Lee-Lean Shu - President and CEO Douglas Schirle - CFO.

George Gaspar - Bank of Canada Austin Hopper - AWH Capital Ted Wachtell - Millennium.

Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Third Quarter Fiscal 2015 Conference Call. At this time, participants are in listen-only mode. Later we will conduct the question-and-answer session (Operator Instructions). Before we begin today's call, the Company has requested that I read the following Safe Harbor statement.

The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI Technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated.

These risks and uncertainties are described by the Company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I have been asked to advise you this conference call is being recorded today, January 29, 2015 at the request of GSI Technology.

Hosting the call today is Lee-Lean Shu the Company’s Chairman, President and Chief Executive Officer. With him are Douglas Schirle, Chief Financial Officer and Didier Lasserre, Vice President of Sales. I would now like to turn the conference over to Mr. Shu. Please go ahead, sir..

Good afternoon, everyone, and thank you for joining us. Today, we reported third quarter net revenue of $14.2 million that came in at the top end of the guidance that we had projected earlier in the third quarter and third quarter gross margin was very strong at 46.7% due to favorable product mix of higher margin products.

Litigation-related expenses in the third fiscal quarter was $1.8 million, down from $1.5 million in the previous quarter but down from $2.1 million in the same period a year ago. The litigation-related expenses, again, were primarily associated with the pending patent infringement and antitrust litigation involving Cypress Semiconductors.

But in previous quarter we saw continuing softness in the telecommunication and the regulatory market and weak sales in Asia. However we did see a substantial increase in the December quarter in our defense and military sales related to last time purchase on several discontinued products.

In the third quarter we continue to invest in R&D to deliver innovative products to our customers. We are the leader in the high speed SRAM segment and we are excited that by our continued expansion into low-latency DRAM segment.

Several key customers are continuing their evaluation of our new innovative products and we expect shipment volumes to increase over the next several quarters as these key customers complete their evaluation and qualification process. With that, I will now turn the call over to Doug..

We reported net income of $148,000 or $0.01 per diluted share on net revenues of $14.2 million for the third quarter of fiscal 2015, compared to net loss of $734,000 or $0.03 per diluted share, on net revenues of $13.8 million in the third quarter of fiscal 2014 and a net loss of $950,000 or $0.04 per diluted share, on net revenues of $13.3 million in the second quarter of fiscal 2015.

Gross margin was 46.7% compared to 39% in the prior year period and 45.7% in the preceding second quarter. Total operating expenses in the third quarter of fiscal 2015 were $7.3 million compared to $7.3 million in the third quarter of fiscal 2014 and $7.1 million in the preceding second quarter.

Research and development expenses were $2.9 million compared to $2.8 million in the prior year period and $2.9 million in the preceding quarter. Selling, general and administrative expenses, which include litigation-related expenses were essentially flat year-over-year at $4.5 million, and up sequentially from $4.2 million in the preceding quarter.

Third quarter fiscal 2015 operating loss was $654,000, compared to an operating loss of $1.0 million in the prior quarter and an operating loss of $1.9 million a year ago. Total third-quarter pre-tax stock-based compensation expense was $390,000 compared to $571,000 in the prior quarter and $516,000 in the comparable quarter a year ago.

Depreciation and amortization expense was $363,000 in the third quarter. Sales to Alcatel-Lucent were $3.2 million or 22.8% of net revenues during the third quarter compared to $3.2 million or 24.0% of net revenues in the prior quarter and $2.3 million or 16.5% of net revenues in the same period a year ago.

Third-quarter direct and indirect sales to Cisco Systems were $2.0 million or 13.9% of net revenues compared to $1.9 million or 14.2% of net revenues in the prior quarter and $2.5 million or 18.4% of net revenues in the same period a year ago.

Military/defense sales were 24.3% of shipments compared to 21.6% of shipments in the prior quarter and 14.2% of shipments in the comparable period a year ago.

As Lee-Lean mentioned, we saw a substantial increase in our military/defense sales in the third quarter, both year-over-year and sequentially, but we'd remind investors that this segment could be highly variable from quarter-to-quarter.

SigmaQuad sales were 40.7% of shipments, compared to 38.1% in the prior quarter and 39.8% in the third quarter of fiscal 2014. At December 31, 2014, we had $65.8 million of cash, cash equivalents and short-term investments, $18.7 million in long-term investments, $74 million in working capital, no debt, and stockholders' equity of $101.4 million.

Accounts payable at December 31, 2014 was $2.9 million compared to $4.9 million at March 31, 2014. Net inventory was $9.1 million at December 31, 2014, up from $8.2 million at March 2014. Inventory turns at December 31, 2014 were 3.3 times compared to 3.4 at March 31, 2014.

Looking forward to the fourth quarter we see the slowness in the telecommunications network and markets continuing.

However, we currently expect net revenues to be in the range of $12.8 million to $13.8 million, reflecting relatively consistent sales across our product lines with the exception of military/defense sales which were unexpectedly high in the third quarter as a result of last time buys on several discontinued products.

