25 July 2014

TriQuint’s revenue rebounds from customer inventory adjustment by more-than-expected 30% in Q2

For second-quarter 2014, RF front-end component maker and foundry services provider TriQuint Semiconductor Inc of Hillsboro, OR, USA has reported revenue of $230.8m, up 30% on $177.6m last quarter and 21% on $190.1m a year ago, and above the guidance of $215-225m.

Fiscal	Q2/2013	Q3/2013	Q4/2013	Q1/2014	Q2/2014
Revenue	$190.1m	$250.8m	$267.7m	$177.6m	$230.8m

End-market revenue split was 63% Mobile Devices, 26% Network Infrastructure, and 11% Defense & Aerospace. Of total revenue, Americas contributed about 18%, Europe 4%, and Asia 78% (including China about 50%). Subcontract assembly firm Foxconn Technology Group accounted for 25% of total revenue and Huawei Technologies for 11% (due in part to optical product revenue rising by about 50%).

Sequential growth was strong for each of TriQuint’s markets, with Defense & Aerospace up 15.9% to $26.4m and Network Infrastructure up 16.2% to $60m, and Mobile Devices up 40% to $144.4m. The latter was driven by a return to normal demand from the firm’s major customer (following a Q1 inventory adjustment) plus strong demand for bulk acoustic wave (BAW) filters to support LTE smartphones (primarily in China). In particular, in the base-station market, revenue was up 77% from Q2/2013 to Q2/2014 (to $25.2m) and up more than 55% on a year-to-date basis. “We continue to experience strong demand supporting the worldwide 4G LTE buildup, increased on last year primarily from China,” says president & CEO Ralph Quinsey. “Growth in LTE is favorably impacting both our Mobile and Network Infrastructure markets, with strong pull in China to support ramping smartphones demand and to build out base-stations in optical communications networks,” he adds.

On a non-GAAP basis, gross margin has risen further, from 31.3% a year ago and 35.3% last quarter to 41.7% (well above the guidance of 37-38%), aided by efficient factory execution, cost reductions and better product portfolio management (migrating away from commodity products and non-strategic foundry towards higher-value products). “Active management of our portfolio, highlighted by strong growth in our premium filter business and reductions in lower-margin discrete amplifiers, contributed to the 1000 basis point improvement in gross margin over Q2/2013,” notes chief financial officer Steve Buhaly. Utilization rates in total are still in the mid-60s range (higher for filter factories than for the firm’s GaAs fabs).

Operating expenses were $72m, up slightly on last quarter (and above the expected $68-70m). Engineering materials expense was relatively high, as TriQuint finished development of key products.

Net income was $23.6m ($0.13 per diluted share, well above the guidance of $0.06-0.08), compared with a net loss of $9.4m ($0.06 per share) last quarter and $10.9m ($0.07 per share) a year ago.

Capital expenditures of $21.3m (primarily for premium filter capacity) were slightly below quarterly depreciation. During the quarter, cash and investments rose by $60m to $223.5m, driven by operating results and cash proceeds from employee stock option exercises.

During the quarter, TriQuint sold premium filters to over 50 unique customers, with discrete filter revenue on track to more than double in 2014. Also, the firm’s new 5GHz WLAN front-end modules won a chip-set reference design. TriQuint also completed gallium nitride (GaN) performance, cost and capacity goals as part of the Defense Production Act Title III program.

During Q2, for infrastructure and defense products (IDP) TriQuint launched 51 new products (exceeding the firm’s quarterly record of 41 products), including 33 for defense applications, nearly all based on gallium nitride (GaN) technology. In May, TriQuint was recognized by the Department of Defense for achieving significant milestones for GaN manufacturing readiness and maturity. “New product launches are the lifeblood of future revenue growth and profitability in these markets,” says Quinsey. “For the full year we remain on track for another record year of new product introductions,” he adds.

“Demand from phone manufacturers in China was up sharply in Q2, and I anticipate the strength will continue into the second half of the year,” says Quinsey. “The LTE opportunity in China is just beginning, and it represents one of our larger growth opportunities for the next several years.”

For second-half 2014, TriQuint expects revenue of $550-600m, up 11% year-on-year. However, the discontinued low-margin mobile amplifier products and non-strategic foundry business account for 7-8% of lost year-on-year revenue growth, which would otherwise be 18% in second-half 2014. Full-year revenue is expected to fall by about $100m from 2013 to 2014 (relinquishing about 10% of annual revenue growth to exit the low-margin active device category).

While the split of revenue between third- and fourth-quarter 2014 depends on major program timing, the firm currently expects Q3 revenue of $255-265m (up just 4% year-on-year).

Q3 gross margin should be 43-45%, driven by strong execution, higher factory utilization and product mix. Operating expenses are expected to be relatively steady, at about $70m. Net income per diluted share should be $0.23-0.25.

“We continue to see robust demand in our infrastructure and mobile markets as worldwide demand for 4G LTE services ramp up with very strong demand for LTE base-station products and premium filters for smartphones,” says Quinsey. “We expect to exceed our goal of 500 basis points of gross margin improvement year over year and are now targeting 2014 full-year non-GAAP gross margins to be greater than 40%. Additionally, we expect full-year non-GAAP EPS to be up more than 6 times our 2013 results,” he adds.

“Capital expenditures are expected to increase to at least $50m as we respond to an exciting set of market opportunities and begin executing a doubling of our premium filter BAW and TC-SAW capacity,” says Buhaly. “Our strength in premium filters continues to be a tailwind for TriQuint, with increasing demands for differentiated products,” adds Quinsey. “In response to growing market demand, we plan to further expand our capacity with both BAW and TC-SAW [with a doubling of BAW capacity comprising about two thirds of the CapEx]. This new capacity is expected to come online beginning late this year and throughout 2015, effectively doubling our capability.”

TriQuint’s expected merger with RF Micro Devices is on track for second-half 2014. “We are planning for shareholder votes this summer, and China anti-trust approval is on track for the second-half goals,” says Quinsey.

See related items:

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

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

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