Vitesse Reports Second Quarter Fiscal Year 2009 Financial Results

CAMARILLO, Calif.--(Business Wire)--
Vitesse Semiconductor Corporation (Pink Sheets: VTSS), a leading provider of
advanced IC solutions for Carrier and Enterprise networks, today reported its
financial results for the second quarter of fiscal year 2009, ended March 31,
2009. Following is a summary for this period:

* Net revenues were $34.6 million, compared to $55.6 million in the second
quarter of fiscal year 2008, a decrease of 37.8%.
* Loss from operations of $(6.4) million, compared with income from operations
of $4.1 million in the second quarter of fiscal year 2008.
* Net loss of $(7.1) million, compared with net income of $3.8 million in the
second quarter of fiscal year 2008.
* Operating expenses, net of cost of revenues, were $22.8 million compared with
$26.0 million in the second quarter of fiscal 2008.
* Cash totaled $39.4 million at March 31, 2009, compared with $47.4 million at
December 31, 2008. The Company is within the target of cash neutral or better
for the fiscal year.
* Vitesse introduced six new products during the quarter, for a total of 11 this
fiscal year.

"Our second fiscal quarter was certainly a difficult one, as it was for most in
the industry. While our results were disappointing compared to last quarter, the
actions we have taken to respond to the economic climate have already begun to
make an impact to our bottom line and improve our operating leverage. We
continue to take prudent steps to reduce operating expenses and better manage
working capital while the industry works through the impact of the economic
downturn," said Chris Gardner, chief executive officer of Vitesse. "And, just as
critical, we continue to prioritize and maximize our investments in R&D. We
introduced 11 new products during the first half of the fiscal year. We are
seeing increased traction in both the number of new sales opportunities and the
number of actual new design wins."

Second Quarter Financial Results

Net revenues for the second quarter of fiscal year 2009 were $34.6 million, a
sequential decline of 30.6% from $49.8 million in the first quarter of fiscal
year 2009, and a decline of 37.8% compared to $55.6 million reported in the
second quarter of fiscal year 2008. There were no licensing revenues reported
during the quarter.

Cost of revenues decreased $7.3 million in the second quarter of fiscal year
2009 compared to the same period in fiscal year 2008. As a percentage of
revenues, cost of revenues was 52.7% in the second quarter of fiscal year 2009
compared to 45.9% in the second quarter of fiscal year 2008. The increase in
cost of revenues, as a percentage of sales, is due to a decline in product sales
and under utilization of our testing facilities related to current market
conditions.

Engineering, research and development expenses were $10.9 million for the second
quarter of fiscal year 2009, compared to $12.5 million for the second quarter of
fiscal year 2008, a decrease of $1.5 million or 12.8%. Selling, general and
administrative expenses were $9.9 million for the second quarter of fiscal year
2009 compared to $9.3 million for the same period in fiscal year 2008, which
included a one-time sale of assets of $3.2 million.

Loss from operations was $(6.4) million, compared with operating income of $4.1
million for the second quarter of fiscal year 2008. The Company`s net loss was
$(7.1) million, or $(0.03) per share, compared with net income of $3.8 million,
or $0.02 per share, for the second quarter of fiscal year 2008.

Cash and cash equivalents totaled $39.4 million at March 31, 2009, a decrease of
$8.0 million from December 31, 2008. This cash was used to fund operating
activities for the quarter.

Inventory net of reserves, as measured on a sell through model, at March 31,
2009 totaled $28.2 million, a decrease of $5.6 million from December 31, 2008
and a decrease of $9.3 million from September 30, 2008.

Expense Reduction Efforts

Continuing with its strong stance on controlling and reducing spending
throughout 2009, Vitesse implemented a 12% workforce reduction during the
quarter with associated severance charges of $0.5 million, which were taken in
the period. The Company has also implemented salary reductions for executive
management and other employees, forgone annual merit increases, suspended 401(k)
employer match contributions and curtailed hiring. These actions are expected to
reduce wage and benefit expenses significantly for the remainder of the fiscal
year.

