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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____________ to ___________
________________________
Commission File Number 0-21422
OPTi Inc.
(Exact name of registrant as specified in this charter)
CALIFORNIA 77-0220697
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
660 Alder Drive, Milpitas, California 95035
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (408) 382-2600
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
The number of shares outstanding of the registrant's common stock as of March
31, 2001 was 11,633,903
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OPTi, Inc.
FORM 10-Q
For the Quarterly Period Ended March 31, 2001
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
a) Condensed Consolidated Statements of Operations for the three months ended
March 31, 2001 and 2000................................................... 3
b) Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31,
2000...................................................................... 4
c) Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000................................................... 5
d) Notes to Condensed Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 11
Part II. Other Information
Item 1. Legal Proceedings............................................................... 16
Item 2. Changes in Securities........................................................... 16
Item 3. Defaults on Senior Securities................................................... 16
Item 4. Submission of Matters to a Vote of Shareholders................................. 16
Item 6. Exhibits and Reports on Form 8-K................................................ 16
Signatures....................................................................................... 17
2
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
--------------------------------------
2001 2000
------------ -----------
(000's omitted, except per share data)
Revenues
Net product sales $ 2,117 $ 2,043
Net license revenues -- 13,311
------------ -----------
Total revenues 2,117 15,354
------------ -----------
Costs and expenses:
Cost of sales 1,174 1,393
Research and development 101 319
Selling, general, and
administrative 836 1,310
------------ -----------
Total costs and expenses 2,111 3,022
------------ -----------
Operating income (loss) 6 12,332
Interest and other income, net 448 504
------------ -----------
Income before income tax provision 454 12,836
Income tax provision 10 260
------------ -----------
Net income $ 444 $12,576
============ ===========
Basic net income per share $ 0.04 $ 1.08
============ ===========
Diluted net income per share $ 0.04 $ 1.08
============ ===========
Shares used in computing basic
per share amounts 11,647 11,628
============ ===========
Shares used in computing diluted
per share amounts 11,654 11,644
============ ===========
See accompanying notes.
3
OPTi Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- --------------
(Unaudited) (See Note 1)
Assets
(000's omitted)
Current assets
Cash and cash equivalents $11,758 $12,146
Short-term investments 33,531 45,980
Accounts receivable, net 1,000 1,131
Inventories 697 1,140
Other current assets 149 359
------------- --------------
Total current assets 47,135 60,756
Property and equipment, net 180 157
Other assets 327 359
------------- --------------
Total assets $47,642 $61,272
============== ==============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 445 $ 1,365
Other current liabilities 864 2,441
------------- --------------
Total current liabilities 1,309 3,806
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 5,000
No shares issued or outstanding -- --
Common stock, no par value:
Authorized shares -- 50,000
Issued and outstanding shares -- 11,634 in 2001
11,655 in 2000 22,567 22,646
Accumulated other comprehensive income 13,590 25,088
Retained earnings 10,176 9,732
------------- --------------
Total shareholders' equity 46,333 57,466
------------- --------------
Total liabilities and shareholders'
equity $47,642 $61,272
============= ==============
Note 1 - The consolidated balance sheet at December 31, 2000 has been derived
from the audited financial statements.
See accompanying notes.
4
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months Ended March 31,
2001 2000
---------------------------------------
(000's omitted)
Operating Activities:
Net income $ 444 $12,576
Adjustments:
Depreciation 44 144
Changes in assets and liabilities:
Accounts receivable 131 653
Inventories 443 (139)
Other assets 242 889
Accounts payable (920) 424
Other current liabilities (273) (301)
------------- -------------
Net cash provided by
operating activities 111 14,246
Investing Activites:
Purchase of property and equipment (67) (19)
Sale of property and equipment - 49
Purchase of short-term investments (18,936) -
Sale of short-term investments 18,583 -
------------- -------------
Net cash provided by (used in)
investing activities (420) 30
------------- -------------
Financing Activities:
Net proceeds from sale of common stock - 117
Repurchase of common stock (79) -
Payment of long-term liabilities - (71)
------------- -------------
Net cash provided by (used in)
financing activities (79) 46
------------- -------------
Net increase (decrease) in cash
and cash equivalents (388) 14,322
Cash and cash equivalents
beginning of period 12,146 23,722
------------- -------------
Cash and cash equivalents
end of period $ 11,758 $38,044
============= -------------
See accompanying notes.