We expect a gross margin of approximately 44% to 46% in the fourth quarter. We can’t forecast net revenues in the first quarter of fiscal 2016 with any precision at this point, but we currently expect net revenues to again exceed $14 million. Operator at this point we’ll open the call to Q&A..

Thank you. (Operator Instructions) And we’ll take our first question from George Gaspar..

I've got a couple of them here. Are you doing anything in terms of your product line that's related to the cable wireless Internet bandwidth area? The reason I am asking the question is there is a considerable requirement that appears to be growing late this year in that sector of the market.

And I know that Cisco is going to be very involved in it?.

The answer is yes. We’re certainly on the wireline and the wireless as well. Again I can’t comment on what the content is on each box, depending on the customer. But yes we are in that market..

And then another question, could you highlight what you are viewing on the litigation side going forward? Are there some markers that you could share with us as far as timing and what the process is that you anticipate, when could this possibly come to a combination point?.

Yes, I can comment on that. Currently the next scheduled item is a mediation hearing actually this coming Monday, February 2nd. It's scheduled to be all day.

We’re hopeful that both companies can come together and have a meaningful discussion and obviously we believe that it's ridiculous to continue spending all of these legal fees every quarter and we'd like to find a way. It's a win-win situation for both companies to get that -- all of it behind us.

In terms of the trial for the antitrust case, it was scheduled for February 23rd. It looks like there are some potential issues with the court in terms of double booking time and we’re not sure exactly when the trial will be rescheduled. But other than that the good news is there is a mediation session coming up.

Another favorable thing that just came out this week is that Cypress is part of all litigation, had opportunity to file a motion for summary judgment. The ruling on that came out Wednesday evening, which was very positive. We won in all accounts.

So we believe as we’ve believed all along that we do have a reasonable case and we'd like to find the way to move forward, get all litigation behind us and that’s -- [indiscernible] developments and it could days coming out..

And if I could just elaborate with a question again on that area. Based on what I see for the first three quarters in terms of litigation expense, it looks like maybe for the fiscal year if -- assuming it stays in the $1.8 million range for the last quarter, that would be in the $7 million plus range for the year.

Am I right on that figure?.

Yes, I believe we’re little bit over $5 million through three quarters and I was expecting -- I got feedback from the attorney that we were looking at potentially $3.5 million this quarter. There's a lot of activity on the antitrust side in terms of the trial and preparation for trial.

There's also lot of activity heating up on the patent litigation with Cypress, a lot of depositions and data gathering and number crunching, everything going on this quarter..

(Operator Instructions) We’ll go next to Austin Hopper at AWH Capital..

Congrats on the summary judgment ruling.

Can you provide any info on the damages that you’re seeking from Cypress in that matter?.

That’s not something we’re willing disclose at this point. We haven’t really had any assumption of discussions at all with Cypress and obviously those will be coming on Monday. And after that we’ll have a much better understanding of where the two companies sit..

Okay, and then could you just comment on your LLDRAM revenues for the quarter?.

The LLDRAM revenues were $300,000. So they were down a little bit from the September quarter. With that said we anticipate that number to be up for this fourth quarter. At this point we have seen upsides in this family and it’s a matter of just making sure that we can support it with the material we have in line.

But it was down a little bit in the December quarter and we anticipate it being up in the March quarter..

(Operator Instructions) And there are currently no questions in the queue. I am sorry there is a question on the line from Ted Wachtell at Millennium..

Could you guys comment on share repurchase and where you stand? You may have.

I had to jump off the call briefly?.

No Ted we haven’t, but I can update you on that. Through the end of December we purchased -- I think it was around $600,000 or $700,000, something a little bit under $1 million in the December quarter. It was about 137,000 shares. Through the end of January we stand today is we’re down to about $10 million remaining.

So we purchased another $1.3 million or so in the month of January. We do have an asset 10b5-1 plan running the status [ph] and we still have $10 million more to spend..

And other plans to re-up that buyback program once you complete or what are you saying about the outlook on that?.

We haven’t had discussions with the Board on that yet. But they’ve been very positive in terms of proving buyback dollars for our share. We started up with $10 million back about six or seven years ago and they’ve increased it by $10 million twice.

And then lot of our shareholders in middle of the year, summer time were talking about the belief that they thought that the Dutch tender offer would benefit them, including our largest shareholder at the time. So we did do that and they approved $25 million for that. So they have been very receptive to this.

Obviously being a semiconductor company, we didn’t have cash balance. You never know how things are going to be going, what kind of problems you're going to come up against, but they do believe that in the past we’ve had potentially excess cash that we could return to the shareholders to benefit them..

The Dutch tender was obviously at a much higher price. So obviously if the Board loved the Dutch tender for 25 million. But I forgot exactly where that was executed, but 650 roughly.

Pardon me?.

650, you are correct..

I got to imagine you view it as attractive down at 5.25?.

Yes, we do..

(Operator Instructions) And there are currently no questions in the queue..

Thank you for joining us. We look forward to speaking with you in May when we will report our fiscal fourth quarter results. Thanks..

And that does conclude today’s conference. We thank you for your participation..