Lee-Lean Shu - CEO Douglas Schirle - CFO Didier Lasserre - VP, Sales.

Kurt Caramanidis - Carl M. Hennig Chip Saye - AWH Capital George Gaspar – Private Investor Mark Drucker - B. Riley Jon Dudzinski - Carl M. Hennig.

Good afternoon everyone and thank you joining us. Today we reported second quarter net revenue of $30.4 million. That came in at the high end of the range of guidance that we have provided earlier in the quarter. And we witnessed continued profitability on both the operating income and net income levels.

As in recent previous quarters, our gross margin came in way above our operating model at 55% driven by a continuing favorable mix of higher margin products. That said, during the second quarter, we continued to see slowness in our primary telecommunications and the networking markets, along with continued weak sales in Asia and Europe.

We remain focused on expanding our market position in the high end SRAM and the low-latency DRAM segments, and on developing new products based on our associative computing technology and intellectual property obtained in our acquisition of MikaMonu last year to exploit large potential opportunities in big data, computer vision and cyber security.

With improving prospects for ongoing profitability, promising new products under development and the impending market opportunities we are very optimistic about our future..

We reported net income of $626,000 or $0.03 per diluted share on net revenues of $13.4 million for the second quarter fiscal 2017, compared to net loss of $347,000 or $0.02 per diluted share on net revenues of $13.6 million in the second quarter of fiscal 2016, and net income of $260,000 or $0.01 per diluted share on net revenues of $12.9 million in the first quarter of fiscal 2016 ended June 30, 2016.

Gross margin was 55% compared to 50.9% in the prior year period and 51.9% in the preceding first quarter. Second quarter fiscal 2017 operating income was $380,000 compared to operating income of $389,000 in the prior quarter and an operating loss of $297,000 a year ago.

Total operating expenses in the second quarter of fiscal 2017 were $7 million compared to $7.2 million in the second quarter of fiscal 2016, and $6.3 million in the preceding first quarter. Research and development expenses were $4.3 million compared to $2.9 million in the prior year period and $3.5 million in the preceding quarter.

Most of the increase in R&D expenses related to the development of new products based on the associative computing technology and intellectual property obtained in our acquisition of MikaMonu last year.

Selling, general and administrative expenses, which include litigation related expenses, were down substantially year-over-year to $2.7 million compared to $4.3 million in the quarter ended September 30th, 2015 and down sequentially from $2.8 million in the preceding quarter.

Total second quarter pre-tax stock-based compensation expense was $487,000 compared to $443,000 in the prior quarter and $498,000 in the comparable quarter a year ago. Depreciation and amortization expense was $397,000 for the second quarter.

Sales to Alcatel-Lucent were $5.7 million or 42.8% of net revenues during the second quarter, compared to $5.4 million or 41.9% of net revenues in the prior quarter and $3.5 million or 25.6% of net revenues in the same period a year ago.

Second quarter direct and indirect sales to Cisco Systems were $936,000 or 7% of net revenues, compared to $1.5 million or 11.7% of net revenues in the prior quarter and $1.1 million or 7.9% of net revenues in the same period a year ago.

Military defense sales were 16.1% of shipments compared to 12.5% in the prior quarter and 24.7% in the comparable period a year ago. SigmaQuad sales were 57.2% of shipments compared to 55.7% in the prior quarter and 54.2% in the second quarter of fiscal 2016.

Our Board of Directors has authorized us to repurchase, at management's discretion, shares of our common stock. 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 of limitations and other factors. The repurchase program may be suspended or terminated at any time without prior notice.

During the quarter ended September 30, 2016, we repurchased 579,703 shares at an average cost of $4.68 per share for a total cost of $2.7 million.

To-date, we have repurchased a total of 11,883,942 shares at an average cost of $5.06 per share for a total cost of $60.1 million, including 3,846,153 shares acquired at a purchase price of $6.50 per share, under modified Dutch auction self-tender offer completed in August 2014.

At September 30, 2016, management was authorized to repurchase additional shares of our common stock with value of up to $4.9 million under the repurchase program.

At September 30, 2016, the company had $47.8 million in cash, cash equivalents and short-term investments, $12.5 million in long-term investments, $56.8 million in working capital, no debt and stockholders' equity of $85.6 million. Accounts payable at September 30th 2016 was $3.2 million compared to $2.5 million at March 31, 2016.

Net inventory was $9 million at September 30, 2016, up from $7.2 million at March 31, 2016. Inventory turns at September 30, 2016 were 2.7 times compared to 3.4 times at March 31, 2016. Looking forward to the third quarter of fiscal 2017, we currently expect net revenues to be in the range of $12.6 million to $13.6 million.

We expect gross margin of approximately 51% to 53% in the third quarter. Operator, at this point we will open the call to Q&A..

[Operator Instructions]. Our first question comes from Kurt Caramanidis with Carl M. Hennig, Q - Kurt Caramanidis Hi guys. Good quarter. Question for you.

Were you active in October when we had one day about 400 and something thousand shares of volume and other day maybe 150?.

Yes, we’ve been active during the month of October. Q - Kurt Caramanidis Okay. Great. And then last question.

