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GSI Technology Updates on 3rd Quarter Fiscal 2014 Results

February 11, 2014

GSI Technology, Inc. reported financial results for its third fiscal quarter and nine months ended December 31, 2013.

In a release on January 31, the Company noted a net loss of $(210,000), or $(0.01) per diluted share, on net revenues of $13.8 million for the third quarter of fiscal 2014, compared to net income of $844,000, or $0.03 per diluted share, on net revenues of $17.5 million in the quarter ended December 31, 2012 and net income of $386,000, or $0.01 per diluted share, on net revenues of $15.5 million in the preceding second quarter. Gross margin was 44.2 percent compared to 41.9 percent in the prior year period and 47.6 percent in the preceding second quarter.

Total operating expenses in the third quarter of fiscal 2014 were $7.5 million, up from $6.7 million in the third quarter of fiscal 2013 and down from $7.2 million in the preceding second quarter. Research and development expenses were relatively unchanged at $2.9 million, compared to $2.9 million in the prior year period and $3.0 million in the preceding quarter, but selling, general and administrative expenses, which include litigation-related expenses, were up substantially year-over-year to $4.6 million compared to $3.9 million in the quarter ended December 31, 2012, and up sequentially from $4.2 million in the preceding quarter.

Litigation-related expenses in the third fiscal quarter were $2.1 million, up from $1.7 million in the previous quarter and up from $1.1 million in the same period a year ago. The litigation-related expenses again were primarily associated with pending patent infringement and antitrust litigation involving Cypress Semiconductor. Both lawsuits are currently in the discovery phase.

Lee-Lean Shu, Chairman and Chief Executive Officer, noted, "Our net revenues came in slightly below the range we had projected earlier in the third quarter primarily due to continued slowness in the telecommunications and networking market. However, third quarter gross margin was strong at 44.2 percent, above our operating model, due to a favorable mix of higher margin products. As expected, we continued to incur substantial litigation-related expenses during the quarter, resulting in a net loss for the quarter, as the discovery phase of our antitrust lawsuit against Cypress intensified."

Third-quarter direct and indirect sales to Cisco Systems were $2.5 million, or 18.4 percent of net revenues, compared to $3.4 million, or 22.2 percent of net revenues, in the prior quarter, and $6.5 million, or 37.0 percent of net revenues, in the same period a year ago. Sales to Alcatel-Lucent were $2.3 million, or 16.5 percent of net revenues, during the quarter, compared $3.2 million, or 20.4 percent of net revenues, in the prior quarter. Military/defense sales were 14.2 percent of shipments compared to 12.3 percent of shipments in the prior quarter and 11.0 percent of shipments in the comparable period a year ago. SigmaQuad sales were 39.8 percent of shipments compared to 42.3 percent in the prior quarter and 33.7 percent in the third quarter of fiscal 2013.

Third-quarter fiscal 2014 operating loss was $(1.4 million), compared to operating income of $241,000 in the prior quarter and operating income of $595,000 a year ago. Third-quarter 2014 net loss included interest and other income of $62,000 and a tax benefit of $1.1 million, compared to $109,000 in interest and other income and a tax benefit of $140,000 a year ago; in the preceding quarter, net income included interest and other income of $85,000 and a tax benefit of $60,000.

Total third-quarter pre-tax stock-based compensation expense was $516,000 compared to $563,000 in the prior quarter and $565,000 in the comparable quarter a year ago.

At December 31, 2013, the Company had $74.8 million in cash, cash equivalents and short-term investments, $34.2 million in long-term investments, $89.7 million in working capital, no debt, and stockholders' equity of $134.0 million.

Stock Repurchase Program

Our Board of Directors has authorized us to repurchase, at management's discretion, shares of our common stock. On August 20, 2013, the Board increased the dollar value of shares that may be repurchased by $10 million. Under the repurchase program, we may repurchase shares from time to time on the open market or in private transactions. The specific timing and amount of the repurchases will be dependent on market conditions, securities law limitations and other factors. The repurchase program may be suspended or terminated at any time without prior notice. During the quarter ended December 31, 2013, we repurchased 383,477 shares at an average cost of $6.61 per share for a total cost of $2.5 million. To date, the Company has repurchased 4,014,707 shares at an average cost of $4.15 per share for a total cost of $16.6 million.

Outlook for Fourth Quarter of Fiscal 2014

We currently expect net revenues in the fourth quarter of fiscal 2014 to be in the range of $12.5 million to $13.5 million, with gross margin of approximately 38 percent to 40 percent.

GSI Technology, Inc. is a provider of high-performance static random access memory, or SRAM, products primarily incorporated in networking and telecommunications equipment.

More Information:

http://www.gsitechnology.com

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