3 November 2014

Anadigics’ revenue falls 19% in Q3 due to decline in legacy Mobile

For third-quarter 2014, broadband wireless and wireline communications component maker Anadigics Inc of Warren, NJ, USA has reported revenue of $18.9m, down 19% on $23.3m last quarter and almost halving from $37m a year ago.

Sales of Mobile products were $8.8m (47% of total revenue), down 32% on $13.1m (56% of total revenue) last quarter due to an expected decline in sales of legacy products plus inventory reductions in the sales channel, and down 69% on $28.5m a year ago.

Sales of Infrastructure products were $10m (53% of total revenue), down 2% on $10.2m (44% of total revenue) last quarter due solely to inventory reductions in the distribution channel, but still up 18% on $8.5m a year ago.

There were four greater-than-10% customers (Huawei, Samsung and the distributors Arrow Richardson and Alltech) and four customers in the 5-10% range (with a solid representation from Infrastructure). “We are pleased with the broader list of key customers resulting from the better balance between Mobile and Infrastructure,” comments VP & chief financial officer Terry Gallagher.

Despite capacity utilization falling further (from 5-50% in Q1 and 35% in Q2 to about 30% in Q3), non-GAAP gross margin has risen by 321 basis points (exceeding the expected 200 basis points) from 12.8% last quarter to 16%, driven mostly by a more favorable mix of Infrastructure products plus expense reductions associated with the firm’s restructuring (announced on 26 June).

Operating expenses have been cut by 18.6% (exceeding the targeted 15%) from $10.7m last quarter to $8.7m (with R&D expenses down 22.2% from $6.7m to $5.2m, and selling & administrative expenses down 11.9% from $3.9m to $3.5m), reflecting the improvements outlined in the firm’s combined $25m cost-reduction initiative.

Hence, despite the drop in revenue, net loss has been cut further, from $9.5m ($0.11 per share) a year ago and $7.8m ($0.09 per share) last quarter to $5.7m ($0.07 per share). Likewise, earnings before interest, taxes, depreciation and amortization (EBITDA) loss has improved from $5.9m a year ago and $4.7m last quarter to $3.2m.

After being cut from $1.3m in Q4/2013 to $400,000 in Q1/2014 then $350,000 in Q2, capital expenditure has been cut further, to basically zero. As of 27 September, cash and cash equivalents totalled $13.5m. However, after excluding $4m drawn under the firm’s credit facility, net cash was $9.5m, down slightly from $9.7m at the end of June. “This performance was driven by higher gross margins, lower operating expenses, and lower working capital requirements,” says VP & chief financial officer Terry Gallagher. Anadigics also benefited from the sale of $1.9m in surplus assets that are no longer strategic, more than offsetting restructuring payments of $1.6m.

During Q3, inventories were reduced from $18m to $15.3m. “We anticipate bringing inventory down further during Q4, which will again lower working capital and cash usage,” says Gallagher. In addition, Anadigics expects that, in Q4, additional asset sales will contribute cash in excess of restructuring cost. “We expect only a modest further reduction in net cash by year end,” he adds.

“Anadigics has made tremendous progress during the last three months towards realizing both our financial and market goals,” says chairman & CEO Ron Michels. “Our new product launches have been very well received in their targeted markets, and have led us to enjoy a significant increase in customer engagements and strategic design-win activity,” he adds. During the quarter, Anadigics announced that its front-end integrated circuits (FEICs) are enabling Wi-Fi connectivity in LG’s G3 Beat smart-phone and that its Wi-Fi solutions have been selected by a leading North American infrastructure manufacturer, while its small-cell power amplifiers have been selected by Nextivity. Anadigics also expanded its DOCSIS 3.1 CATV infrastructure portfolio and launched gallium nitride (GaN) line amplifiers with what were claimed to be the industry’s highest output power levels. Also, in October, Anadigics introduced TD-LTE small-cell power amplifiers, and announced that its ProEficient-Plus power amplifiers are being used in Samsung’s GALAXY Note 4. “Due to these improvements, we believe we are on target to realize the strategic goals I outlined last June,” says Michels.

For Q4/2014, Anadigics expects revenue to rise sequentially by 8-12%, due primarily to a seasonal increase in Mobile revenue. Driven by the increased sales and lower manufacturing costs, gross margin is expected to improve by about 200 basis points, despite lower factory utilization due partly from a further inventory reduction (followed by further increases in gross margin in 2015 as the firm continues to improve product mix). Q4 operating expenses should be roughly flat sequentially, as incremental restructuring savings will be “prudently” used to fuel investments in Infrastructure R&D and sales. “Continued execution on our plan will further reduce our EBITDA loss by 25-30% in Q4,” Gallagher believes. “Consequently, we are anticipating only a modest reduction in our net cash during the quarter, driven by better financial performance and inventory reductions,” he adds. “Looking further down the road, we believe our new operating model will deliver EBITDA break-even at quarterly revenue well below $25m.”

“We recently [on 24 October] closed with Silicon Valley Bank on a new, more flexible $10m credit facility [replacing the previous $11m credit facility with PNC Bank] that, if needed, provides additional capital to fund growth,” Gallagher notes. “The new agreement does not include the compensating balance requirements we had with PNC and aligns with covenants with our strategic plan,” he adds. “We believe the improved cash efficiency of our new operating model, combined with existing net cash and the back-up of the new credit facility, provides us with the resources we need to realize cash-flow-positive operation.”

See related items:

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

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%

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