2 May 2014

RFMD's quarterly revenue falls 11% to $256m

For its fiscal fourth-quarter 2014 (ended 29 March), RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $256m, down 11.3% on $288.5m last quarter and 8.8% on $280.6m a year ago.

Fiscal	Q4/2013	Q1/2014	Q2/2014	Q3/2014	Q4/2014
Revenue	$280.6m	$293m	$310.7m	$288.5m	$256

Multi-Market Products Group (MPG) revenue was $53m, up 6.4% on $49.8m last quarter but down 3.5% on $54.9m a year ago.

Cellular Products Group (CPG) revenue was $203m, down 15% on $238.7m last quarter and 10% on $225.7m a year ago. China comprised 20-25% of CPG revenues. During the quarter, CPG supported the launch of a new flagship Android smartphone with multiple high-performance 3G/4G components, including antenna control solutions and envelope tracking (ET)-enabled power amplifiers. CPG revenue is now 85% 3G/4G and only under 15% 2G, versus 80% 3G/4G and under 20% 2G last quarter.

Despite the seasonal decline in revenue, on a non-GAAP basis, gross margin has risen from 34.4% a year ago and 39.7% last quarter to 42% (exceeding the guidance of 40%). “One year ago, we highlighted our goal to expand RFMD’s gross margin by 300-400 basis points in four quarters,” notes president & CEO Bob Bruggeworth. “Four quarters later, we've nearly doubled that goal, expanding gross margin by 760 basis points,” he adds.

Operating expenses have fallen slightly from $74.6m last quarter to $74m. Net income was $33.4m ($0.12 per diluted share), down from $36.4m ($0.13 per diluted share) last quarter but nearly double the $17.1m ($0.06 per diluted share) a year ago, and exceeding the $0.09-0.10 guidance on the strength of robust margin expansion and operating leverage.

Cash flow from operations was $31.7m. After capital expenditures of $7.3m (less than half of last quarter’s $15.6m), free cash flow was $24.4m. During the quarter, cash, cash equivalents and short-term investments rose from $205.5m to $244m.

Subsequent to the close of the quarter, on 15 April RFMD retired the remaining principal balance of $87.5m of convertible subordinated notes. The firm is now debt free.

“RFMD is executing on multiple long-term structural initiatives that are enhancing our operating model and delivering robust improvements in gross margin, operating income, and earnings per share,” says Bruggeworth. “We have greater than 75 initiatives underway that roll up into one comprehensive effort, spanning our entire organization,” he adds. “We are reducing our costs, in our fab, in our packaging and test facilities, across our supply chain, and in how we design our products, and we're confident we can drive margins even higher.”

For fiscal first-quarter 2014 (to end-June), RFMD expects revenue to rise about 19% sequentially to $305m, with CPG growing a little faster than MPG. Gross margin should expand further by 150-200 basis points, as operating expenses will be roughly flat, driving earnings per share (EPS) up to about $0.17.

“In the June quarter and beyond, RFMD anticipates revenue growth ahead of the growth rate of our underlying markets, supported by distinct long-term growth drivers, like the deployment of TD-LTE in China, 2x2 MIMO Wi-Fi connectivity in smartphones, additional 3G bands in entry-level smartphones, additional 4G bands in feature phones, and the advent of new technologies, like envelope tracking, carrier aggregation, and transmit MIMO,” says Bruggeworth. “RFMD’s diversified growth strategy is also driving additional growth opportunities in new categories, like antenna tuning, impedance tuning, diversity switches, power management circuits, highly integrated receive modules and, soon, our RF Fusion [introduced by CPG during the quarter], which is a complete RF front-end solution for 4G world phones and tablets,” he adds.

“RFMD is capturing broad opportunities in Smart Energy and home-area networks with our ZigBee and WiFi solutions, and we're at the forefront of new standards in development, like the sub-1GHz standards enabling long-range mesh networks and the 802.11p standard for automotive networks,” Bruggeworth continues. “We are enjoying broad-based design win activity in WiFi for both mobile and non-mobile applications like routers, access points, set-top boxes and televisions. We see double-digit growth opportunities in WiFi, especially where device requirements favor RFMD's performance leadership.” During the quarter, MPG won the CableFAX Tech Award for green technology for its gallium nitride (GaN) amplifiers for DOCSIS 3.1. MPG was also awarded a $9.7m contract from the US Air Force Research Laboratory (AFRL) to produce millimeter-wave GaN integrated circuits.

“RFMD is executing on a diversified growth strategy, expanding gross margin, and managing expenses to our financial model, and we are projecting robust operating leverage and EPS growth,” says chief financial officer Dean Priddy. “We continue to expect capital expenditures of 4-5% of annual revenue and strong free cash flow,” he adds. RFMD still expects revenue growth of 10% year-on-year for fiscal 2015.

• Regarding RFMD’s proposed merger with TriQuint Semiconductor Inc of Hillsboro, OR, USA (announced in February), RFMD has submitted its HSR (Hart-Scott-Rodino) application to the Federal Trade Commission (FTC) and filed its Form S-4 (registration/joint proxy statement) with the Securities and Exchange Commission (SEC). The merger is expected to close in second-half 2014.

See related items:

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

RFMD’s revenue hit by weakening at two largest customers

RFMD's quarterly revenue grows 48% year-on-year to record $310.7m

RFMD’s quarterly revenue rises 45% year-on-year to a record $293m

RFMD’s quarterly revenue grows greater-than-expected 49% year-on-year

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