Mindspeed Technologies Inc. Reports Operating Results (10-Q)

The 33% increase in our net revenues for the third quarter of fiscal 2010 compared to the comparable fiscal 2009 period reflects higher sales volume in all three of our product families. Net revenues from our communications convergence processing products increased $4.2 million, or 31%, mainly reflecting an increase in shipments in our CPE products, which are used in broadband CPE gateways and other equipment that service providers are deploying in order to deliver voice, data and video services to residential subscribers. Within communications convergence processing, we also experienced an increase in shipments in VoIP processors for fiber optic access, particularly to customers in China. Net revenues from our high-performance analog products increased $4.4 million, or 44%, when comparing the third quarter of fiscal 2010 to the third quarter of fiscal 2009, due primarily to an increased demand for crosspoint switches from strength in the telecommunications market in China and an increased demand for our physical media devices which are primarily used in equipment for fiber-to-the-premise deployments. Net revenues from our WAN communications products increased $2.2 million, or 25%, in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009 due primarily to an increase in shipments in our network processor products, our T/E carrier transmission products and our Carrier Ethernet products.

The first nine months of fiscal 2010

For the first nine months of fiscal 2010, the 31% increase in our net revenues compared to the comparable fiscal 2009 period mainly reflects higher sales volume in all three of our product families, partially offset by an absence of revenues from the sale and licensing of intellectual property. Net revenues from our communications convergence processing products increased $12.7 million, or 36%, mainly reflecting an increase in shipments in our CPE products, which are used in broadband CPE gateways and other equipment that service providers are deploying in order to deliver voice, data and video services to residential subscribers. Within communications convergence processing, we also experienced an increase in shipments in VoIP processors for fiber optic access, particularly to customers in China. Net revenues from our high-performance analog products increased $10.8 million, or 38%, when comparing the first nine months of fiscal 2010 to the first nine months of fiscal 2009 due primarily to increased demand for crosspoint switches due to strength in the telecommunications market in China and increased demand for our physical media devices, which are primarily used in equipment for fiber-to-the-premise deployments. Net revenues from our WAN communications products increased $10.3 million, or 45%, mainly reflecting an increase in shipments in our network processor products and our carrier Ethernet products in the first nine months of fiscal 2010. Net revenues from intellectual property licensing and sales decreased $5.0 million, or 100%, in the first nine months of fiscal 2010 compared to the first nine months of fiscal 2009, because we did not recognize any intellectual property sales in the first nine months of fiscal 2010. We have developed and maintain a broad intellectual property portfolio, and we may periodically enter into strategic arrangements to leverage our portfolio by licensing or selling our patents.

Our gross margin for the first nine months of fiscal 2010 increased $22.4 million over our gross margin for the first nine months of fiscal 2009, principally reflecting a combination of a 31% increase in revenues between such periods, as well as the effect of asset impairment charges totaling $3.7 million taken in the second quarter of fiscal 2009. Second quarter fiscal 2009 asset impairments consisted of $2.3 million related to the write-down of the carrying value of technology developed by Ample Communications, a $1.1 million write-down of Ample Communications-related inventory and an approximate $300,000 write-down of certain manufacturing related fixed assets. Gross margin as a percent of net revenues for the first nine months of fiscal 2009 includes an approximate 4% effect from these asset impairments, which is the most significant factor in the increase in gross margin as a percent of net revenues between the first nine months of fiscal 2010 and the first nine months of fiscal 2009 period. In addition, gross margin as a percent of net revenues increased in the first nine months of fiscal 2010 compared to the same fiscal 2009 period because of manufacturing efficiencies gained from increased production levels during the period. Offsetting these increases in gross margin as a percent of net revenues for the first nine months of fiscal 2010 compared to the same fiscal 2009 period is a drop in revenues associated with the sale or licensing of intellectual property, which have little associated cost.