27 January 2011

RFMD’s revenue falls 2.4% due to 3G drop at Nokia

For its fiscal third-quarter 2011 (ended 1 January), RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $278.8m. This is up 11.4% on $250.3m a year ago but down 2.4% on $285.8m last quarter, reflecting a decline in 3G revenue at its largest customer Nokia, offset partly by transceiver revenue above original estimates and sequential growth in high-performance switch-based products as RFMD continued to diversify its customer base and markets. Notably, RFMD delivered more than 60% year-on-year core business growth outside its largest customer.

In particular, the Cellular Products Group (CPG) saw accelerating design activity for 3G/4G smartphones across its PowerSmart power platforms, high-performance switch-based products, and recently launched family of high-efficiency single-mode power amplifiers (PAs). RFMD also supported the launch of a flagship 3G/4G smartphone and tablet product family featuring its PowerSmart and WiFi components.

The Multi-Market Products Group (MPG) enjoyed strong underlying demand in its end markets, with each MPG business unit growing sequentially, led by wireless infrastructure, smart energy, WiFi for 3G/4G smartphones and tablets, defense, and high-power gallium nitride (GaN) applications. MPG commenced volume production of GaN products for applications in high-power military radar and CATV.

On a non-GAAP basis, gross margin was 38.7%, up from 38.4% a year ago but down from 39.8% last quarter, with lower-margin transceiver business remaining dilutive to core business margins. However, core business (excluding the impact of transceivers) achieved gross margin of 41%. Net income has continued to rise, from $38.8m a year ago and $52.3m last quarter to $52.6m.

During the quarter, RFMD generated free cash flow of $54m (net cash from operating activities of $63.3m minus purchases of property and equipment of $9.1m). Over the past eight quarters, the firm has improved its net cash position by $405m.

RFMD currently believes the demand environment in its end markets supports the expectation that, for its fiscal fourth-quarter 2011 (to end-March), revenue will fall 10–15% seasonally (with gross margin flat-to-down 200 basis points). However, this includes a $25m drop in transceiver revenue (consistent with the anticipated end-of-life of legacy products, which should be immaterial to results for the June quarter and beyond, as POLARIS shipments fall from about 15% of total revenue in the September 2010 quarter towards 5% in the March quarter).

“The March quarter represents an inflection point for RFMD as we close out our legacy transceiver business and begin the ramp of new, higher-margin component solutions, including our PowerSmart power platforms [commencing volume shipments], our industry-leading high-efficiency single-mode PAs, our silicon-based switches, our GaN components, and our high-performance WiFi components,” says president & CEO Bob Bruggeworth.

“We are forecasting sequential growth in the March quarter in 3G/4G smartphones, wireless infrastructure and GaN-based products, and we expect to ramp 3G/4G smartphones featuring PowerSmart at an additional leading smartphone OEM each quarter of calendar 2011,” Bruggeworth adds.

Based on existing design wins, RFMD expects PowerSmart revenue in fiscal 2012 to exceed $75m. As the mix of design wins continues to shift towards 3G and 4G, RFMD is forecasting significant share gains in fiscal 2012 in both smartphones and in 3G feature phones. “This supports our expectations for broad-based share gains and positions RFMD to grow sequentially and expand gross margins during fiscal 2012, outpacing overall growth in our core markets,” Bruggeworth continues.

“RFMD’s capital-efficient business model has generated two years of industry-leading free cash flow, with an outlook for continued superior free cash flow,” reckons chief financial officer & VP of administration Dean Priddy. RFMD remains on track to achieve free cash flow in fiscal 2011 of $180–200m (up on fiscal 2010’s $177m).

“We are confident RFMD’s business model enables us to substantially grow our revenues and expand margins while achieving industry-leading capital efficiency. In fact, we believe we can approximately double our revenue without requiring additional GaAs fabrication capacity,” Priddy adds.

Based on this outlook, RFMD’s board of directors has authorized a two-year $200m share repurchase plan. “This provides us with the flexibility, when market conditions warrant, to significantly reduce our outstanding shares and offset potential future dilution from our convertible debt and awards under our equity-based compensation plans,” says Priddy.

See related items:

RFMD’s quarterly revenue grows 12% year-on-year to record $285.8m

RFMD’s revenue grows 29% year-on-year

Strong demand gives RFMD 51.4% increase in revenue year-on-year

RFMD grows revenue 24% year-on-year

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