Any milestones you see in the coming quarters with the new technology or we just wait it out or is there anything we would look for?.

We still are. The schedule doesn’t change. We still are looking forward to the table and our next season. Q - Kurt Caramanidis Yes, but would there be, is there anything like or -- I guess I don’t know.

That’s why I’m at -- there is not seeing it for a year?.

No, no. We’re still are under development..

Okay. Great. Appreciate it. .

Moving on our next question comes from Chip Saye with AWH Capital..

Hey, thanks for taking my call. My first question is around the tech. In the press release it says that with improving prospects for ongoing profitability, promised new products and a much expanded market opportunity, we’re optimistic about the balance of fiscal 2017.

Can you talk a little bit about that because the topline for Q3 looks to be similar to the topline that you just reported and I just wanted to see if you could talk about the optimism and what you’re optimistic about?.

Sure. This is Didier. We discussed on the last call that we’re expanding into the red hardware space areas. If you’ve noticed our revenues in military over the last few years it’s grown substantially and we want to continue that momentum. So with our current product line, that marketspace is as an area we have not addressed in the past.

So that’s changing. We’ve actually hired an expert in that space and he’s defining our program now.

We already have two alpha customers that are looking both of them at the same product, which is our high-end 288 megabit SQ2 and we’re going through the process of defining the assembly partners and the test partners and everything because it’s a completely different process than our current memory so we can’t use the same sub-contractors for that marketspace.

And so we’re going through now and we’re hoping that we can start seeing some revenues as early as within the next three quarters on that. So that’s certainly again a market that we’ll use our existing designs, but it will be kind of be modified during the assembly process for that specific red hot space market.

So that’s one of the growing market spaces we were talking about..

Okay. Great. Yes, I think you’ve mentioned it previously.

Could you talk about the dollar opportunity that could represent?.

So the 2 alpha guys we talked about, the revenues would be -- assuming that we would -- they hit the targets they’re telling us that we would get. Everything that they’re looking at would be somewhere in the $10 million range for those 2 alphas.

We’ve also identified who all the betas are and how we engage with them, and what we anticipate is the 10 that we’ll be chasing and again this the 10, I’m not saying we’ll get all of it, but the 10 we’ll be chasing within the next 5 years will be about the $25 million to $30 million range.

The gross margins in that market space will actually be higher than what we’re seeing today with our current product line. So we anticipate that this market space will also drive our gross margins north of where they are today. .

Okay.

And that may hit as soon as I think three quarters out maybe, you might have some opportunity with the alphas at that point?.

Didier Lasserre :.

So :.

And we’re talking $10 million opportunity annually or what?.

Yeah. So we’re hoping that it starts off. The first alpha should take us to about $6 million. With the second, it should take us over $10 million. And then it’s not clear how the run rate runs from there, but certainly at that point, a year and a half out the beta start to kick in. So we’re hoping that it gets us to a run rate of what you just mentioned.

.

Okay. I appreciate the color. The next question is on the R&D uptick.

Is that all related to MikaMonu?.

It’s all related to MikaMonu. Additional hiring and then we purchased some IP that would be incorporated in the part this quarter for about $565,000..

Okay.

And is that a good run rate going forward for -- back some of that off?.

Next quarter we’re looking at a potential IP purchase of about the same amount. So right now I’m assuming next quarter will be similar to this quarter, and depending on the hiring out of Israel, I would think that’s probably a little bit on the high end going forward from at that point.

Okay.

So next quarter maybe similar to this quarter and then maybe a little on the high end going forward beyond that?.

Yeah, maybe a little bit less than that afterwards. Let’s see what the hiring looks like, but yes, that’s what I would expect right now..

Okay.

And like the previous caller, is there any update at all that you can give on the progress there?.

No. No. They’re all under development so couldn’t tell you much..

Okay..

Bottom line is we’re still on target for taking up towards the end of next calendar year. That hasn’t changed at all. We don’t see any reason at this point to believe that that shouldn’t happen..

Okay. Listen, I appreciate it. Thank you. .

And moving on our next question comes from George Gaspar..

Yes. Good afternoon. Very nice quarter for you guys. Hope you can hear me okay. I’m travelling here in Missouri right now. Question, just I don’t know if you can highlight this, but there are a couple of commentaries in the past on the new technology and the associated computing technology area. You have used some connection with cybersecurity.

Is there anything that you can say about how this connects with cybersecurity? And is there something special about what you could be providing in cybersecurity through this new technology that would be significant? Because obviously the cybersecurity area is becoming more and more important..

Right. So we’d be more specifically under the deep pack t inspection is where we think that we can improve the performance of that part of the cyber security so that’s what we’re targeting. As we’ve talked about in the past, we’re focusing more initially on the big data customers. Cybersecurity certainly is in our focus.

But where we’ve seen our largest interest upfront has been in the big data, certainly in not only the AI, but specifically in the search portion of that market.

So that’s where we’re right now putting most of our efforts, because there will be a lot of collaboration with our customers and their -- and we have limited bandwidths as far as how we engage. So, cybersecurity is certainly on a list of what we’re going to be addressing and pursuing.

