outstanding decreased due to strong shipments late in December 2010 as compared to the same period in 2011. The decrease in inventory reflects our efforts to control inventory levels as orders softened in the fourth quarter of 2011. Our days payable outstanding decreased due to the decrease in inventory purchases and timing of vendor payments.

The decrease in cash flow used in operations in 2010 was primarily a function of a decrease in the net loss due to the 40.7% increase in revenues compared to 2009 and changes in our working capital. Our days sales outstanding increased due to strong shipments late in December. The increase in inventory reflects the continued improvement in available capacity in our supply chain. Our days payable outstanding in 2010 remained flat compared to 2009.

Investing Activities . Our investing activities are primarily driven by investment of our excess cash, sales of investments, business acquisitions and capital expenditures. Capital expenditures have generally been comprised of purchases of engineering equipment, computer hardware, software, server equipment and furniture and fixtures. The cash provided by investing activities in 2011 of $7.5 million was due to the sales and maturities of investments (net of purchases) of $10.0 million and $0.5 million cash received for the net assets transferred in the divestiture of the UK design team, partially offset by capital expenditures of $3.0 million. Cash provided by investing activities in 2010 of $6.5 million was due to the sales and maturities of investments (net of purchases) of $10.7 million, partially offset by capital expenditures of $3.4 million and cash used (net of cash acquired) in the acquisition of Teranetics of $0.8 million.

Financing Activities . Cash provided by financing activities in 2011 of $1.5 million was due to the borrowings against the line of credit of $2.0 million and the proceeds from the exercise of stock options of $0.4 million, partially offset by payments made on capital lease obligations of $0.9 million. Cash used in financing activities in 2010 of $11.5 million was due to the payments made on debt assumed in the acquisition of Teranetics of $11.2 million and capital lease obligations of $0.7 million, partially offset by proceeds from the exercise of stock options of $0.2 million and the excess tax benefit from share-based compensation of $0.2 million.

On October 1, 2010, we closed the acquisition of Teranetics. Under the merger agreement, we issued 7,399,980 shares of our common stock and cash of $922,000. In addition, we issued two promissory notes in the aggregate amount of approximately $6.9 million. One note was for the principal amount of approximately $1.5 million and was due in October 2013, and the other note was for the principal amount of $5.4 million and was due in October 2011 (this $5.4 million note was delivered into an escrow fund that may be used to satisfy indemnity obligations owed to PLX). The stated interest rate on the promissory notes was 0.46%. In accordance with the guidance related to business combinations, the promissory notes were fair valued based on market interest rates and the assessed fair value of the promissory notes are approximately $6.7 million. Due to indemnity claims we communicated to the Teranetics stockholders’ representative, we delayed payment of the $5.4 million note. As a result of the claims, we negotiated a $0.4 million reduction to the note due in October 2011 and a cancelation of the note due in October 2013. The remaining $5.0 million was paid on January 3, 2012. See Note 7 of the consolidated financial statements for additional information.

On September 30, 2011, we entered into an agreement with Silicon Valley Bank (SVB) to establish a two-year $10 million revolving loan facility. Borrowings under the credit facility bear interest at rates equal to the prime rate announced from time to time in The Wall Street Journal. As of December 31, 2011 the prime rate was 3.25%. The facility also provides for commitment, unused facility and letter-of-credit fees. As of December 31, 2011, we have outstanding borrowings of $2.0 million. The facility is subject to certain financial covenants for EBITDA, as defined in the agreement, and a monthly quick ratio computation (PLX’s cash, investments and accounts receivable divided by current liabilities). We were not in compliance with all financial covenants associated with this facility as of December 31, 2011. However, we received a waiver from SVB for the fourth quarter 2011 EBITDA covenant and future covenants have been adjusted. See Note 12 of the consolidated financial statements for additional information.

We continue to invest a significant amount of time and resources in the development of products for the 10G Ethernet over copper technology and have seen delays in the ramping of product sales for this technology. In 2011, we added $4.6 million in revenues, however, we also added $21.2 million of expenses. Although we anticipate solid demand for this technology, market acceptance of the technology, and products for it, depends upon numerous factors, including compatibility with other products, adoption of relevant interconnect standards, perceived advantages over competing products and the level of customer service available to support such products. LAN on Motherboard (“LOM”) integrated circuits made by others are critical components to building out the 10G Ethernet over copper market and the development of this market has been slower than anticipated. Continued delay or failure of the adoption of this technology would have a material adverse effect on our cash position.