5
OPTi Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
1. Basis of presentation
-------------------------
The information at March 31, 2001 and for the three month periods ended March
31, 2001 and 2000, is unaudited, but includes all adjustments (consisting of
normal recurring accruals) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations and cash flows for the periods presented. Interim results are not
necessarily indicative of results for a full year. The accompanying financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 2000.
2. Net income per share
------------------------
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is calculated using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of stock options.
The following table sets forth the computation of basic and diluted net
income per share:
Three Months ended
March 31,
2001 2000
---- ----
Net income $ 444 $ 12,576
======= ========
Weighted average number of common shares outstanding 11,647 11,628
======= ========
Basic net income per share $ 0.04 $ 1.08
======= ========
Weighted average number of common shares outstanding 11,647 11,628
Effect of dilutive securities:
Employee stock options 7 16
------- --------
Denominator for diluted net income per share 11,654 11,644
======= ========
Diluted net income per share $ 0.04 $ 1.08
======= ========
6
3. Short-Term Investments
--------------------------
The following is a summary as of March 31, 2001:
Gross Estimated
Amortized Unrealized Fair
Cost Gains Value
---- ----- -----
Cash $ 1,229 $ 1,229
Certificates of Deposit 10,529 10,529
Commercial Paper 10,400 10,400
U.S. Government Bonds
and Notes 8,536 8,536
Investment in Tripath
Technology, Inc. 725 13,870 14,595
--------- ------- ---------
$ 31,419 $13,870 $ 45,289
========= ======= =========
Reported as:
Cash and cash
Equivalents 11,758 11,758
Short-term
Investments 19,661 13,870 33,531
--------- ------- ---------
$ 31,419 $13,870 $ 45,289
========= ======= =========
The Company had no short-term investments as of March 31, 2000.
4. Inventories
---------------
Inventories consist of finished goods and work in process (in
thousands):
March 31, 2001 December 31, 2000
-------------- -----------------
Finished Goods $ 370 $ 871
Work in process 327 269
------- --------
$ 697 $ 1,140
======= ========
5. Segment Information
----------------------
Sales of the Company's product based on customer location were as
follows (in thousands):
Three months ended March 31,
2001 2000
---- ----
Taiwan $ 974 $ 719
Japan 262 413
Other Far East 203 324
United States 639 582
Europe Other 39 5
------- -------
Total Net Sales $ 2,117 $ 2,043
======= =======
7
6. Concentrations
-----------------
Tripath Technology, Inc.
Tripath Technology, Inc. ("Tripath"), an investment held by the Company, became
publicly traded in August 2000. This investment, with a cost of $0.7 million, is
reflected in the Company's March 31, 2001 balance sheet under short term
investments at a fair market value of $14.6 million. These shares were subject
to lock-up agreements which restricted their transfer until January 27, 2001.
Tripath to date has a limited operating history as it began to ship products in
1998 and many of its products have only recently been introduced. Tripath also
has a history of losses. As of December 31, 2000, Tripath has an accumulated
deficit of approximately $111 million. It incurred net losses of approximately
$41 million in 2000, $32 million in 1999 and $34 million in 1998. It expects to
continue to incur net losses in the future and these losses may be substantial.
As of May 3, 2001, the fair market value of the Company's investment in Tripath
Technologies had not changed materially from March 31, 2001.
Major Customers and Credit Risks
The Company primarily sells to PC, motherboard and add-in card manufacturers.
The Company performs ongoing credit evaluations of its customers but does not
require collateral. The Company maintains reserves for potential credit losses,
and such losses have been within management's expectations. With the exception
of sales to NCR and its subcontractors, Holystone Enterprises, a Taiwan based
company and OPTi Japan, our former subsidiary no other single customer
represented more than 10% of sales for the first quarter of 2001. In the first
quarter of 2001, the Company sold to Holystone Enterprises approximately $0.9
million in USB controllers, representing approximately 44% of net sales for the
period. Also in the first quarter of 2001, the Company sold approximately $0.3
million of its embedded core logic to NCR and its subcontractors, representing
an approximate 14% of net sales for that period. The Company also sold
approximately $0.3 million of core logic product to OPTi Japan representing 14%
of net sales for the period.