But just to be clear, I want to make sure you understand that it’s the big data and the memory portion. The search of that is what we’re attacking first..

I see. Okay. Well, thank you for that. And in terms of beyond alpha description you were talking about, is there anything in the existing product line, and I know you’ve made some obvious escalations in the chip designs that you have into the market on the SRAM side.

Is there anything evolving, as you’re moving forward, that can broaden your market exclusive of this alpha area you were talking about?.

So we’ve in the last year, we’ve introduced a class of products. Our 288 megabit SQ2, SQ2+ and SQ3, are all unique to the market space, and we’re getting design win on those. We also introduced our fourth generation SigmaQuad which is our SQ4E. That happens to be a 144 megabit density. That also is again new to the market.

We’re getting the design wins as well there. We’ve seen a lot of interest with that part associated with not the new high-end ultra-scale PGA family -- I’m sorry, FPGA family from Xilinx.

And then also we’ve just taped out our, I’m sorry, we’re more taped out, we’ve seen silicone on our 144 megabit NBT and SYNCBURST family as well, which is again, a density that’s unique to the market.

So, between those 3 different, 4 different families, we certainly have a lot of new products that are coming out that are going to help expand our current base. And that’s again aside from the military space sector I talked about..

Very good. Thank you. Is somebody – I was going to say something there. Okay. Just a closing comment if I could. I think it’s absolutely mind boggling the potential that GSI Technology has.

As I see just the fundamentals that you released here today on the financials, I mean, there’s a company here with 60 million in cash and equivalent which is about $3 a share. 80 million in equity, which is $4 a share. You have no debt to speak of.

That’s worth really talking about and you’re working on this new technology and you’ve repurchased approximately what 10.5, 11 million shares of stocks, paying $60 million.

I don’t think there’s another company that has these stats of your size, with your revenue stream, that could even begin to compare and I think you guys ought to be out on the road.

I know you’ve been out lately, but you’ve got a fantastic story to tell here, then hopefully everything that you’re talking about on the technology side really continues to develop and I wish you a lot of luck. Thank you..

Thank you, George..

[Operator instructions]. Next we have Mark Drucker with B. Riley..

Hi. Thanks for taking my question.

With regards to customers like Cisco, may they be rethinking strategy of embedding SRAM and returning to more discrete chips?.

Again, I’ve not seen anything that reverses that. They may head some of that direction. I know that they’ve lost some market share to -- certainly on the core routing to Alcatel, which as you know because of the business we do with them are usually discrete. I don’t see any indicators that says Cisco is going to reverse that at this point.

Certainly they’ve changed management obviously in the last year or two. So there may be some changes, but we haven’t seen anything that tells us that..

Okay. Thanks. One more question.

What are your current thoughts on potential Samsung replacement SRAM revenue that your company can garner as a second source supplier?.

The Samsung product has been out in the market for a while now. So at this point I think it’s -- the business that’s there is left for the four of us who are remaining. I don’t see a big term showing up additional for any Samsung. I think that’s pretty much, pretty much worked its way through the cycle..

Sounds good. Thank you..

[Operator Instructions] Next we’ll move to Jon Dudzinski with Carl M. Hennig. .

Hi. Great quarter guys. Really nice to see the positive numbers there and it all sounds very encouraging. Just wanted to circle up. At the annual meeting I became aware and you guys mentioned that you got about half of your office space that you’re not utilizing.

Now, I realize in the grand scheme of what you have going on perhaps it isn’t worth your time or effort, but with rental rates having gone up so much in the silicon area, is that an opportunity worth pursuing? I guess if not, I guess why?.

Jon, when you sent me that email I looked at your numbers and first the rates that you’re anticipating are nowhere near reality for where we are and the type of building that we’re in. It’s about at most a third of our building. Right now that’s not something we’re considering. We don’t see a lot of benefit in doing that. .

And John also, we’d have to build out that one third. So again, we’re occupying two-thirds of it which has been retrofitted. The one-third that’s open is essentially a warehouse. It would have to -- we’d have to subj some capital into it to make it an actual office type environment. .

Fair enough. All right. The other thing you mentioned that there was -- and I forgot the name of it, a tech conference in the Bay area in, I think it’s a month or so.

Are you guys still intending to attend that? Or is the new technology not ready or I guess with the new technology not part of the plan of what you are going to show there anyway?.

It’s actually early next year. I can’t remember if it’s January or February. And, no, we’re anticipating being there and discussing specifically the search advantage that we have over current solutions. So yes, we will be there. And again, I’m sorry, I can’t remember if it’s January of February but ….

It is January..

Is it January?.

Yes..

And we’ll have folks there and we’ll have a presenter as well..

Great. That seems encouraging. I don’t want to speculate, but it seems perhaps that will be the time where the market starts to notice you guys. .

Hopefully..

Thank you. That’s all I have..

[Operator Instructions] And at this time it looks like we have no further questions from the audience. .

Thank you all for joining us. We look forward to speaking with you again when we report our fiscal third quarter 2017 results. Goodbye..

Ladies and gentlemen that does conclude today's conference. We appreciate your participation. You may now disconnect..