Pinnacle Data Systems Sales Grow by 15% to $5.2 Million for Q3

10/23/2003 - Pinnacle Data Systems, Inc. (PDSi) (AMEX: PNS) announced results for the third quarter (thirteen weeks) ended September 27, 2003.

Sales for the third quarter of 2003 totaled $5.2 million, an increase of 15% over sales of $4.5 million reported in the comparable period of 2002. Net income for the third quarter of 2003 was $122,000, or $0.02 per diluted share, compared to net income of $195,000, or $0.04 per share, for the third quarter of 2002.

Sales for the nine months ended September 27, 2003, totaled $15.1 million, resulting in net income of $376,000, or $0.07 per diluted share, compared to sales of $12.4 million and a net loss of $115,000, or $0.02 per share, for the same 2002 period.

John D. Bair, Chairman, President and CEO, said the company expects to report a profit for the fourth quarter and the 2003 year. "Comparing the first nine months of 2003 with the first nine months of our near-break-even 2002, sales growth of 22% in 2003 has resulted in additional leverage on our costs getting to the bottom line," Bair said.

"Over the past two years, PDSi has successfully implemented its strategies to increase its presence in the marketplace with an array of full product lifecycle services, to diversify its customer base, to grow its business through its counter-cyclical business model, and to achieve and maintain profitability. Our expanding customer base and our financials reflect that success, " Bair said. "It is also encouraging that this year's sales growth is coming from a number of the different industries we serve, both from existing products we have in the marketplace, and from new products." To date in 2003, PDSi has received significant orders for semiconductor manufacturing process control products, increasing orders for medical diagnostic and commercial imaging controllers/servers and new orders for services to modify printed circuit boards for operation in extremely harsh environments for the aerospace industry. Also, PDSi recently announced a $1 million TS1000 telecommunications server order that is currently scheduled to ship in the fourth quarter of 2003.

Additional Operating Results
For the third quarter of 2003, product sales totaled $3.5 million, an increase of 34% over product sales of $2.7 million for the third quarter of 2002, due to increases in ordering from a number of major customers. The gross profit margin percentage on products decreased to 28% in the 2003 quarter from 31% in the 2002 quarter on a slightly less profitable mix of business. Gross profit on product sales for the 2003 quarter totaled $983,000, compared with $814,000 for the same period in 2002.

For the third quarter of 2003, service sales totaled $1.7 million, a decrease of 11% from service sales of $1.9 million for the third quarter in 2002, due to the discontinuation of the Hewlett-Packard UNIX workstation repair program in the first half of 2003. The gross profit margin percentage on service sales decreased to 32% in the 2003 quarter from 43% in the 2002 quarter due to the loss of volume leverage and the partial replacement of that HP program with lower margin service programs. Gross profit on the decreased service sales for the 2003 quarter totaled $536,000, compared to $805,000 for the same period in 2002.

For the quarter ended September 27, 2003, sales, general and administrative (SG&A) expenses, including research and development (R&D), totaled $1.3 million, essentially unchanged from the $1.3 million in the comparable quarter of 2002. The shift from R&D expenses to SG&A expenses is attributable to the lower investment levels required to develop new products on Intel platforms and the continued shifting of product development resources to new service opportunities in the 2003 quarter compared to the 2002 quarter.

"The nine-month results reflect, and we expect the year's results will illustrate, the successful turnaround we have achieved," said Michael R. Sayre, Executive Vice President and CFO. "However, our focus has been, and will continue to be, on growing the company well beyond the turnaround. In 2004 and beyond, while sales and earnings results may not improve sequentially every quarter, we expect a trend of continued growth, initially with top line growth exceeding bottom line growth as we increase investment in marketing, sales and growth infrastructure and we take on some lower margin integration work to maximize our leverage on fixed costs."

Conference Call
PDSi will host a conference call today at 11:00 a.m. eastern time to discuss third quarter 2003 results and the company's strategic direction. The conference call may be accessed by calling (888) 880-1525. The passcode for the conference call is "Pinnacle Data Systems" and the conference identification number is 3160143. Please be prepared to provide both the passcode and the conference identification number to access the call.

About PDSi
PDSi provides technical services and solutions, encompassing the development and production of embedded (built-in) computer systems and components, and the testing and repair of computer systems, components and peripherals, to Original Equipment Manufacturers (OEMs) in, among others, the computer, computer peripheral, data storage, digital-imaging, medical diagnostic, process-control, and telecommunications equipment industries. PDSi offers a full range of services to increase product speed to market and engineered product life, and to provide service and support to units in the field through comprehensive product lifecycle management programs encompassing depot repair, advanced exchange, contact center support and end-of-life control. For more information, visit the PDSi Web-site at

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