We believe that our existing resources, together with cash generated from our operations will be sufficient to meet our capital requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including the level of investment we make in new technologies and improvements to existing technologies and the levels of monthly expenses required to launch new products. From time to time, we may also evaluate potential acquisitions and equity investments complementary to our technologies and market strategies. To the extent that existing resources and future earnings are insufficient to fund our future activities, we may need to raise additional funds through public or private financings. Given the current economic and credit conditions, additional funds may not be available or, if available, we may not be able to obtain them on terms favorable to us and our stockholders.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The U.S. Securities and Exchange Commission (“SEC”) has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies which involve the use of estimates, judgments and assumptions that are significant to understanding our results. For additional information see Note 1 to the consolidated financial statements. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Revenue Recognition . We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is reasonably assured.

Revenue from product sales to customers is recognized upon shipment and transfer of risk of loss if we believe collection is reasonably assured and all other revenue recognition criteria are met. We assess the probability of collection based on a number of factors, including past transaction history and the customer’s creditworthiness. At the end of each reporting period, the sufficiency of allowances for doubtful accounts is assessed based on the age of the receivable and the individual customer’s creditworthiness.

We offer pricing protection to two distributors whereby we support the distributor’s resale product margin on certain products held in the distributor’s inventory. We analyze current requests for credit in process, also known as ship and debits, and inventory at the distributor to determine the ending sales reserve required for this program. We also offer stock rotation rights to three distributors such that they can return up to a total of 5% of products purchased every six months in exchange for other PLX products of equal value. We analyze current stock rotation requests and past experience, which has historically been insignificant, to determine the ending sales reserve required for this program. In addition, we had arrangements with a small number of customers offering a rebate program on various products, which were terminated in June 2010. We recorded rebates as a reduction of revenue when the rebate was in the form of cash consideration. Reserves are reduced directly from revenue and recorded as a reduction to accounts receivable.

For license and service agreements, we evaluate revenue agreements under the accounting guidance for multiple-deliverable revenue arrangements. A multiple-deliverable arrangement is separated into more than one unit of accounting if (a) the delivered item(s) has value to the customer on a stand-alone basis, and (b) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If both of these criteria are not met, the arrangement is accounted for as a single unit of accounting which would result in revenue being recognized ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If these criteria are met for each, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price. The selling price for each element is based upon the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available.

On occasion, we enter into development service arrangements in which customer payments are tied to achievements of specific milestones. We have elected to use the milestone method of revenue recognition for development service agreements upon the achievement of substantive milestones. When determining if a milestone is substantive, we assess whether the milestone consideration (a) is commensurate with our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of the outcome from our performance, (b) relates solely to past performance and (c) is reasonable relative to all deliverables and payments terms within the arrangement.

Inventory Valuation. We evaluate the need for potential inventory provisions by considering a combination of factors, including the life of the product, sales history, obsolescence, and sales forecast. Any adverse changes to our future product demand may result in increased provisions, resulting in decreased gross margin. In addition, future sales on any of our previously written down inventory may result in increased gross margin in the period of sale.

Allowance for Doubtful Accounts. We evaluate the collectability of our accounts receivable based on length of time the receivables are past due. Generally, our customers have between thirty days to forty five days to remit payment of invoices. We record reserves for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. Once we have exhausted collection efforts, we will reduce the related accounts receivable against the allowance established for that receivable. We have certain customers with individually large amounts due at any given balance sheet date. Any unanticipated change in one of those customers’ creditworthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on our results of operations in the period in which such changes or events occur. Historically, our write-offs have been insignificant.

Goodwill . Our methodology for allocating the purchase price related to business acquisitions is determined through established valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the amounts assigned to identifiable tangible and intangible assets acquired less assumed liabilities. We have one operating segment and business reporting unit, the sales of semiconductor devices, and we perform goodwill impairment tests annually during the fourth quarter and between annual tests if indicators of potential impairment exist.