Many of the Company's customers, particularly the motherboard manufacturers in
Taiwan, operate at very low profit margins and undertake significant inventory
risks. To the extent the Company provides open terms of credit to some of the
larger of these customers, the Company is exposed to significant credit risks if
these customers are unable to remain profitable. Approximately 47% of the
Company's receivables at March 31, 2001 were with these customers.
Suppliers
The Company's reliance on independent foundries, packaging houses and test
facilities involves several risks, including the absence of adequate capacity,
the unavailability of or interruptions in access to certain process technologies
and reduced control over delivery schedules, manufacturing yields and costs. At
times during the first three quarters of 2000, the Company was unable to meet
the demand for certain ot its products due to limited foundry capacity and the
Company expects that it will experience other production shortfalls or
difficulties in the future. Because the Company's purchase orders with its
outside foundries are non-cancelable by OPTi, the Company is subject to
inventory surpluses and has in the past experienced write-downs of inventories
due to an unexpected reduction in demand for a certain product.
Products
The Company's product life cycles are typically very short and ramp into volume
production very quickly. At any point in time, the Company may rely on a limited
number of products for a significant share of the Company's revenue. In the
first half of 2001, the Company will be highly dependent on continued revenue
contributions from its USB controller. For the first quarter ended March 31,
2001, the Company sold approximately $1.3 million of its two port USB
controller, representing approximately 60% of revenue. In
8
the second half of 2001, the Company anticipated that it will rely heavily upon
the successful transitions into its new four port USB controller and 1394
peripheral products. Any significant shortfall in sales for the Company's
current volume products or problems with the successful transition to next
generation products will have a material adverse effect upon the Company's
financials.
7. Comprehensive Income
-----------------------
The Company's total comprehensive income as follows (in thousands):
Three Months Ended
March 31,
2001 2000
---- ----
Net Income $ 444 $ 12,576
Other comprehensive income 13,590 ---
-------- --------
Comprehensive income $ 14,034 $ 12,576
======== ========
Other comprehensive income includes unrealized gains on marketable securities
net of taxes.
8. Litigation
-------------
In January 1997, a patent infringement claim was brought against the Company by
Crystal Semiconductor, Inc. ("Crystal"), a subsidiary of Cirrus Logic, in the
United States District Court for the Western District of Texas. The claim
alleges that the Company and Tritech Microelectronics International, Inc. and
its Singapore parent company, Tritech Microelectronics Pte, Ltd. (collectively
"Tritech") infringe three patents owned by Crystal. These patents relate to the
analog-to-digital coder-decoder ("codec") module that was designed by Tritech
and incorporated into integrated PC audio chips formerly sold by the Company.
The suit sought injunctive relief and damages.
On July 7, 2000, Crystal Semiconductor and the Company signed a settlement
agreement to be effective June 24, 2000. Under the terms of the agreement, OPTi
agreed to pay Crystal Semiconductor $7,000,000 over a period of time ending
October 2000. Upon receipt of the final payment from OPTi, Crystal and OPTi
dismissed with prejudice all claims that were brought or could have been brought
in the action up to the date of the dismissal of the action.
9. Use of Estimates
-------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results, such as the amount that it will ultimately incur as a result of
the Crystal litigation and related recoveries from Tritech, could differ from
those estimates.
10. Taxes
---------
The Company recorded a tax provision of approximately 2% for the quarters ended
March 31, 2001 and March 31, 2000. The tax provisions recorded in both of these
periods relates primarily to the federal alternative minimum tax.
11. Recent Pronouncements
-------------------------
9
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. In June 1999, FASB issued Financial
Accounting Standards No. 137 which deferred the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. The adoption of SFAS 133 did not
have an impact on the Company's results of operations or financial condition
when adopted as the Company held no derivative financial instruments and does
not currently engage in hedging activities.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Information set forth in this report constitutes and includes forward looking
information made within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as
amended, that involve risks and uncertainties. The Company's actual results may
differ significantly from the results discussed in the forward looking
statements as a result of a number of factors, including product mix, the
Company's ability to obtain or maintain design wins, market conditions generally
and in the electronics and semiconductor industries, product development
schedules, competition and other matters. Readers are encouraged to refer to
"Factors Affecting Earnings and Stock Price" found below in this Item 2.
