Mindspeed Reports Fiscal Third Quarter 2010 Results

Company Delivers Target Non-GAAP Operating Margin of 15% and Non-GAAP Net Income of $0.18 Per Share

NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- Mindspeed Technologies, Inc. (NASDAQ: MSPD), a leading supplier of semiconductor solutions for network infrastructure applications, today reported results for its fiscal third quarter of 2010, which ended on July 2, 2010.

Fiscal Third Quarter 2010 Financial Highlights:

• Total Revenue: $43.3 million, up 8 percent from the prior fiscal quarter.
• Non-GAAP Gross Margin: 64.3 percent, down from 64.5 percent in the prior fiscal quarter; GAAP Gross Margin: 64.2 percent, down from 64.4 percent in the prior fiscal quarter.
• Non-GAAP Operating Margin: 15 percent, up from 12 percent in the prior fiscal quarter; GAAP Operating Margin: 12 percent, up from 8 percent in the prior fiscal quarter.
• Non-GAAP Diluted Earnings per Share: $0.18, up from $0.15 in the prior fiscal quarter; GAAP diluted earnings per share: $0.15, up from $0.10 in the prior fiscal quarter.
• Generated approximately $2.8 million of cash; the company ended the fiscal third quarter of 2010 with cash totaling $34.1 million.

Revenues for the fiscal third quarter of 2010 were $43.3 million and increased sequentially by 8 percent from revenues of $40.3 million in the prior fiscal quarter and increased year-over-year by 33 percent from revenues of $32.5 million in the fiscal third quarter of 2009.

Revenues from communications convergence processing solutions, formerly known as multiservice access, contributed 41 percent of fiscal third quarter of 2010 product revenues and increased 10 percent sequentially from the prior fiscal quarter. Revenues from high-performance analog products increased 6 percent sequentially from the prior fiscal quarter and represented 33 percent of product revenues. Wide area networking communications revenues contributed the remaining 26 percent of fiscal third quarter of 2010 product revenues and increased 5 percent sequentially from the prior fiscal quarter.

The company’s non-GAAP gross margin was $27.8 million, or 64.3 percent of revenues, for the fiscal third quarter of 2010. This is compared to the company’s non-GAAP gross margin of $26.0 million, or 64.5 percent of revenues, for the prior fiscal quarter. Presented on a GAAP basis, gross margin for the fiscal third quarter of 2010 was $27.8 million, or 64.2 percent of revenues, compared to $25.9 million, or 64.4 percent of revenues, for the prior fiscal quarter.

Total non-GAAP operating expenses for the fiscal third quarter of 2010 were $21.5 million, up $0.2 million sequentially from $21.3 million in the prior fiscal quarter. Total GAAP operating expenses for the fiscal third quarter of 2010 were $22.7 million, up $0.2 million when compared to total GAAP operating expenses for the prior fiscal quarter.

Non-GAAP operating income for the fiscal third quarter of 2010 was $6.3 million, compared to non-GAAP operating income of $4.7 million for the prior fiscal quarter. On a GAAP basis, operating income for the fiscal third quarter of 2010 was $5.0 million, compared to operating income of $3.4 million in the prior fiscal quarter.

The company’s non-GAAP net income for the fiscal third quarter of 2010 was $6.2 million, or $0.18 per share. This compares to a non-GAAP net income for the prior fiscal quarter of $4.5 million, or $0.15 per share. Presented on a GAAP basis, the company’s net income was $4.9 million, or $0.15 per share, for the fiscal third quarter of 2010, which includes stock-based compensation and related payroll costs, employee separation costs and legal settlement costs, among other items. This compares to a GAAP net income of $3.1 million, or $0.10 per share, for the prior fiscal quarter, which includes stock-based compensation and related payroll costs and restructuring charges, among other items. Reconciliations of the non-GAAP measures to GAAP measures are included in the accompanying financial data.

In the fiscal third quarter of 2010, the company generated approximately $2.8 million of cash. The company ended the quarter with cash totaling $34.1 million.