Long-lived Assets. We review long-lived assets, principally property and equipment and identifiable intangibles, for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. In addition, if we determine the useful life of an asset is shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful life.

Taxes. We account for income taxes using the asset and liability method. Deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. As of December 31, 2011, we carried a valuation allowance for the net deferred tax asset as a result of uncertainties regarding the realization of the asset balance (see Note 11 to the consolidated financial statements). The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We must make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. As of December 31, 2011, a valuation allowance continues to be recorded for the deferred tax assets based on management’s assessment that realization of deferred tax assets is uncertain due to the history of losses, the variability of operating results and the inability to conclude that it is more likely than not that sufficient taxable income would be generated in future periods to realize those deferred tax assets. Future taxable income and/or tax planning strategies may eliminate all or a portion of the need for the valuation allowance. In the event we determine we are able to realize our deferred tax asset, an adjustment to the valuation allowance may significantly increase income in the period such determination is made.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

OVERVIEW

PLX Technology, Inc. ("PLX" or the "Company"), a Delaware corporation established in 1986, designs, develops, manufactures, and sells integrated circuits that perform critical system connectivity functions. These interconnect products are fundamental building blocks for standards-based electronic equipment. We market our products to major customers that sell electronic systems in the enterprise, consumer, server, storage, communications, PC peripheral and embedded markets.

On April 30, 2012, we announced that we entered into an agreement to be acquired by IDT, summarized in Note 1 of Notes to Condensed Consolidated Financial Statements.

The explosive growth of cloud-based computing has provided a significant opportunity for PLX, since the data centers that house these systems are limited by their ability to offer high performance, low cost, low power, scalable interconnection. The level of integration is increasing, and the need for rapid expansion forces these customers to build their systems using standard-based, off-the-shelf devices. The industry has converged around two general purpose interconnection standards, PCI Express and Ethernet.

PLX is a market share leader in PCI Express switches and bridges. We recognized the trend towards this serial, switched interconnect technology early, launched products for this market long before our competitors, and have deployed multiple generations of products to serve a general-purpose market. In addition to enabling customer differentiation through our product features, the breadth of our product offering is in itself a significant benefit to our customers, since we can serve the complete needs of our customers with cost-effective solutions tailored to specific system requirements. PLX supplies an extensive portfolio of PCI Express switches; PCI Express bridges that allow backward compatibility to the previous PCI standard; and our newest bridge enables seamless interoperability between two of the most popular mainstream interconnects: PCI Express and USB 3.0. Our long experience with PCI Express connectivity products enables PLX to deliver reliable devices that operate in non-ideal real-world, system environments.

PLX offers a complete solution consisting of semiconductor devices, software development kits, hardware design kits, software drivers, and firmware solutions that enable added-value features in our products. We differentiate our products by offering higher performance at lower power, by enabling a richer customer experience based on proprietary features that enable system-level customer advantages, and by providing capabilities that enable a customer to get to market more quickly.

We utilize a “fabless” semiconductor business model whereby we purchase wafers and packaged and tested semiconductor devices from independent manufacturing foundries. This approach allows us to focus on defining, developing, and marketing our products and eliminates the need for us to invest large amounts of capital in manufacturing facilities and work-in-process inventory.

We rely on a combination of direct sales personnel, distributors and manufacturers’ representatives throughout the world to sell a significant portion of our products. We pay manufacturers’ representatives a commission on sales while we sell products to distributors at a discount from the selling price.

The time period between initial customer evaluation and design completion is generally between six and twelve months, though it can be longer in some circumstances. Furthermore, there is typically an additional six to twelve month or greater period after design completion before a customer requests volume production of our products. Due to the variability and length of these design cycles and variable demand from customers, we may experience significant fluctuations in new orders from month to month. In addition, we typically make inventory purchases prior to receiving customer orders. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our results for that quarter and potentially future quarters would be materially and adversely affected.

Our long-term success will depend on our ability to successfully introduce new products. While new products typically generate little or no revenue during the first twelve months following their introduction, our revenues in subsequent periods depend upon these new products. Due to the lengthy sales cycle and additional time before our customers request volume production, significant revenues from our new products typically occur twelve to twenty-four months after product introduction. As a result, revenues from newly introduced products have, in the past, produced a small percentage of our total revenues in the year the product was introduced. See –“Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected Revenues” in Item 1A, Risk Factors, in Part II of this report on Form 10-Q.