The Company currently competes principally in the embedded and USB controller
marketplaces. From the Company's inception through 1998, the Company's principal
segments had been desktop and mobile core logic. However, with increasingly
aggressive competion in this area, primarily from Intel Corporation, the Company
revised its strategy and focus on market opportunities where the Company had
strategic advantages. This led the Company to focus on the embedded and USB
controller marketplaces where the Company has experienced some success in the
past few years.
The Company's strategy, at this time is to license its core logic technology
that it has developed during its history and to look for areas where the Company
can either develop or acquire technology for emerging markets in the high
performance PC segment, increase sales in existing global markets and strengthen
its industry relationships. During the first quarter of fiscal year 2000, the
Company entered into a one-time licensing arrangement for $13,311,000, on its
core logic technology. In addition, the Company has continued, and is
continuing, its efforts to maximize shareholder value through restructuring of
the Company's business and assets.
Net revenues for the first quarter ended March 31, 2001 were $2,117,000, as
compared to, net revenues of $15,354,000 for the quarter ended March 31, 2000.
The first quarter revenue for 2000 included net license revenues of $13,311,000
resulting from a one-time non-exclusive licensing fee for certain OPTi patents.
For the quarter ended March 31, 2000, the Company reported net product sales of
$2,043,000. The increase in net product sales for the three month period ending
March 31, 2001, as compared to the three month period ending March 31, 2000, was
due primarily to increased sales of the Companys USB controller chip, offset in
part, by a reduction in sales for the Company's core logic chipsets used in
various embedded designs.
Cost of product sales for the quarter ended March 31, 2001 decreased to
$1,174,000 resulting in a gross margin of approximately 44.5%, as compared to
cost of sales of $1,393,000, and a product gross margin of approximately 31.8%
for the quarter ended March 31, 2000. The Company's actual gross margin for the
quarter ended March 31, 2000 was 90.9%, including the license revenue of $13.3
million, which had no associated cost of goods sold. The increase in product
gross margin as a percentage of sales for the three-month period ended March 31,
2001 as compared to the similar period ended March 31, 2000 is primarily due to
product mix and a reduction in assembly and test costs that the Company was able
to negotiate during the first quarter of 2001.
Research and development costs decreased to $101,000 for the quarter ended March
31, 2001, as compared with $319,000 for the quarter ended March 31, 2000. In
January 2000, the Company had a reduction in staff as it made the decision to
terminate design efforts on its liquid crystal display product. As of March 31,
2001, the Company had one research and development person, who conducts
virtually all of the Company's product development with the assistance of
outside contractors.
Selling, general, and administrative costs were $836,000 in the quarter ended
March 31, 2001 as compared with $1,310,000 in the comparable period of 2000. The
decrease in selling, general, and administrative costs for the three-month
period ended March 31, 2001 as compared to the three-month period ending March
31, 2000 is primarily attributable to lower headcount related expenses and lower
legal expenses during the period.
11
Interest and other income, net was $448,000 and $504,000 for the quarters ended
March 31, 2001 and 2000, respectively. The decrease in the first quarter of 2001
as compared to the first quarter of 2000 is primarily due to a lower average
cash balance due to the payment of $7,000,000 during the second half of 2000 as
settlement of the Crystal Semiconductor litigation.
The Company's tax provision recorded in the quarters ended March 31, 2001 and
2000, relates primarily to the federal alternative minimum tax.
Liquidity and Capital Resources
Cash, cash equivalents, and short-term investments decreased to $45,289,000 at
March 31, 2001 from $58,126,000 at December 31, 2000. The decline in cash, cash
equivalents and short-term investments of approximately $12.8 million from
December 31, 2000 to March 31, 2001, primarily relates to the decrease in value
of the Company's investment in Tripath Technologies. The investment in Tripath
Technologies decreased by approximately $12.8 million during that period.
Working capital as of March 31, 2001 decreased to $45,826,000 from $56,950,000
at December 31, 2000, this decrease also relates primarily to the investment in
Tripath Technologies. During the first three months of 2001, operating
activities generated $0.1 million of cash. Cash generated from operating
activities was primarily due to a $443,000 reduction in inventory, $444,000 of
net income, a $242,000 reduction in other assets and a $131,000 reduction in
accounts receivable, partially offset by, a $920,000 reduction in accounts
payable and a $273,000 reduction in current liabilities. Investing activities
used $0.4 million of cash during the first quarter of 2001. This use in cash
was due to an increase in short term investments of $353,000 and the purchase of
$67,000 of property and equipment. Financing activities for the first three
months of 2001 used $0.1 million due to the stock repurchase program announced
in December 2000 by the Company.
