Fourth quarter revenue was below our forecast with both segments showing continued weakness. Operating margins declined but less so than prior periods when revenue dropped. Backlog was down but showed encouraging signs as the sequential quarterly change was less than the second to third quarterly change.
The decrease in revenue over the last six months was due to reduced order activity for both segments. The decline in gross margins were mainly due to fixed expense coverage over a smaller revenue base. The uncertainty between budget, appropriations and spending in the government sector may have a continued impact on revenue. Weakness in the global macroeconomic environment may continue to be be a near term problem. Cisco Systems has reported flat revenue and flat gross profit over the last four quarters but expects some growth in the second half of 2012. Cisco is LGL's largest customer.
The Company’s backlog decreased from $9.1 million to $7.4 million, a modest decline when compared to prior quarters.
LGL remains cautious regarding its outlook for repeat orders in the first half of 2012 as major electronic manufacturing service companies and original equipment manufacturer’s report mixed market conditions. The Company believes its customer positions remain strong across its target market segments.
Likewise, expects to see growth in revenue and earnings over the next two years through the expansion of its product portfolio through continued investment in product development and possibly by acquisitions.