Commentary

“The third quarter was a significant quarter for Mindspeed as we achieved another quarter of record product revenue and we achieved our target operating model of 15 percent non-GAAP operating margin. Looking forward, we believe that our market leading positions in key product cycles such as fiber optic access, high-performance analog switching and signal conditioning for the enterprise and lastly, our newest initiative into the burgeoning 3G/4G wireless infrastructure market will allow us to deliver continued strong operating performance,” said Raouf Y. Halim, Mindspeed’s chief executive officer.

Outlook

Mindspeed expects fiscal fourth quarter of 2010 revenues to grow between 1 and 6 percent, or to approximately $43.7 million to $45.9 million, from the fiscal third quarter of 2010, excluding $7.5 million in expected patent sales that we announced today. The company expects fiscal fourth quarter of 2010 non-GAAP gross margin to be approximately 63.5 to 64.0 percent, excluding the expected patent sales. The company also expects non-GAAP operating expenses to be approximately $21.8 million in the fiscal fourth quarter of 2010, excluding $1.5 million in operating expense associated with the expected patent sales.

Fiscal Third Quarter 2010 Conference Call

Mindspeed will conduct a conference call announcing its third quarter fiscal 2010 results on Monday, July 26, 2010, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time. To listen to the conference call via telephone, call 800-593-9968 (domestic) or 210-795-2680 (international); password: Mindspeed. To listen via the Internet, please visit the Investors section of Mindspeed's web site at www.mindspeed.com. Replay of the conference call will be available via telephone for a period of 30 days beginning one hour after the conference call concludes by calling 866-423-4831 (domestic) or 203-369-0844 (international). Replay will also be available in the Investors section of Mindspeed’s web site at www.mindspeed.com during such 30 day period.

About Mindspeed Technologies

Mindspeed Technologies, Inc. designs, develops and sells semiconductor solutions for communications applications in the wireline and wireless network infrastructure, which includes today's separate but interrelated and converging enterprise, broadband access, metropolitan and wide area networks. Our products are classified into three focused product families: communications convergence processing, high-performance analog and wide area networking communications. Our products are sold to original equipment manufacturers (OEMs) for use in a variety of network infrastructure equipment, including voice and media gateways, high-speed routers, switches, access multiplexers, cross-connect systems, add-drop multiplexers, digital loop carrier equipment, IP private branch exchanges (PBXs), optical modules, broadcast video systems and wireless base station equipment.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include statements regarding the company's expectations, goals or intentions, including but not limited to, statements under the headings “Commentary” and “Outlook” regarding: the future of the company’s business and operating performance; market positions; growth driven by the company’s fiber optic access, high-performance analog switching and signal conditioning for the enterprise and wireless infrastructure product cycles; business trends and economic cycles; and expected levels of revenues, gross margin and operating expenses. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about the company and are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements. These risks and uncertainties include, but are not limited to: fluctuations in our operating results and future operating losses; worldwide political and economic uncertainties and specific conditions in the markets we address; fluctuations in the price of our common stock; constraints in the supply of wafers and other product components from our third-party manufacturers; cash requirements and terms and availability of financing; loss of or diminished demand from one or more key customers or distributors; our ability to attract and retain qualified personnel; doing business internationally and our ability to successfully and cost effectively establish and manage operations in foreign jurisdictions; pricing pressures and other competitive factors; successful development and introduction of new products; order and shipment uncertainty; our ability to obtain design wins and develop revenues from them; lengthy sales cycles; the expense of and our ability to defend our intellectual property against infringement claims by others; product defects and bugs; business acquisitions and investments; and our ability to utilize our net operating loss carryforwards and certain other tax attributes. Risks and uncertainties that could cause the company's actual results to differ from those set forth in any forward-looking statement are discussed in more detail under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the company's Quarterly Report on Form 10-Q for the quarter ended April 2, 2010, as well as similar disclosures in the company's subsequent SEC filings. Forward-looking statements contained in this press release are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures

We provide non-GAAP measures as a supplement to financial results based on GAAP. A detailed reconciliation of the non-GAAP results to the most directly comparable GAAP measures is set forth above under the heading “Reconciliation of Non-GAAP Measures to GAAP Measures.” Investors are encouraged to review this reconciliation. We believe the presentation of non-GAAP measures provides investors with additional insight into underlying operating results and prospects for the future by excluding stock-based compensation and related payroll costs, asset impairments, amortization of intangible assets, legal settlement costs, employee separation costs, costs related to our reverse stock split and employee option exchange program, the effects of special charges such as asset impairments and restructuring charges, gain on extinguishment of debt and/or non-cash interest expense on our convertible senior notes. We have historically reported similar financial measures and believe that the inclusion of comparative numbers provides consistency in our financial reporting.

