2 May 2012

RFMD’s quarterly revenue falls 16.6% to $187.9m

For its fiscal fourth-quarter 2012 (to end March), RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $187.9m, slightly better than the forecast $185m but down 11.9% on $213.3m a year ago and 16.6% on $225.4m last quarter.

RFMD’s Cellular Products Group (CPG) saw revenue fall by 21% from $179.8m last quarter to $143m. This was mainly due to a greater-than-seasonal 40% decline at a leading European handset maker and among handset makers in China. Consequently, China fell to just under 25% of total company revenue (down from a third last quarter), while Nokia has fallen to significantly less than 10% of total company revenue after an expected ‘significant decline’. Samsung was the only 10% customer (after being their number-1 supplier in calendar 2011, and growing further in this latest quarter). These factors were offset partially by over 15% sequential revenue growth for both RFMD’s PowerSmart power platforms and ultra-high-efficiency 3G/4G power amplifiers (PAs), reflecting market share gains in smartphones. Overall, 3G/4G components grew 160% year-on-year to more than two-thirds of CPG revenue, up from just 25% a year ago.

During the quarter, CPG unveiled its second-generation ultra-high-efficiency LTE PAs and its second-generation PowerSmart LTE power platform, and secured majority LTE share on an upcoming smartphone family. CPG also launched multiple 3G/4G antenna control solutions and gained ‘significant’ design-win momentum in this emerging category.

RFMD’s Multi-Market Products Group (MPG) was roughly flat sequentially, with revenue of just over $45m. However, this is better-than-seasonal performance after seeing a stabilization in the macro environment, with particular strength in smart grid, CATV broadband, and catalog products. Also, a reorganization has sharpened MPG’s focus to drive growth in three major markets: Wi-Fi front-end modules, wireless infrastructure and gallium nitride (GaN) power devices (“the most important drivers of MPG's future success,” says RFMD, as it aims to reach a broad range of markets and customers by continuing to launch new products and technologies). Correspondingly, the firm has launched six new Wi-Fi front-end modules for consumer premises equipment (CPE) and mobile applications. Of MPG sales, WiFi typically comprises 15-25% and wireless infrastructure 10-20% (although the latter has been at the low end of that range for the last few quarters due to the low capital expenditures of telecom carriers around the world). GaN is expected to comprise 5-10% of MPG revenue in fiscal 2013 (growing 50% annually).

On a non-GAAP basis, gross margin of 32.4% is down on 37.5% a year ago but up on last quarter’s 30.2%, as improved product mix more than offset the impact of the sequential revenue decline and lower factory utilization.

Operating expenses have risen 7.8% from last quarter’s $59.2m to $63.8m, including R&D expenses of $39.2m (up 9% from $36m). “RFMD is investing for product and technology leadership in 3G/4G, in WiFi and in a multitude of switch-based applications,” says chief financial officer Dean Priddy. “We expect the payback on these increased investments to begin as early as the September quarter.”

Compared with net profit of $21.7m a year ago and $5.1m a year ago, RFMD has reported a net loss of $5.4m. During the quarter, cash flow from operations was $20.5m (less than half of last quarter’s $46.2m). Capital expenditure has risen slightly from $8.7m last quarter to $9.6m, targeted mainly at test stations to support high-volume opportunities for switches and antenna control solutions (with production on these new testers starting to ramp in the June quarter). Free cash flow was hence $10.9m (down from $37.5m). Overall, total cash, cash equivalents and short-term investments rose from $295.4m to $300.4m.

Subsequent to the quarter, RFMD paid off the remaining $26.5m principal balance of its 2012 convertible debt, and currently has $134.9m par value of convertible debt due April 2014.

RFMD claims that it is winning market share on multiple flagship smartphones, and it forecasts continued sequential growth in 3G/4G components during the June quarter. Among China-based handset makers, RFMD expects growth as a result of market share gains and the country’s transition to 3G (which has at least three times the dollar content of 2G; indeed, 3G has already overtaken 2G in CPG’s China revenue despite comprising just 20% of unit volume). RFMD says that it has a broad set of growth drivers in place in China, with reference design wins in wideband CDMA and TD-SCDMA and with essentially all baseband providers.

In the markets served by MPG, RFMD sees stabilizing demand and improving order visibility and expects MPG revenue in the June quarter to be roughly flat on the March quarter.