Discontinued operations

On September 20, 2012, the Company completed the sale of its physical layer 10GBase-T integrated circuit (“PHY”) family of products pursuant to an Asset Purchase Agreement between the Company and Aquantia Corporation dated September 14, 2012. On July 6, 2012, the Company had also entered into an Asset Purchase Agreement (the “Entropic APA”) with Entropic Communications, Inc., pursuant to which the Company completed the sale of its digital channel stacking switch product line within the PHY product family, including certain assets exclusively related to the product line. The 10G Ethernet market has developed more slowly than had previously been anticipated and the divestiture was intended to reduce future spending and operating losses associated with this business. The operations of the PHY related business have been segregated from continuing operations and are presented as discontinued operations in the Company’s consolidated statement of operations. Unless otherwise indicated, the following discussions in Results of Operations pertain only to our continuing operations.

Provision for Income Taxes

A provision for income tax of $0.5 million has been recorded for the nine month period ended September 30, 2012, compared to a provision of $1.8 million for the same period in 2011. Income tax expense for the nine months ended September 30, 2012 and September 30, 2011 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items which are fully recognized in the period they occur and miscellaneous state income taxes. We excluded from our calculation of the effective tax rate losses in the US since we cannot benefit those losses.

We have determined that negative evidence supports the need for a full valuation allowance against our net deferred tax assets at this time. We will maintain a full valuation allowance until sufficient positive evidence exists to support a reversal of the valuation allowance.

As of September 30, 2012, we had unrecognized tax benefits of approximately $4.4 million of which none, if recognized, would result in a reduction of our effective tax rate. There were no material changes in the amount of unrecognized tax benefits during the nine months ended September 30, 2012. Future changes in the balance of unrecognized tax benefits will have no impact on the effective tax rate as they are subject to a full valuation allowance. We do not believe the amount of our unrecognized tax benefits will significantly change within the next twelve months.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. The tax years 2007 through 2011 remain open to examination by the federal and most state tax authorities. Net operating loss and tax credit carryforwards generated in prior periods remain open to examination.

Liquidity and Capital Resources

Cash and Investments

We invest excess cash predominantly in debt instruments that are highly liquid, of high-quality investment grade, and predominantly have maturities of less than one year with the intent to make such funds readily available for operating purposes. As of September 30, 2012 cash, cash equivalents, short and long-term marketable securities were $17.9 million, a decrease of $1.9 million from $19.8 million at December 31, 2011.

Operating Activities

Cash used in operating activities primarily consists of net loss adjusted for certain non-cash items including depreciation, amortization, share-based compensation expense, impairments, fair value remeasurements, provisions for excess and obsolete inventories, other non-cash items, and the effect of changes in working capital and other activities. Cash used in operating activities for the nine months ended September 30, 2012 was $7.3 million compared to cash used in operating activities of $4.2 million in the same period in 2011 and included net loss from discontinued operations, adjusted for non-cash items, of $13.0 million and $13.9 million, respectively. The increase in cash flow used in operations was primarily due to an increased net loss, adjusted for non-cash and non-operating items and changes in our working capital. Our days sales outstanding increased due to strong shipments late in September 2012 as compared to the same period in 2011. The decrease in inventory from September 30, 2011 reflects our efforts to control inventory levels and the inventory transferred to Aquantia; however inventory purchases increased in the nine months ended September 30, 2012 compared to the same period in 2011 to support customer demand. Our days payable outstanding increased due to timing of vendor payments. In addition to the changes in accounts receivables, inventories and accounts payable, the increase in cash used in working capital related items is due to an increase in prepaid software licenses and an income tax refund received in 2011, partially offset by an increased variable compensation accrual in 2012 combined with a larger variable compensation payment in the first quarter of 2011.

