30 June 2014

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

Broadband wireless and wireline communications component maker Anadigics Inc of Warren, NJ, USA says that it is restructuring its business model to lower its operating costs and better align resources to address growth opportunities in rapidly expanding infrastructure markets.

“With a strong infrastructure design-win trajectory, I’m pleased we’re able to accelerate our strategy to expand in infrastructure markets, and with that, lower our fixed manufacturing and operating costs,” says chairman & CEO Ron Michels. “These steps, coupled with our previously announced $10m cost-savings initiatives, should enable the company to deliver significant EBITDA improvements and profitability leverage from a lower breakeven revenue level,” he believes.

Strategic restructuring

Since the Q1/2014 earnings call (in early May), Anadigics has made stronger-than-expected progress in infrastructure-targeted activities and experienced a decline in demand for some of its legacy mobile products. In response, it is restructuring to expand its presence in the infrastructure space and reduce fixed costs associated with the legacy mobile business.

Anadigics’ infrastructure-targeted products have higher revenue- and profit-per-wafer than mobile-targeted products. The firm believes that, with an increasing percentage of future revenue coming from infrastructure products, its manufacturing capability and staff can be resized to better match the new wafer quantity required.

The reduced in-house wafer demand is expected to enable more efficient manufacturing operations and allow the firm to monetize certain excess wafer processing equipment. Proceeds from these sales are expected to help offset a significant portion of the cash costs of the restructuring.

Infrastructure

Anadigics designs and manufactures radio-frequency and optical products for infrastructure applications including cable television, cellular wireless small-cell, WiFi and machine-to-machine (M2M) markets, which are currently expanding to support growing global demand for high-data-rate connectivity to the Internet. Anadigics believes that these infrastructure build-outs demand high-performance products, creating a high-value and target-rich environment for its core technologies and competencies.

Mobile

Anadigics also designs and manufactures RF power amplifier and front-end products for mobile applications including handsets, tablets and data cards in the cellular 3G/4G and WiFi markets. The firm says that the latest products in its mobile-targeted portfolio are gaining design-win traction. Anadigics will continue to focus on and support strategic mobile markets, and may expand its existing partnerships with external wafer foundries to benefit from the lower fixed-cost business model that those relationships can deliver.

Anadigics notes that, going forward, it is committed to maintaining its level of technical and commercial support to mobile-product customers for all existing and new opportunities.

Cost improvements

Anadigics says that - in addition to its previously announced program targeting $10m in annual savings - its latest restructuring initiative enables it to implement cost efficiency improvements that should lower cash costs by over $15m annually ($5m in manufacturing and $10m in operating costs).

About 140 positions (30% of staffing) will be eliminated. The firm anticipates a cash workforce restructuring charge of about $2.3m and a non-cash charge of about $5m for fixed asset and inventory write downs. Proceeds from equipment sales are expected to substantially offset the cash costs of the restructuring.

“We are aligning the company’s R&D investment focus and in-house manufacturing capacity toward a higher mix of infrastructure products,” says chief financial officer Terry Gallagher. “The efficiencies gained through this action are expected to strengthen our presence in key infrastructure markets, reduce fixed costs and enable an expected EBITDA (earnings before interest, taxes, depreciation, and amortization) breakeven revenue level of approximately $26-27m.”

Q2 guidance update

For second-quarter 2014, Anadigics expects revenue of about $23m, rougly level with Q1/2014’s $23.3m (rather than the guidance given in early May of growth of 8-12%). However, infrastructure will contribute a larger percentage of revenue than in Q1. Anadigics hence expects a sequential improvement in non-GAAP gross margin (from 10.9%). Also, due to the previously announced expense reduction program, operating costs should be lower than Q1’s $12.1m. Anadigics therefore expects to report a non-GAAP loss per share of about $0.10 (cut slightly from Q1’s $0.11).

See related items:

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

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