One day after Zilog Inc. announced he was stepping down as chief executive officer, Curtis Crawford offered a blunt explanation for a year in which the company failed to grow despite a buoyant chip market.
"We were extremely aggressive and had high expectations that we could deliver several new products, including our eZ80 Webserver, within one year," he said during a conference call with financial analysts.
"Our expectations proved to be too aggressive, and we did not deliver significant revenues from those products as we expected." The company was also forced to cancel some human interface devices and other products when they "proved too far ahead of the adoption curve," Crawford said.
"All these were major new products that were anticipated to generate substantial revenue for us in the year 2000," he noted.
Other problems also hurt Zilog's results, Crawford said. "We did not execute as planned against some of our historic product lines. One area that failed to gain traction was one-time programmables." The company invested in 0.35-micron technology and built up inventory of OTPs, but "the broader OTP market did not materialize as we expected, and as a result, price erosion occurred."
These setbacks came as Zilog was scaling back its efforts in other areas, such as peripheral products. "We could have gained additional sales in this area, and we were tempted to do so, but we chose to stay the course and focus our product mix as planned."
Crawford told the analysts that Zilog today is much more focused on products for communications, and is attracting significant interest in the market for products like the eZ80. But he also cautioned: "While we are aggressively working to grow our business, we are still in the process of turning around our company, and this year will be challenging."
Zilog expects net sales to drop about 10% in 2001, following last year's 2% decline, it was disclosed during the conference call.
He repeated the explanation given on Tuesday for his decision to step down as CEO while remaining chairman: "At this point in the company's evolution, it is critical that the role of chairman provide our high-level strategic focus, and that we bring on a CEO focused more on the day-to-day operation."
He added that "I remain committed to the long-term success of our company and will continue to be a driving member of the board of directors."
The company on Wednesday reported net sales of $56 million for the fourth quarter of 2000, down from the $65.4 million in revenues during the fourth quarter of 1999. Annual net sales for 2000 were $239.2 million compared with $245.1 million in 1999.
Overall, Zilog reported an operating loss of $18.2 million during the fourth quarter of 2000, compared to $2.3 million of operating income reported during the fourth quarter of 1999.
Gross margin for the fourth quarter of 2000 was 28% of net sales, compared to 40% in the fourth quarter of 1999. The decline in gross margin during the fourth quarter of 2000 reflects significant under-absorption of fixed manufacturing costs in Zilog's wafer fabs. Gross margin was also impacted by approximately $1 million of excess inventory that was scrapped during the fourth quarter of 2000.
The company in late December said it was looking to sell one of its wafer fabs in Nampa, Idaho, to AMI. A Zilog spokeswoman on Wednesday said, "We are still in discussions (with AMI), but there probably will not be any announcement for about a month."
The fourth quarter 2000 operating loss included special charges of $14.8 million, comprised of non-cash asset impairment charges of $9.2 million, severance benefits of $5.5 million, and other contractual liabilities of $0.1 million. The asset impairment charge of $9.2 million is comprised of $6.9 million for write-downs of manufacturing property and equipment held for sale and a $2.3 million charge to write-off unrecoverable intangible assets acquired from Seattle Silicon Corporation in 1999. The $5.5 million severance charge recorded in the fourth quarter of 2000 included $2 million of non-cash stock option compensation.
The Company ended the fourth quarter of 2000 with $40.7 million in cash and cash equivalents. Selling, general and administrative expenses declined to $10 million in the fourth quarter of 2000 from $15.2 million in the fourth quarter of 1999 primarily as a result of realignment of accrued incentive compensation bonuses and commissions in light of the company's current financial results.