Investing Activities

Our investing activities are primarily driven by investment of our excess cash, sales of investments, business acquisitions and divestitures and capital expenditures. Capital expenditures have generally been comprised of purchases of engineering equipment, computer hardware, software, server equipment and furniture and fixtures. The cash provided by investing activities for the nine months ended September 30, 2012 of $11.1 million was due to proceeds received from the sale of the PHY business of $9.0 million and the sales and maturities of investments (net of purchases) of $4.1 million, partially offset by capital expenditures of $2.0 million. Cash provided by investing activities for the nine months ended September 30, 2011 of $6.5 million was due to the sales and maturities of investments (net of purchases) of $9.0 million, partially offset by capital expenditures of $2.5 million.

Financing Activities

Cash used in financing activities for the nine months ended September 30, 2012 of $1.4 million was due to payment of the note associated with the acquisition of Teranetics of $4.8 million and payments made on capital lease obligations of $0.5 million, partially offset by borrowings against the line of credit (net of principal payments) of $3.0 million and proceeds from the exercise of stock options of $1.0 million. Cash provided by financing activities for the nine month period ended September 30, 2011 of $1.5 million was due to borrowings against the line of credit of $2.0 million and the proceeds from the exercise of stock options of $0.1 million, partially offset by the payments made on capital lease obligations of $0.6 million.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. The U.S. Securities and Exchange Commission (“SEC”) has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies which involve the use of estimates, judgments and assumptions that are significant to understanding our results. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance, where applicable, has occurred, the fee is fixed or determinable, and collection is reasonably assured.

Revenue from product sales to direct customers and distributors is recognized upon shipment and transfer of risk of loss, if we believe collection is reasonably assured and all other revenue recognition criteria are met. We assess the probability of collection based on a number of factors, including past transaction history and the customer’s creditworthiness. At the end of each reporting period, the sufficiency of allowances for doubtful accounts is assessed based on the age of the receivable and the individual customer’s creditworthiness.

As of September 30, 2012, we offer pricing protection to two distributors whereby the Company supports the distributor’s resale product margin on certain products held in the distributor’s inventory. We analyze current requests for credit in process, also known as ship and debits, and inventory at the distributor to determine the ending sales reserve required for this program. We also offer stock rotation rights to three distributors such that they can return up to a total of 5% of products purchased every six months in exchange for other PLX products of equal value. We analyze inventory at distributors, current stock rotation requests and past experience, which has historically been insignificant, to determine the ending sales reserve required for this program. Provisions for reserves are charged directly against revenue and related reserves are recorded as a reduction to accounts receivable.

For license and service agreements, we evaluate revenue agreements under the accounting guidance for multiple-deliverable revenue arrangements. A multiple-deliverable arrangement is separated into more than one unit of accounting if (a) the delivered item(s) has value to the customer on a stand-alone basis, and (b) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If both of these criteria are not met, the arrangement is accounted for as a single unit of accounting which would result in revenue being recognized ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If these criteria are met for each, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price. The selling price for each element is based upon the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available.

Revenues from the licensing of our intellectual property are recognized when the significant contractual obligations have been fulfilled.

On occasion, we enter into development service arrangements in which customer payments are tied to achievements of specific milestones. We have elected to use the milestone method of revenue recognition for development service agreements upon the achievement of substantive milestones. When determining if a milestone is substantive, we assess whether the milestone consideration (a) is commensurate with our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of the outcome from our performance, (b) relates solely to past performance and (c) is reasonable relative to all deliverables and payments terms within the arrangement.

Inventory Valuation

We evaluate the need for potential inventory provisions by considering a combination of factors, including the life of the product, sales history, obsolescence, sales forecasts and expected sales prices. Any adverse changes to our future product demand may result in increased provisions, resulting in decreased gross margin. In addition, future sales on any of our previously written down inventory may result in increased gross margin in the period of sale.

Allowance for Doubtful Accounts

We evaluate the collectibility of our accounts receivable based on length of time the receivables are past due. Generally, our customers have between thirty to forty five days to remit payment of invoices. We record reserves for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. Once we have exhausted collection efforts, we will reduce the related accounts receivable against the allowance established for that receivable. We have certain customers with individually large amounts due at any given balance sheet date. Any unanticipated change in one of those customers’ creditworthiness or other matters affecting the collectibility of amounts due from such customers could have a material adverse effect on our results of operations in the period in which such changes or events occur. Historically, our write-offs have been insignificant.

