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Profitable Quarter Still Eludes Applied Micro Circuits

Some day down the line, Applied Micro Circuits Corp., a San Diego maker of high-speed chips and storage equipment used by major telecom equipment manufacturers, may turn a profit. But that day appears to be still a ways off.

Last week, AMCC reported yet another quarterly loss, and the prospects for breaking even weren’t mentioned during an analysts’ conference Oct. 19.

For the firm’s second quarter ended Sept. 30, AMCC reported a net loss of $18.3 million on revenues of $61.1 million, compared with a net loss of $21.8 million on revenues of $25.1 million for the same period in its prior fiscal year.

For its six months, AMCC posted net losses of $40.1 million on revenues of $128.5 million, compared with a net loss of $76.3 million on revenues of $45.6 million.

The good thing about these numbers is that AMCC revenues are growing nicely as a result of its acquisition of several other tech equipment manufacturers last year, including San Diego-based JNI Corp.

Those purchases broadened AMCC’s product mix to include equipment used in configuring storage area networks. Among the company’s customers are some of the largest telecom networking firms in the world, including Alcatel, Cisco Systems, Nortel Networks and Hitachi.

Last week, Chairman and Chief Executive Officer Dave Rickey struck his usual optimism, saying he’s “bullish about the long-term prospects for each of our businesses.”

What’s difficult to discern is whether AMCC can eventually turn the corner. It hasn’t reported profits in four years, and this year isn’t shaping up well either.

Last year, it lost $104.8 million (for fiscal year 2004, which ended March 31). For the preceding two fiscal years, it lost $745.5 million and $3.6 billion.

Those losses, combined with all the expenses associated with its acquisitions, have eaten into AMCC’s once-heralded cash pile of more than $1 billion. As of Sept. 30, it had $410.6 million in cash and equivalents, less than half of $861 million in cash it had at the end of March.

Last week, AMCC attributed the reduced revenues last quarter and expected flat sales for the current quarter to customers holding onto their products for longer periods, and a noticeable slowdown in its China market.

Rickey, who announced he will retire from AMCC in August, said although things aren’t booming in the semiconductor industry, “it’s nothing like 2001.”

That’s a relief, but for AMCC investors, it’s little solace. The company’s stock, traded as AMCC on Nasdaq, closed at $3.22 on Oct. 20. The stock, which traded above $120 in 2000, has ranged from $2.79 to $9.20 during the last 52 weeks.

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Cymer Cuts Staff Despite Record Sales: In contrast to AMCC’s losses, Cymer Inc. reported it enjoyed the highest revenues in its history for the third quarter ended Sept. 30 at $107.1 million, and net profits of $15.4 million, up 51 percent over those posted in the second quarter, and way up from the $8.5 million net loss for the same period in 2003.

Yet that performance wasn’t sufficient enough for Cymer’s management, which saw signs on the horizon that those stellar figures probably wouldn’t hold. In response to the uncertainty, the company has decided to cut its staff by 14 percent.

Translated to the company’s total employment of 883 workers, that means 124 people will be laid off. At Cymer’s Rancho Bernardo headquarters, the cuts will affect between 53 and 67 people, said spokeswoman Meggan Powers. The site, with two buildings, now houses 671 workers, including temporary staff. Cymer said the layoffs would affect a third of the temporary employees, meaning at least 40 people.

Cymer makes laser equipment used in the manufacturing of semiconductors.

Chairman and CEO Bob Atkins said the layoffs were a reaction to two of its three main customer delaying purchases in recent weeks and an overall slowdown by chip makers in purchasing equipment, including the sophisticated laser lithography equipment made by Cymer.

“While our light source utilization rates were up overall for the third quarter, they did drop off appreciably in the last month of the quarter,” Atkins said. “In these circumstances, we believe the prudent course is to be proactive and take actions that will prepare Cymer to deal effectively with what, at this time, appears to be an industry slowdown that could persist potentially for a few quarters.”

Cymer, traded on Nasdaq, closed Oct. 20 at $26.93, and has ranged between $23.81 and $50.44 during the past year.

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Internal Controls Deemed Lacking: It would seem that given all the scrutiny, lawsuits and criminal indictments facing San Diego’s Peregrine Systems in the last several months, the company that emerged from bankruptcy protection in August would be on the straight and narrow.

But in a document filed with the Securities and Exchange Commission on Oct. 15, the software company admits it still has inadequate internal financial controls and accounting systems. It also admits not having sufficient financial professionals to handle the work, and the current staff isn’t adequately trained.

The document, which the company was required to file as part of a civil settlement with the SEC last year, shows Peregrine still is not in compliance with regulations regarding financial reporting procedures mandated by the Sarbanes-Oxley Act.

Peregrine’s 8K filing stated, “Our accounting policies and procedures are not adequately documented. Furthermore, our accounting procedures are not comprehensive in scope and fail to address adequately a number of material areas. In addition, personnel have not been adequately trained regarding accounting policies and procedures.”

Peregrine CFO Ken Sexton, in a prepared response, said, “Our SEC filings since August 2003 have disclosed the status of our internal control structure and procedures for financial reporting. Today’s filing on Form 8-K is an update to these previous filings, which describe the magnitude and complexities, as well as our progress toward implementing appropriate internal controls. We have placed a high priority on completing this important project, and we will continue to update our progress in future SEC filings.”

This month, a federal grand jury indicted 11 people in connection to what U.S. Attorney Carol Lam called the largest fraud in the history of San Diego. Among the 11 were former CEO Stephen Gardner and seven other Peregrine executives, as well as Peregrine’s outside auditor and two outside business partners.

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Callaway Loses $36 Million: Carlsbad-based Callaway Golf Co. reported a net loss of $35.9 million on revenues of $128.5 million for its third quarter ended Sept. 30, compared with a net profit of $2.3 million on revenues of $153.6 million for the like period of 2003.

For the nine months, Callaway reported a net income of $18.4 million on revenues of $790.1 million, compared with a net profit of $78.9 million on revenues of $667.4 million in the same period of 2003.

Callaway said its nine-month results were affected by $14.3 million in charges associated with the acquisition of Top-Flite, a golf ball company it purchased late last year.

The company has suspended short-term guidance on future revenue and earnings projections.

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Encore Move: Encore Capital Group Inc., a San Diego-based firm that specializes in buying and collecting charged off consumer debt, moved its headquarters to a larger building in Kearny Mesa, expanding its space by some 20,000 square feet.

CEO Carl Gregory said the larger offices give the company more room to grow, although he hesitated saying by how much. Encore has 750 employees, including 325 people locally, with the remainder in Phoenix.

Encore reported net income of $11.6 million on revenues of $86 million for the first half of this year, with revenues rising 52 percent. Collections increased 30 percent during the year to $121 million. The company held about $14 billion in unpaid credit card debt it buys in bulk from credit card vendors that sell the bad debt at major discounts to collection specialists such as Encore.

Traded on Nasdaq as ECPG, it closed at $18.79 on Oct. 20, up from the IPO price a year ago of $11.

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Remec Sells Business: Remec Inc., a San Diego-based maker of microwave equipment used in communication network systems, said it sold a components business in Florida to Spectrum Control Inc. for $8 million in cash plus the assets of the unit.

Send any financial news on locally based public companies to Mike Allen via fax at (858) 571-3628 or by e-mail at mallen@sdbj.com. He can be reached at (858) 277-6359.


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