Given the demand environment in its end markets, for the June quarter RFMD expects a return to sequential revenue growth (up 8% to about $202m), supported by increasing sales of 3G/4G components (taking increased market share) and a resumption of growth among handset makers in China, as well as increasing market share in the switch and signal conditioning product lines plus growth for the firm’s PowerSmart and Phenom products. Although factory utilization will remain flat, gross margin should improve by 100-200 basis points (especially since, for example, the firm’s next-generation GSM PAs have a reduced die size, allowing more die per wafer and lowering costs).

“RFMD is growing with the industry’s leading smartphone manufacturers and diversifying across a broad set of customers serving all geographies and segments,” says president & CEO Bob Bruggeworth. “In just one year, RFMD has transformed itself into a highly diversified 3G/4G supplier, with greater alignment with the industry’s leading customers and channel partners,” adds Priddy. “We should see continued improvement in this key metric as 2012 progresses.” RFMD’s second generation of ultra-high-efficiency 3G/4G power amplifiers expands the portfolio to cover even more bands. RFMD has released products covering 10 bands of 3G/4G, and is adding eight more bands in the next two quarters. “We’re expanding it to all LTE bands,” notes corporate VP & CPG president Steven E. Creviston. “Everything will be covered within the next two quarters, increasing the efficiency in LTE data mode.”

Based on current design wins and momentum, RFMD expects to be Samsung’s top supplier again in calendar 2012. “In the market for converged power amplifiers, RFMD’s PowerSmart supports Samsung across multiple basebands, and we are engaged with Samsung to supply our next-generation PowerSmart LTE, which enables a greater number of bands and band combinations,” says Bruggeworth. “On Samsung’s LTE smartphones featuring discrete PAs, RFMD is capturing the majority share with our ultra-high-efficiency 3G/4G PAs, which are optimized for high-speed data and provide improved talk time and thermal performance,” he adds. “In fact, RFMD will support the majority of Samsung’s flagship smartphones this year with either PowerSmart or our ultra-high-efficiency 3G/4G PAs, and many of these devices will also contain our switch and signal-conditioning components.” In LTE, RFMD is forecasting accelerated global adoption (from about 20 million units last year to over 100 million units this year) as consumers demand higher mobile data rates and as customers respond by launching new LTE devices.

“As we begin fiscal 2013, we are especially enthusiastic about RFMD’s incremental growth drivers in new segments, including antenna control solutions, 802.11ac front-end modules and GaN power devices, where RFMD’s proven technology leadership and early-mover advantage position us to capture market-share leadership as these markets grow,” says Bruggeworth. “For next-generation WiFi, we are heavily involved with the leading WiFi channel partners for 802.11ac developments, which are expected to be in shipping in late 2012. This is one of the areas where we’ve made significant progress in our alignment with the industry’s leading channel partners,” he adds.

“We are making incremental investments in R&D, targeting continued growth and diversification,” notes Bruggeworth. “These include advanced power management systems like envelope tracking (ET) for LTE [for which CPG in the March quarter demonstrated ‘industry-leading’ performance, it is claimed] and other products and architectures that enable more cellular bands at even smaller form factors. These investments and our proven technology leadership across all active RF semiconductors are leading the smartphone providers to increasingly look to RFMD for complete RF front-end reference designs,” he claims. “CPG achieved multiple design wins during the quarter at leading OEMs with highly integrated RF semiconductor solutions containing all 2G and 3G PAs and switch content for the entire cellular RF front end. This is a growing trend where RFMD can capture all of the active RF semiconductor dollar content,” he believes.

“In wireless infrastructure, telecom operators and OEMs are developing a variety of small-cell base-stations to extend wireless infrastructure capacity. This is driving up RF component volumes and placing greater emphasis on integration,” continues Bruggeworth. “MPG is targeting base stations and microwave backhaul with a growing portfolio of power amplifiers, general-purpose RF products, microwave mimics and integrated multichip modules,” he adds.

“In the June 2012 quarter, we expect a stronger, more diversified customer base will support a resumption of sequential revenue growth and continued margin expansion,” notes Priddy. “We have structured the RFMD operating model to deliver significant leverage, and we anticipate our product portfolio and R&D investments will continue to drive revenue growth and margin expansion throughout calendar 2012. Importantly, we’re confident the targeted, incremental R&D investments RFMD is making in 2012 will generate incremental revenue beginning as early as the September 2012 quarter.”

See related items:

RFMD’s quarterly revenue falls 19% year-on-year to $225.4m

RFMD’s quarterly revenue rises 14% to $243.8m

RFMD returns to sequential revenue growth

RFMD’s quarterly revenue drops 23% to $213.3m

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

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