11 August 2014

Anadigics' Q2 sales down 33% year-on-year, but infrastructure growth compensating for decline in legacy mobile

For second-quarter 2014, broadband wireless and wireline communications component maker Anadigics Inc of Warren, NJ, USA has reported revenue of $23.3m, down 33% on $34.6m a year ago and level with Q1/2014 but slightly above the guidance of $23m (which had been lowered on 26 June from initial guidance of 8-12% growth).

Fiscal	Q2/2013	Q3/2013	Q4/2013	Q1/2014	Q2/2014
Revenue	$34.6m	$37m	$36.3m	$23.3m	$23.3m

There were three greater-than-10% customers (Huawei, Samsung and distributor Richardson Electronics) plus three customers at 5-10% (including representation from infrastructure).

As part of its strategic restructuring announced in June, Anadigics now segments revenue into two categories: Infrastructure (products for CATV, small-cell, WiFi, M2M, optical and other general RF applications) and Mobile (WiFi and Cellular products mainly addressing the smartphone, handset and tablet markets). Mobile revenue has fallen 6.7% from $17.9m last quarter to $13.1m. However, Infrastructure revenue has risen by 10% to $10.2m (to 44% of total revenue).

“In the mobile markets, our dependence on Samsung has decreased substantially,” notes chairman & CEO Ron Michels. In May, Anadigics announced multiple design wins at several Chinese smartphone OEMs. “While the decline in our business from Samsung has not been fully offset with the new designs we are winning in China, the quality of these new design wins is significantly higher,” he adds. “We expect these trends to continue and will support these mobile markets for the foreseeable future.”

“We saw a rise in infrastructure revenue offset a decline in mobile revenue, resulting in an increase in gross profit despite lower utilization [of just 35%, down from 45-50% last quarter],” says VP & chief financial officer Terry Gallagher.

On a non-GAAP basis, gross margin has risen from 10.9% last quarter to 12.8%, driven by a richer mix of infrastructure, more than offsetting the lower capacity utilization.

Operating expenses have been cut by 12% from $12.1m last quarter to $10.7m, mainly due to R&D expenses being cut by 16% from $8m to $6.7m, while selling & administrative expenses fell by 4.9% from $4.1m to $3.9m.

Net loss has been cut from $12m ($0.14 per share) a year ago and $9.6m ($0.11 per share) last quarter to $7.8m ($0.09 per share, better than the revised guidance of $0.10, which itself had been cut from initial guidance of $0.11). Likewise, despite the flat sales, earnings before interest, taxes, depreciation and amortization (EBITDA) loss has improved by 25% from $4.7m last quarter to $6.25m.

After being cut from $1.3m in Q4/2013 to $400,000 last quarter, capital expenditure has been cut further, to $350,000. During the quarter, cash, cash equivalents and restricted cash rose from $14.1m to $16.7m. However, excluding $7m drawn under the firm’s credit facility, net cash was $9.7m, down $4.4m.

“With the restructuring [announced on 26 June], Anadigics is better positioned to compete in infrastructure markets where our products are differentiated and we can be more selective in targeting mobile applications that are better aligned to our profitability objectives,” says Michels. “Combined with a significantly lower operating cost structure, we expect these changes in product focus to drive greater returns for our shareholders,” he adds. “Design-win traction with existing and new customers for both mobile and infrastructure applications has been strong.”

In line with its strategic restructuring, for third-quarter 2014 Anadigics expects revenue to fall sequentially by 18-20%, driven by reductions in legacy mobile that are not fully offset by anticipated growth in sales to infrastructure and targeted mobile customers. “We believe it represents the trough,” says Michels.

Despite the lower revenue and factory utilization, gross margin should improve sequentially by about 200 basis points due to a richer product mix and lower manufacturing costs. “With our strategic restructuring actions and other improvements, we expect operating expenses to decline by more than 15%,” says Gallagher. In total, these factors should enable a further sequential EBITDA improvement of about 25%. “Expected sell-through of certain inventory and anticipated asset sale proceeds in excess of our restructuring payouts should provide cash to fund a portion of the projected EBITDA loss, thereby limiting Q3’s cash consumption,” he adds.

“With our restructuring revenue rolling faster than we expected, we were able to accelerate our business model transition through the strategic restructuring we announced in June,” says Michels. ”This restructuring enables a number of important short- and long-term objectives. With more resources focused on our strategic infrastructure markets, we anticipate greater penetration and a continued sequential growth in our infrastructure revenue,” he adds. “With that and the completion of our restructuring activities, we expect to achieve sequential improvements in our broader financial performance, including higher gross profit margins, lower operating expenses, and improved EBITDA,” continues Michels. “We anticipate achieving EBITDA breakeven at a quarterly revenue below $25m. From there, we expect infrastructure to expand well beyond 60% of our revenue. We expect this will generate high marginal profitability and produce greater financial returns as we continue to grow,” he adds. “With our anticipated EBITDA improvements, lower cash consumption, and growth trajectory, we believe the business is adequately capitalized with our existing cash.”

See related items:

Anadigics lowers revenue guidance and cuts costs, including 30% of staff

Anadigics' revenue falls a more-than-seasonal 36% in Q1 due to inventory overhang

Anadigics' revenue grows 19% year-on-year to $134.2m, driven by Wi-Fi

Anadigics' sales grow 7.1% in Q3 to $37m, driven by Cellular growth of 27.8%

Anadigics’ sales up 31% to $34.6m in Q2, driven by 138% growth in WiFi

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