24 April 2014

TriQuint’s Q1 revenue hit by inventory correction at mobile customer

For first-quarter 2014, RF front-end component maker and foundry services provider TriQuint Semiconductor Inc of Hillsboro, OR, USA has reported revenue of $177.6m, down 34% on $267.7m last quarter (due to seasonality plus channel inventory burn in the mobile devices market) and down 4% on $184.2m a year ago (due mainly to program timing in the defense market). However, this was towards the high end of the $170-180m guidance.

Fiscal	Q1/2013	Q2/2013	Q3/2013	Q4/2013	Q1/2014
Revenue	$184.2m	$190.1m	$250.8m	$267.7m	$177.6m

Subcontract assembly firm Foxconn Technology Group accounted for 26% of revenue (although TriQuint notes that end-customers may use multiple sub-contractors, and that the mix of these firms can vary over time).

End-market revenue split was 58% Mobile Devices (down from 71% last quarter), 29% Network Infrastructure (up from 18%), and 13% Defense & Aerospace (down from 11%).

“In Infrastructure, we continue to see healthy demand for base-station products [which more than doubled year-on-year, excluding commercial foundry revenue] and support of the TD LTE build-out in China,” notes president & CEO Ralph Quinsey. “Additionally in optical, last year’s Q3 inventory correction is behind us and demand for high-performance optical drivers remain strong,” he adds. “Defense revenue was seasonally down in Q1 following a very strong 2013 and a cyclical nature of large defense program.”

Mobile Devices saw a sequential drop in revenue of 45% following a very strong last quarter. “First-quarter seasonality plus a temporary inventory correction at a significant customer contributed to the larger-than-normal revenue decline,” notes Quinsey. “2G and 3G revenues declined year-over-year as we transitioned away from the legacy products, with significant growth in 4G LTE revenue across a broad set of customers,” he adds.

Much of the gross margin headwinds that typically come with such a large seasonal decline were offset by better product mix, efficient factory management, and cost-reduction efforts, says Quinsey. On a non-GAAP basis, gross margin was 35.3%, down from 37.2% last quarter but up sharply from 22.8% a year ago, and well above the guidance of 28-30%. Operating expenses of $70.9m were up on $68m a year ago but down slightly on $71.1m last quarter, as expenses continue to be managed closely.

Compared with last quarter’s net income of $26.4m ($0.16 per diluted share), Q1/2014 saw a net loss of $9.4m ($0.06 per diluted share). However, this is a big improvement on a loss of $27.2m ($0.17 per share) a year ago, and much better than the expected $0.11-0.13 per share.

“Better product mix and successful factory cost management led to a substantially better gross margin compared to Q1 of 2013 and earnings well above analyst expectations,” summarizes Quinsey.

After dropping from $20.8m in Q3/2013 to just $9m in Q4, capital expenditure returned to $21.7m (again, primarily for premium filter capacity).

Despite the net loss and increased CapEx, during the quarter, cash and investments rose by $84.5m, from $79m to $163.5m, driven by a reduction in accounts receivable and significant cash proceeds from employee stock option exercises.

“Demand for Q2 remains healthy [specifically seeing a significant step up for mobile] as we transition into our seasonally stronger quarters,” says Quinsey. The book-to-bill ratio of 1.22 the firm’s highest in over two years (boosted by 1.74 specifically for discrete premium filters). TriQuint is hence fully booked to second-quarter 2014 revenue expectation of $215-225m, led by a strong recovery in the mobile market. Gross margin should rebound to 37-38%. Operating expenses are expected to fall to $68-70m. Net income should be $0.06-0.08. Both revenue and earnings guidance are well above current analyst estimates, notes the firm.

“Our goals this year include transitioning our mix from legacy to premium-level products [with LTE expansion representing the firm’s single largest growth driver over the next several years], improvements in operation efficiency, and continued growth in the output of new products, with emphasis on Infrastructure and Defence markets,” says Quinsey. For example, after receiving orders for a fourth S-band radar system in Q1, TriQuint introduced a 130 Watt Spatium solid-state power amplifier for Ka-band satellite communications.

“I expect gross margins to improve with healthy year-over-year comparisons, each quarter of 2014,” Quinsey says. “The combination of cost-reduction initiatives and improved product mix is expected to drive gross margins above 40% on average over the next three quarters,” he adds. “Finally, we continue to execute on key development projects and have maintained a high level of new product output, with 36 new product introductions in Q1,” Quinsey continues. During the quarter, new multi-mode multi-band power amplifiers (MMPAs) with envelope tracking captured design wins in Korea and China.

“The proposed merger between TriQuint and RFMD [announced on 24 February] will create a capability-rich new company, with growth opportunities across Mobile, Infrastructure and Defense applications,” believes Quinsey. “The combination creates a compelling line of product to serve the growing demand for dense RF integration… Customers will benefit from high-value cost-effective products,” he adds. “The combined manufacturing scale of the new company will lead to improved levels of financial performance, not achievable by either company on a standalone basis… We expect this merger to unlock significant value for shareholders.” Merger preparation and integration planning with RF Micro Devices has successfully ramped up in anticipation of a second-half 2014 close, notes the firm.

See related items:

Combined TriQuint-RFMD to command 36% of GaAs and GaN supply into defense sector

RFMD and TriQuint to merge, creating $2bn-turnover firm

TriQuint grows 7% in Q4, led by 21% rebound in Networks infrastructure

TriQuint’s Q3 revenue grows 32% on Q2, driven by demand for LTE products and product ramp

TriQuint’s revenue returns to year-on-year growth in Q2

TriQuint’s revenue dives 21% in Q1 as Mobile Device revenue falls 30%

Tags: TriQuint

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