At March 31, 2001, the Company's principal sources of liquidity included cash,
cash equivalents and short-term investments of approximately $45.3 million and
working capital of approximately $45.8 million. The Company believes that its
existing sources of liquidity will satisfy the Company's projected working
capital and other cash requirements through at least the next twelve months.
Factors Affecting Earnings and Stock Price
Fluctuations in Operating Results
The Company has experienced significant fluctuations in its quarterly operating
results in the past and expects that it will experience such fluctuations in the
future. In the past, these fluctuations have been caused by a variety of factors
including increased competition from other suppliers, price competition, ongoing
rapid price declines, changes in customer demand, the timing of delivery of new
products, inventory adjustments, changes in the availability of foundry capacity
and changes in the mix of products sold. In the future, the Company's operating
results in any given period may be adversely affected by one or more of these
factors.
Price Competition
The market for the Company's products are subject to severe price competition
and price declines. There can be no assurance that the Company will succeed in
reducing its product costs rapidly enough to maintain or increase its gross
margin level or that further substantial reduction in prices will not result in
lower profitability or losses.
Changes in Customer Demand
The Company currently places non-cancelable orders to purchase products from
independent foundries, while its customers generally place purchase orders with
a significantly shorter lead time which may be canceled without significant
penalty. In the past, the Company has experienced order cancellations and
deferrals and expects that it
12
will experience cancellations in the future from time to time. Any such order
cancellations, deferrals, or a shortfall in a receipt of orders, as compared to
order levels expected by the Company, could have a significant adverse effect on
the Company's operating results in any given period.
Product Transitions and the Timing and Delivery of New Products
A substantial majority of the Company's net product sales is derived from its
USB controller products. The market for USB controllers is characterized by
frequent transitions in which this functionality can be and is incorporated into
other semiconductor devices, such as the core logic. A failure to develop
products with required feature sets or performance standards or a delay as short
as a few months in bringing a new product to market could significantly reduce
the Company's net sales for a substantial period, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Continued Sales of Current Products
The Company's ability to maintain or increase its sales levels and profitability
depends directly on its ability to continue to sale its existing products at
current volumes. The Company will have few, if any, new product introductions
for the foreseeable future. Any inability to continue sales at the current level
could have an immediate and very significant adverse effect on the trading price
of the Company's stock. Investors in the Company's securities must be willing to
bear the risks of such fluctuations.
Each of the product segments in which the Company offers new products are
intensely competitive and the Company must compete with entrenched competitors
who have established greater product breadth and distribution channels. The
introduction of new products can result in a greater than expected decline and
demand for existing products and create an imbalance between products ordered by
customers and products which the Company has in inventory. This imbalance can
result in surplus or obsolete inventory, leading to write-offs or other
unanticipated costs or disruptions.
Customer Concentration
The Company primarily sells product to PC, motherboard, and add-in card
manufacturers. The Company performs ongoing credit evaluations of its customers
but does not require collateral. The Company maintains reserves for potential
credit losses, and such losses have been within management's expectations. The
Company expects that sales of its products to a relatively small group of
customers will continue to account for a high percentage of its net product
sales in the foreseeable future, although the Company's customers in any one
period will continue to change.
However, there can be no assurance that any of these customers or any of the
Company's other customers will continue to utilize the Company's products at
current levels, if it all. The Company has experienced significant changes in
the composition of its major customer base and expects that this variability
will continue in the future. During 1999 and 1998 both Compaq and its
subcontractors and Apple and its subcontractors were significant customers. At
this time the Company is not shipping any products to either Compaq and its
subcontractors or Apple and its subcontractors. The loss of any major customer
or any reduction in orders by any such customer could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has no long-term volume commitments from any of its major customers
and generally enters into individual purchase orders with its customers. The
Company has experienced cancellations of orders and fluctuations in order levels
from period to period and expects it will continue to experience such
cancellations and fluctuations in the future. Customer purchase orders may be
cancelled and order volume levels can be changed or delayed with limited or no
penalties. The replacement of cancelled, delayed or reduced purchase orders with
new business cannot be assured. Moreover, the Company's business, financial
condition and results of operations will depend in significant part on its
ability to obtain orders from new customers, as well as on the financial
condition and success of its customers. Therefore, any adverse factors affecting
any of the Company's customers or their customers could have a material effect
on the Company's business, financial condition and results of operation.
