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No. of Recommendations: 3
Q2 results:

new developments:

1. The restructuring is proceeding as scheduled. They intend to have about $24M of operating expense savings(I think from Q1 levels) taking place in Q3 and then all $40M in quarterly savings beginning in Q4. Also as part of the restructuring they have been targeting in excess of $200M in working capital savings by the end of the year. They did achieve $82M of this in Q2. They basically achieved what I expected in Q2 - the operating loss before restructuring was about $60M, the restructuring charge so far was about $15M with another $10M expected in Q3.

2. The biggest news lately has been the move of CFO Mike Sophie into the COO role. He will concentrate on getting the supply chain under control. Along with the earnings came the news that the new CFO will be Francis Barton. He most recently had the same role with Atmel. I like these moves so far but obviously this management team has a long, long, LONG way to go before we can feel comfortable with them.

Now my notes in the same format I've used in previous posts:

1.margins: Finally there is some good news to report here! In Q2 the core gross margin was 24.5% and ACC was 4.7% which blended to 15.1%. There wasn't much high margin revenue in the mix this quarter so there was no way Q1 margin would be matched but PAS handset margin was UP to 15.7%. This is key because for one it was the decline in this area that started the whole collapse of the company and the improvement here indicates to me that they will also be able to increase the ACC margins.

2. revenues: Revenue($723M) mix was 47% ACC, 21% PAS HS, 22% WI and 10% BB. 40% was China(most all the PAS HS and WI). For Q3 they are guiding for between $660M and $680M with again a large percentage coming from HS(75%). So once again this is a pretty piss poor performance for a company that was talking $4B in 2005 a couple quarters ago. They will have another large operating loss in Q3 but I think it will be a little lower than Q2.

3. EPS: no longer relevant but stay tuned for Q4.

4. Balance Sheet & Cashflows: They were cashflow positive in Q2 - CFFO was $44M aided primarly by the working capital changes discussed above. They have continued to repay that debt that mushroomed at the end of last year and sent Wallstreet into hysteria shorting the stock. The receivables and inventory are still way too high and are probably the most important numbers to watch if you want to forecast movement in the stock. They also have bought back some of their converts and established a new short term line here in the States. The liquidity "crisis" is not over but I'm still just in the watch closely camp.


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