News

29 October 2008

 

RFMD improves operating income after restructuring

For its fiscal second-quarter 2009 (ended 27 September), RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $271.7m, up 6.2% on $255.8m a year ago and up 13% on last quarter’s $240.5m.

The sequential increase reflects RFMD’s CPG Cellular Products Group gaining market share in cellular front ends (with growth exceeded the handset industry growth rate) as well as growing sales for Polaris transceivers. Consequently, RFMD increased its dollar content in cellular handsets, as transmit module adoption increased and as leading handset makers launched new phones featuring Polaris 2 and Polaris 3. RFMD shipped production volumes of cellular front ends to all five of the world's top-five handset original equipment manufacturers (OEMs), as well as securing major 3G design wins at more than one of them.

In RFMD’s MPG Multi-market Product Group (for non-cellular handset products) the integration of recent acquisitions - e.g. Sirenza Microdevices Inc in November 2007 and Filtronic Compound Semiconductor of Newton Aycliffe, UK (now RFMD UK) this February - has been completed, with synergies continuing to be recognized, says the firm. MPG released 18 new products during the quarter (bringing the total in fiscal first-half 2009 to 45) and is on track to release more than 100 new products in fiscal 2009. Also during the quarter, RFMD received US government funding for its gallium nitride (GaN) process development and anticipates signing a new government contract in the December quarter. Revenue from GaN-based line amplifiers for cable TV (CATV) should begin in calendar 2009. RFMD expects to exceed its goal of $250m in MPG revenue this fiscal year.

RFMD’s overall gross margin has fallen from 32.2% a year ago and 30.1% last quarter to 28.3% for the September quarter, due mainly to the sequential increase in Polaris transceiver revenue. Though cut from $24.1m last quarter, net loss was still $11.8m (compared to a net income of $14.5m a year ago). However, excluding charges related to the strategic restructuring announced on 6 May, non-GAAP net income was $18.6m, up from $7.9m last quarter (though still down on $23.4m a year ago).

“Two quarters ago we announced a strategic restructuring that positioned RFMD to deliver the largest increase in profitability in our company's history,” says president & CEO Bob Bruggeworth. The restructuring has involved focusing investment on RFMD’s 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. About 300 redundancies were involved.

“With the efforts related to our strategic restructuring complete, we’ve improved both our operating model and our competitive position,” adds Bruggeworth. Progress includes expense reductions, market share gains and non-GAAP operating income of 6.6%, an improvement of 12.7 percentage points. RFMD has achieved its goal of eliminating $75m in annualized CPG expenses, while improving its outlook for increases in free cash flow (after generating about $40m in operating cash flow in the September quarter). “RFMD has delivered on its commitments to increase revenue, operating margin and cash flow over the past two quarters,” says Dean Priddy, chief financial officer & corporate VP of administration. “RFMD’s free cash flow exceeded non-GAAP earnings in the September quarter,” he adds.

“We expect our restructuring to serve us well regardless of the market environment, both in the face of an apparent global slowdown and as markets ultimately return to strength,” says Bruggeworth. “Clearly, no company is immune to macroeconomic conditions. However, on the strength of our restructuring, and given our scale, end-market diversity, improving product portfolio and low-cost structure, we believe we are well-positioned to execute on our growth plan and create shareholder value.”

RFMD says that it experienced strong order flow during the September quarter and currently sees customer demand to support revenue growth in the December quarter. However, because of the uncertainty currently surrounding the global macroeconomic environment RFMD believes that it is prudent to be conservative and factor down customer demand forecasts.

Therefore, for the December quarter, RFMD forecasts revenue to be flat to down 7% on the September quarter. Nevertheless, based on projected customer and product mix along with reduced expenses, the firm expects operating margin to rise.

“The current macroeconomic environment, coupled with our recent restructuring, present RFMD with an opportunity to leverage our market, product and customer diversity, along with our manufacturing scale to increase our market share and dollar content, maintain profitability and increase cash significantly,” concludes Priddy.

See related items:

RFMD’s restructuring increases losses despite revenue growth

RFMD delays Greensboro fab investment as it completes Filtronic acquisition

RFMD loss follows dip in China GSM/GPRS demand

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