13
Credit Risks
Many of the Company's customers, particularly the motherboard manufacturers in
Taiwan, operate at very low profit margins and undertake significant inventory
risks. To the extent the Company provides open terms of credit to some of the
larger of these customers, the Company is exposed to significant credit risks if
these customers are unable to remain profitable. Approximately 47% of the
Company's receivables at March 31, 2001 were with these customers.
Dependence on Foundries and Manufacturing Capacity
Almost all of the Company's products are manufactured by outside foundries
pursuant to designs provided by the Company. In most instances, the Company
provides foundries with a custom-tooled design ("Custom Production"), whereby
the Company receives a finished die from the foundry which it sends to a third
party for cutting and packaging. This process subjects the Company to the risk
of low production yields as the die moves through the production and packaging
process. The Company's reliance on independent foundries, packaging houses, and
test houses involves several risks, including the absence of adequate capacity,
the unavailability of or interruptions in access to certain process technologies
and reduced control over delivery schedules, manufacturing yields and costs. At
times during the second half of 1999 and the first three quarters of 2000, the
Company was unable to meet the demand for certain of its products due to limited
foundry capacity and the Company expects that it will experience other
production shortfalls or difficulties in the future.
Because the Company's purchase orders with its outside foundries are
non-cancelable by OPTi, the Company is subject to risks of, and has in the past
experienced, excess or obsolete inventory due to an unexpected reduction in
demand for a particular product. The manufacture of its products is a complex
process and the Company may experience short-term difficulties in obtaining
timely deliveries, which could affect the Company's ability to meet customer
demand for its products. Should any of its major suppliers be unable or
unwilling to continue to manufacture the Company's key products in required
volumes, the Company would have to identify and qualify acceptable additional
foundries. This qualification process could take up to six months or longer. No
assurances can be given that any additional sources of supply could be in a
position to satisfy any of the Company's requirements on a timely basis. The
semiconductor industry experiences cycles of under-capacity and over-capacity
which have resulted in temporary shortages of products in high demand. Any such
delivery problems in the future could materially and adversely affect the
Company's operating results.
The Company began using Custom Production in 1993. Custom Production requires
that the Company provide foundries with designs that differ from those
traditionally developed by the Company in its gate array production and which
are developed with specialized tools provided by the foundry. This type of
design process is inherently more complicated than gate array production and
there can be no assurance that the Company will not experience delays in
developing designs for Custom Production or that such designs will not contain
bugs. To the extent bugs are found, correcting such bugs is likely to be both
expensive and time consuming. In addition, the use of Custom Production requires
the Company to purchase wafers from the foundry instead of finished products. As
a result, the Company is required to increase its inventories and maintain
inventories of unfinished products at packaging houses. The Company is also
dependent on these packaging houses and third party test houses for adequate
capacity.
Dependence on Intellectual Property position
The success of the Company's current strategy of licensing its core logic
technology can be affected by new developments in intellectual property law
generally and with respect to semiconductor patents in particular and upon the
Company's success in defending its patent position. It is difficult to predict
developments and changes in intellectual property law and in advance, however
such changes could have an adverse impact on the Company's ability to license
its previously developed technology.
Possible Volatility of Stock Price
14
There can be no assurances as to the Company's operating results in any given
period. The Company expects that the trading price of its common stock will
continue to be subject to significant volatility.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
We maintain our cash and cash equivalents primarily in money market funds.
We do not have any derivative financial instruments. As of March 31, 2001, all
of our investments mature in less than six months. Accordingly, we do not
believe that our investments have significant exposure to interest rate risk.
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OPTi Inc.
Part II. Other Information
Item 1. Legal Proceedings.
See litigation footnote on page 9 of this report.
Item 2. Changes in Securities.
Not applicable and has been omitted.
Item 3. Defaults on Senior Securities.
Not applicable and has been omitted.
Item 4. Submission of Matters to a Vote of Shareholders.
Not applicable and has been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None.
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OPTi Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTi Inc.
Date: 5/7/01 By: /s/ Michael Mazzoni
--------------------
Michael Mazzoni
Signing on behalf of the Registrant and as
Chief Financial Officer
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