Taken with other overall cost savings efforts, the Company reduced costs and
expenses, exclusive of cost of revenues, to $22.8 million in the second quarter
of fiscal year 2009, compared to $26.0 million in the second quarter of fiscal
year 2008, a decrease of $3.2 million or 12.3%. The results in the second
quarter of fiscal year 2008 include a one-time benefit from sale of assets of
$3.2 million. Excluding this one-time benefit, the total reduction in costs and
expenses, exclusive of cost of revenues, was $6.4 million or 21.9%. Vitesse
expects further reductions in costs and expenses as these actions take full
effect in the second half of 2009.

"These steps align Vitesse`s strategic direction with its financial objectives
while preserving critical investments in intellectual property, engineering
resources and worldwide customer support," said Rich Yonker, chief financial
officer at Vitesse. "Vitesse reiterates its expectation to support the goal of
achieving cash flow neutrality or better for the fiscal year."

New Product Introductions

Vitesse made six product announcements in the second quarter of fiscal year
2009:

10G-EPON Chipset (VSC7981, VSC7960, VSC7978, and VSC7987): Designed to be used
in next-generation Fiber-to-the Home (FTTH) deployments, this physical media
dependent (PMD) chipset pairs four Vitesse integrated circuits (ICs) delivering
the industry`s first solution for 10 Gbps Ethernet Passive Optical Networks
(10G-EPON). This technology provides OEMs an accelerated and cost-effective
migration path to implement faster data rates within the existing access network
infrastructure.

VSC8479-01: This 10G transceiver IC is the only one in the industry to support
both burst and continuous mode operation required for next-generation 10G-EPON
Fiber-to-the-Home (FTTH) system deployments. This technology provides 10 times
the bandwidth of existing solutions which will enable triple-play applications
and services such as HDTV, VoIP, VoD and peer-to-peer networking.

VSC8242: A flexible, high-performance Clock and Data Recovery (CDR) IC is
specifically designed to extend 10 Gbps data transmission in optical, copper
cable, and backplane applications and SFP+ Line Cards. This CDR extends optical
transmission distance by 50%, enables 10X speed upgrades and uses Vitesse`s
FlexEQ and VScope technologies to solve multiport, high-speed system design
challenges.

Conference Call Information

A conference call is scheduled for Tuesday, May 12, 2009 at 1:30 pm Pacific
Time/4:30 pm Eastern Time. To listen to the conference call via telephone, dial
800-450-5178 (U.S. toll-free) or 706-679-6171 (International) and provide the
passcode 97681430. Participants should dial in at least 10 minutes prior to the
start of the call. The Company will also broadcast the conference call via a
webcast over the internet. To listen to the webcast, please visit the investors
section of the Vitesse website at www.vitesse.com. The call will be recorded and
available for replay for seven days. To access the audio replay, dial
800-642-1687 (U.S. toll-free) or 706-645-9291 (International) and provide the
passcode 97681430.

About Vitesse

Vitesse designs, develops and markets a diverse portfolio of high-performance,
cost-competitive semiconductor solutions for Carrier and Enterprise networks
worldwide. Engineering excellence and dedicated customer service distinguish
Vitesse as an industry leader in Gigabit Ethernet LAN, Ethernet-over-SONET,
Fibre Channel, Optical Transport, and other applications. Vitesse innovation
empowers customers to deliver superior products for Enterprise, Access, Metro,
and Core applications. Additional company and product information is available
at www.vitesse.com.

Vitesse is a registered trademark and FlexEQ and VScope are trademarks in the
United States and/or other jurisdictions of Vitesse Semiconductor Corporation.
All other trademarks or registered trademarks mentioned herein are the property
of their respective holders.

Cautions Regarding Forward Looking Statements:

All statements included or incorporated by reference in this release and the
related conference call for analysts and investors, other than statements or
characterizations of historical fact, are forward-looking statements. These
forward-looking statements provide current expectations of future events based
on certain assumptions and include any statement that does not directly relate
to any historical or current facts. These forward-looking statements are based
on our current expectations, estimates and projections about our business and
industry, management`s beliefs, and certain assumptions made by us, all of which
are subject to change. Forward-looking statements can often be identified by
words such as "anticipates," "believes," "estimates," "expects," "intends,"
"plans," "predicts," and similar terms, and variations or negatives of these
words. Forward-looking statements are not guarantees of future performance and
the Company`s actual results may differ significantly from the results discussed
in the forward-looking statements.

VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS

March 31, September 30,
2009 2008
(in thousands, except share data)

ASSETS
Current assets:
Cash and cash equivalents $ 39,382 $ 36,722
Accounts receivable, net 6,424 6,307
Inventory 28,178 37,466
Assets held for sale - 3,164
Restricted cash 391 592
Prepaid expenses and other current assets 3,926 4,011
Total 78,301 88,262
current
assets
Property, plant and equipment, net 7,744 8,084
Goodwill - 191,418
Other intangible assets, net 2,194 913
Other assets 3,539 3,600
$ 91,778 $ 292,277

LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 11,423 $ 16,101
Accrued expenses and other current liabilities 12,543 20,242
Deferred revenue 5,739 2,721
Convertible subordinated debt 96,700 -
Total 126,405 39,064
current
liabilities

Other long-term liabilities: 1,602 1,564
Long-term debt, net of discount of $484 and $577 at March 31, 2009 and September 30, 2008, 29,516 29,423
respectively
Convertible subordinated debt - 96,700
Total 157,523 166,751
liabilities
Minority interest 166 165
Commitments and contingencies
Shareholders' (deficit) equity:
Preferred stock, $0.01 par value. 10,000,000 shares authorized; - -
none outstanding
Common stock, $0.01 par value. 500,000,000 shares authorized; 2,314 2,267
230,905,580 shares outstanding at March 31, 2009 and
226,205,580 September 30, 2008
Additional paid-in-capital 1,753,048 1,747,324
Accumulated deficit (1,821,273 ) (1,624,230 )
Total (65,911 ) 125,361
shareholders
' (deficit)
equity
$ 91,778 $ 292,277

VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Six months ended
March 31, March 31,
2009 2008 2009 2008
(in thousands, except per share data) (in thousands, except per share data)

Product revenues $ 34,577 $ 55,593 $ 79,387 $ 108,135
Licensing revenues - - 5,000 -
Net revenues 34,577 55,593 84,387 108,135
Costs and expenses:
Cost of revenues 18,228 25,514 40,675 52,012
Engineering, research and development 10,939 12,453 22,520 25,126
Selling, general and administrative (including gain on sale of fixed assets of $3.2 million for the three 9,930 9,296 20,349 23,188
and six months ended March 31, 2008 and a gain on the sale of building of $2.9 million for the six months
ended March 31, 2009)
Accounting remediation & reconstruction expense & litigation costs 1,515 3,585 3,464 6,746
Goodwill impairment - - 191,418 -
Amortization of intangible assets 386 629 705 1,894
Costs and 40,998 51,477 279,131 108,966
expenses

(Loss) income from operations (6,421 ) 4,116 (194,744 ) (831 )
Other (expense) income:
Interest expense, net (1,170 ) (947 ) (2,300 ) (1,594 )
Other (expense) income, net (48 ) (226 ) 96 723
Other (1,218 ) (1,173 ) (2,204 ) (871 )
expense,
net
Income tax (benefit) expense (554 ) 577 96 (549 )
Minority interests in earnings of consolidated subsidiary - - (1 ) -
(Loss) income from continuing operations before discontinued operations (7,085 ) 2,366 (197,043 ) (1,153 )

Discontinued operations
Income from discontinued operations, net of tax of $901 and $997 and gain on sale of $21,500 for the three - 1,420 - 6,398
and six months ended March 31, 2008, respectively
Net (loss) income $ (7,085 ) $ 3,786 $ (197,043 ) $ 5,245

Basic and diluted (loss) income per share:
Continuing operations $ (0.03 ) $ 0.01 $ (0.86 ) $ (0.01 )
Discontinued operations - 0.01 - 0.03
Net (loss) $ (0.03 ) $ 0.02 $ (0.86 ) $ 0.02
income per
share

Weighted average shares outstanding:
Basic and diluted 230,227 223,556 228,194 223,556

Vitesse
Rich Yonker, +1-805-388-3700

Copyright Business Wire 2009