Goodwill

Our methodology for allocating the purchase price related to business acquisitions is determined through established valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the amounts assigned to identifiable tangible and intangible assets acquired less assumed liabilities. We have one operating segment and business reporting unit, the sales of semiconductor devices, and we perform goodwill impairment tests annually during the fourth quarter and between annual tests if indicators of potential impairment exist.

Long-lived Assets

We review long-lived assets, principally property and equipment and identifiable intangibles, for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. In addition, if we determine the useful life of an asset is shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful life.

CONF CALL

Arthur Whipple - Chief Financial Officer
Good afternoon and thank you for joining us today. I’ll start the session with a review of our fourth quarter 2009 and year end 2009 financial performance and Ralph Schmitt; our CEO will provide more information on our business. I will then provide some 2010 financial estimates. There will be an opportunity for your questions after our prepared remarks.

As we begin I’d like to point out that certain statements made in the course of this call regarding our expectations and associated projection will be forward-looking statements. These statements will include comments relating to the introduction and adoption of new products, the projection of financial results, the development of next generation technologies and other areas and will be made both in our prepared remarks and in the subsequent Q&A session.

Our forward-looking statements deal with future events and are subject to risks and uncertainties and our actual results could differ materially from our current expectations. Some of the factors that could cause such differences are described in our press release dated January 25, 2010 and in our various SEC filings including our reports on Form 10-Q for the quarters ended March 31, June 30 and December 30, 2009 and on Form 10-K for the year ended December 31, 2008.

Our press release issued earlier today includes financial statements and other information related to our performance this quarter and full year. Let’s take a look at some highlights of that information.

Net revenues for the fourth quarter were $26.6 million, up 24% from $21.6 million last quarter and up 88% from $14.2 million for the same quarter a year ago. The fourth quarter revenue is a record for PLX beating the previous record of $23.4 million in the second quarter of 2008.

The increase in revenues this quarter was led by PCI Express which grew 54% quarter over quarter to $11.9 million. This number is a record for PCI Express which slightly exceeded the previous peak in the June quarter of 2008.

Connectivity revenues also showed healthy growth with a 28% increase quarter over quarter. Storage revenues were down 22% reflecting seasonal weakness in consumer storage.

PCI Express revenues, storage revenues and connectivity revenues were 45%, 17% and 38% of revenues respectively.

For the full year revenues were $82.8 million, up 2% from 2008. PCI Express revenues were $31.8 million down 16% from $38.1 million in 2008. It should be noted that our distribution inventory grew by $2.5 million during the quarter, but stayed flat at 37 days due to higher consumer by end customers.

In the fourth quarter gross margin was 59.1% and was higher than expected. Gross margin for the year was 56.7%.

Operating expenses for the fourth quarter were $13.4 million including $938,000 of stock compensation and amortization of acquired intangibles. Quarter on quarter R&D and SG&A costs net of stock compensation charges were both down slightly.

We had a credit provision for income tax of $194,000 for 2009. We continue to maintain a full valuation allowance on our deferred tax assets.

We are reporting net income of almost $2.6 million for the quarter. This is the second highest quarterly net income for PLX since we’ve been issuing public financial statements. The record for the company was $3.4 million reported for the first quarter of 2000 at the height of the dot com bubble.

On the balance sheet, cash and investments increased by $1.5 million in the current quarter to $40 million. Accounts receivable was $9.2 million for DSO of 32 days. The particularly lower DSO reflects unusually strong shipments early in the quarter.

We had $9.6 million or 81 days of inventory on hand at the end of the quarter. Also at the end of the quarter we had 197 full time and five part time employees. This compares to 216 full time employees and five part time employees at the end of March 2009 after the dust had settled on the Oxford acquisition.

Now Ralph has comments on the business.

Ralph Schmitt - President, Chief Executive Officer
I must first state that it is with great pleasure that I congratulate the PLX team on an outstanding quarter. Top line revenue, gross margin and metrics exceeded expectations and even our internal plans.

Two quarters ago I announced that we’ll be GAAP profitable by the end of the year and our employees delivered on that promise, and it is their commitment and dedication that makes this such an outstanding team. It is not a situation where the rising tide lifts all boats. We’ve made progress in customer design wins allowing us to grow more rapidly than the industry.

