News

Including a partial quarter of results from Filtronic Compound Semiconductors Ltd (acquired on 29 February), for its fiscal fourth-quarter 2008 (to 29 March) RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $221.9m, down 13.7% on $257.3m a year ago and 17.2% on last quarter’s $268.2m.

Of total revenue, 23% ($51m) from the Multi-Market Products Group (MPG, up $35.4m from last quarter) and 77% ($171m) came from the Cellular Product Group (CPG, down from $232.8m last quarter).

Consistent with guidance provided at the end of January, revenue reflected relative strength in MPG (with diversification efforts paying off as RFMD launched multiple high-value products for a customer list of thousands) and a mid-quarter rise in demand for GSM/GPRS cellular front ends, related mainly to starting high-volume shipments to a top-five handset original equipment manufacturer (OEM) that is ramping up a major new handset platform (so RFMD is now shipping in production volumes to all top-five handset OEMs). RFMD experienced increased design activity and estimates channel inventory levels have improved significantly, especially in Asia. “We experienced a rebound in demand among multiple handset customers based in China,” says president and CEO Bob Bruggeworth.

Nevertheless, gross margin has fallen from 35.2% a year ago and 26.2% last quarter to 25.7%. Also, despite $7m in annualized operating expense savings (in line with the previously identified ‘hard synergies’ from the Sirenza Microdevices acquisition), operating loss was $31.6m (compared to $24.4m last quarter and a profit of $21.4m a year ago).

For the June quarter, RFMD expects revenue to rise just 4-10% sequentially to $230-245m, reflecting significantly reduced transceiver revenue at the firm’s largest Polaris 2 customer. However, CPG cellular front-end revenue should rise 10-15% sequentially, with Polaris 3 revenue driven by new and existing handset models. “We are positioned for cellular front-end market share gains at additional top-five OEMs as new handsets commence production, including a popular music phone for EDGE networks and a highly anticipated WCDMA handset manufactured by a Korea-based OEM,” says Bruggeworth. MPG is currently booked for sequential revenue growth of 15-20% due to strength in wireless infrastructure, CATV amplifiers, wireless LAN front ends, RF components for point-to-point digital radio applications and standard (catalog) RF components, and is on target for $250m in fiscal 2009 (during which RFMD will release more than 100 new products).

Refocusing from wireless systems to RF components

Following the March quarter’s $31.6m operating loss, RFMD has announced that it is focusing investment on its core RF components and compound semiconductors (including cellular front ends and other components in CPG as well as high-value RF components in MPG) by eliminating all product development expenses related to wireless systems, including cellular transceivers and GPS solutions.

RFMD will continue to fully support current-generation cellular transceivers either in production or starting production (Polaris 2, Polaris 2 Radio Module, Polaris 3 and Polaris 3 Silver), and expects these products to contribute significant operating profit and cash flow over their multi-year product lifecycles. The firm anticipates revenue growth in cellular transceivers in fiscal 2009, with revenue continuing into fiscal 2010.

However, RFMD is engaged in discussions with strategic and financial buyers for some of its wireless systems assets (GPS), but is not commenting currently on any potential transactions (including possible proceeds).

The strategic restructuring is projected to involve cutting global staffing by about 350 and incur $40-50m in charges over the next two quarters. However, it should eliminate $75m in annual product development expenses this fiscal year (beginning in the June quarter, with the full benefit to be realized in the December quarter).

According to Bruggeworth, terminating wireless system product development should unleash the value of RFMD’s very profitable core RF components business, highlighted by CPG’s cellular front ends and other cellular components and MPG’s multi-market RF, microwave and millimeter-wave components. “Our RF components business consistently generates superior profitability and financial returns in excess of our cost of capital. We are increasing our focus on this core business and deploying the full force of our assets and resources behind it,” he adds.

“These strategic actions will enable RFMD to deliver more predictable financial results and substantially higher profitability,” says Bruggeworth. “We are investing in growing markets where we have a demonstrated track record of success.”

Compared to transceiver modules incorporating components fabricated in CMOS silicon and SiGe, RFMD projects materially higher profitability from focusing on compound semiconductors and RF components, where it claims to be the established industry leader. “We believe RFMD is positioned for the largest increase in profitability in our company’s history,” Bruggeworth reckons.

“We will measure our progress using operating income and return on invested capital (ROIC) as key performance metrics,” says Bruggeworth. “We currently expect at least 10% non-GAAP operating income and double-digit ROIC by the end of the calendar year,” adds Dean Priddy, CFO and corporate VP of administration. “In conjunction with our share repurchase program [including 30 million during the quarter], these actions demonstrate RFMD’s commitment to improving shareholder value.”

“While this is a difficult decision because of the impact on employees, these actions are the result of a comprehensive strategic review, including extensive market analyses and discussions with key customers and channel partners,” says Bruggeworth. “We are confident the steps we have taken will increase shareholder value and provide significant long-term benefits to our global customers and stakeholders.”

See related items:

RFMD delays Greensboro fab investment as it completes Filtronic acquisition

RFMD loss follows dip in China GSM/GPRS demand

Search: RFMD

Visit: www.rfmd.com