We use non-GAAP gross margin, research and development expenses, selling, general and administrative expenses, operating expenses, operating income/(loss), other income/(expense), net, net income/(loss) and net income/(loss) per share internally to evaluate our operating performance and to determine certain components of management compensation. In addition, we use these non-GAAP measures for internal budgets and forecasts. We believe that these non-GAAP measures can be useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making.

Non-GAAP gross margin excludes stock-based compensation expense and related payroll costs, amortization of intangible assets and asset impairments. Non-GAAP research and development expenses excludes stock-based compensation and related payroll costs, asset impairments and employee separation costs. Non-GAAP selling, general and administrative expenses excludes stock-based compensation and related payroll costs, asset impairments, employee separation costs, legal settlement costs, reverse stock split costs and employee option exchange costs. Non-GAAP operating expenses excludes stock-based compensation expense and related payroll costs, asset impairments, employee separation costs, legal settlement costs, special charges, reverse stock split costs and employee option exchange costs. Non-GAAP operating income/(loss) excludes stock-based compensation expense and related payroll costs, employee separation costs, amortization of intangible assets, asset impairments, legal settlement costs, special charges, reverse stock split costs and employee option exchange costs. Non-GAAP other income/(expense), net, excludes gain on extinguishment of debt and non-cash interest expense on our convertible senior notes. Non-GAAP net income/(loss) and non-GAAP net income/(loss) per share exclude stock-based compensation expense and related payroll costs, amortization of intangible assets, asset impairments, employee separation costs, legal settlement costs, special charges, reverse stock split costs, employee option exchange costs, gain on extinguishment of debt and non-cash interest expense on our convertible senior notes.

We exclude stock-based compensation and related payroll costs from non-GAAP measures because we believe that excluding these costs can enhance the understanding of our performance. We exclude the amortization of intangible assets and asset impairments from non-GAAP measures because we believe it provides a helpful perspective on our operating performance. We exclude special charges, employee separation costs, legal settlement costs, reverse stock split costs, costs related to our employee option exchange program and non-cash interest expense on our convertible senior notes because they include restructuring charges, asset impairments or other significant discrete items that may not be indicative of our ongoing operations or economic performance. We exclude gain on debt extinguishment because it is considered by management to be outside our core operating activities.

We do not provide forward-looking GAAP measures or a reconciliation of the forward-looking non-GAAP measures to GAAP measures because of our inability to project special charges, asset impairments, employee separation costs and stock-based compensation and related payroll costs.

The non-GAAP financial measures we provide have certain limitations because they do not reflect all of the costs associated with the operation of our business as determined in accordance with GAAP. The non-GAAP measures are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. We endeavor to compensate for the limitations of these non-GAAP measures by providing GAAP financial statements, descriptions of the reconciling items and a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures so that investors can appropriately incorporate the non-GAAP measures and their limitations into their analyses. For complete information on stock-based compensation and related payroll costs, amortization of intangible assets, asset impairments, our reverse stock split, our employee option exchange program, employee separation costs, legal settlement costs, special charges, gain on extinguishment of debt and non-cash interest expense on our convertible senior notes, please see our financial statements and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” that will be included in the periodic report we expect to file with the SEC with respect to the financial periods discussed herein.

CONTACT:

Press Relations Contact:
Magnet PR Group
Lisa Briggs, 949-305-5131
lisab@magnetprgroup.com
or
Investor Relations Contact:
Mindspeed Technologies, Inc.
Andrea D. Williams, 949-579-3111

KEYWORDS:   United States  North America  California

INDUSTRY KEYWORDS:   Technology  Networks  Telecommunications  Semiconductor

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