Our enterprise business PCI Express products led the way with a record quarter as Art mentioned. A baseline to this growth, we’re seeing a rebound in IT spending driven by data center needs and expansion.

We also continue to see the proliferation of this technology as we saw some new application such as mother boards and industrial systems emerge while communications and enterprise storage continue to expand.

We also had an excellent quarter with our consumer network attached storage product as this market continues to become more and more mainstream. The ability to share videos, pictures and music to multiple PC’s and other consumer platforms is proliferating.

The most recent generation of products have a very high ease of use factor with a price point that is close to DAS products. PLX enables this both through low cost silicon and high value software. While NAS was strong our DAS products saw the typical seasonal downtrend that happens in the fourth quarter.

In the quarter we also saw a rebound in our connectivity products driven primarily by the communications and industrial markets. The products in this category are typically USB and PCI based. These products have higher gross margins purchased mostly by smaller customers through the distribution channel.

I would like to make one final comment regarding the year’s results. 2009 is the company’s first growth year in the past three years. While some of this was accomplished through acquisition, it was also during a significant economic downturn. It shows that we will do whatever it takes to build a growing profitable business no matter what the market conditions.

Now, I’ll patch it over to Art to take a look at our expectations for Q1.

Ralph Schmitt - President, Chief Executive Officer
Let’s take a look at our first quarter 2010 business outlook. Please remember that the following statements are based on our current expectations and we do not intend to update or confirm this guidance during the quarter.

Based on end customer and channel checks we believe that we will have revenues of $27 million to $29 million for the first quarter. Gross margin will be subject to some variation resulting from product mix. We expect gross margin to be approximately 56%.

Operating expenses are expected to be approximately $15 million. Included in operating expenses are share based compensation and acquisition related amortization charges of approximately $900,000.

R&D costs will continue at relatively high levels reflecting planned new product development costs in the quarter. For the full year we are currently planning to spend approximately $65 million for R&D and SG&A excluding stock compensation charges.

We have completed our prepared remarks. Let’s open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Blake Harper – Signal Hill.

Blake Harper - Signal Hill
If you start off with the PCI Express growth, you’re talking about some of the catalysts there with the rebound in IT spending and data center. You talked earlier though about some of the mix that had gone on there and the drift away from the server into the other markets. Maybe you could talk about that and some of that was some of the catalyst that gave you some of the growth there and how you see that mix played out for you right now and where you see it going.

Ralph Schmitt - President, Chief Executive Officer
I think the trend has been happening now over the last couple of quarters. It’s just really continuing. In the fourth quarter the server revenue in PCI Express was about 40% of the total. In the beginning of the year it was almost 60%. That shift has started to happen. On a relative dollar basis, obviously though the server business has gone up during that time frame.

But what is I guess exciting for us is that some new things are popping up. I would not have anticipated being on mother boards as an opportunity. I’ll want to temper that a bit by just saying that it’s really on the high end of the spectrum, mostly around the graphics space mother board systems. But it is a new application area that we hadn’t forecasted or been involved with even just a few quarters ago.

The one area that just continues to proliferate really is in the networking space, very, very rapid growth there as more and more people are migrating away from proprietary solutions for PCI based solutions, the PCI Express.

Blake Harper - Signal Hill
Also last quarter you had talked about some supply constraints that you had and some availability with product but you did actually put up a pretty good number on the top line. I just wanted to know how that dynamic played out for you, if you still see the supply being tight or if you have that problem solved and how that affected your guidance that you just gave today.

Ralph Schmitt - President, Chief Executive Officer
That’s a lot of questions. But yes, it was a difficult quarter from a supply perspective and the operations team here really went over and above to keep impacting a higher number as the quarter went on. Our partners were very influential and obviously being able to support that and we appreciate their support.

I think we’re going to live through this for at least the next quarter or even the next two quarters because demand is still there obviously, based on the guidance that we showed you and based on what we have in the pipeline and our ability to supply and that mix that comes out, we believe that’s the correct revenue range to be talking about for Q1.

Typically, the Q1 quarter is either slightly down in general both in the consumer market space and typically in enterprise, and we’re showing a quarter that’s actually a growth quarter.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

2555 Views