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30 July 2008


RFMD’s restructuring increases losses despite revenue growth

For its fiscal first-quarter 2009 (ended 28 June 2008), RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $240.5m, up 13.7% on $211.6m a year ago and 9% on $220.6m last quarter.

This reflects sequential growth in core front-end revenue for RFMD’s Cellular Products Group (CPG) of 10% (about three times the global handset unit growth rate, and substantially better than the market seasonality), having shipped production volumes to all five leading handset OEMs and gaining market share. By air interface standard, RFMD’s greatest growth was in 3G (up almost 50% year-on-year), which it expects to continue to be a growth catalyst into the future.

Cellular front-end growth came from additional content and functionality within the handset plus crisp execution on customer diversification, according to chief financial officer Dean Priddy. So, despite pockets of softness in China, RFMD took share at targeted OEMs. The growth reflects last quarter’s commitment to triple business at Samsung and double business at Sony Ericsson, while LG’s front-end business was also a growth driver. RFMD’s strategy to sharpen its focus on cellular components is ahead of schedule, Priddy reckons.

Transceiver business was down sequentially and now represents well under 10% of total revenue. Sales of Polaris 2 to Motorola fell $22m (to less than 3% of revenue).

RFMD’s Multi-Market Product Group (MPG) grew sequentially for all five product lines (Aerospace & Defense, Broadband/Consumer, Standard Products, Wireless Infrastructure and Wireless Connectivity), significantly exceeding its revised target of 20% sequential revenue growth provided on 3 June (and at least 25%).

MPG revenue growth was a significant contributor to gross margin improving from 25.2% to 30.1% (though still down on 31.5% a year ago). Compared to net income of $23.6m a year ago, net loss has grown from $17.2m to $24.1m, reflecting charges of $26.6m related to the strategic restructuring announced on 6 May (involving a staff reduction of about 10%, all in the Wireless Systems Group including future-generation transceiver and GPS development). However, on a non-GAAP basis (excluding such charges), net income grew from $2.2m to $7.9m (up on $6.6m a year ago).

RFMD’s new strategy and diversification efforts are already paying dividends - one quarter ahead of original estimates, says president and CEO Bob Bruggeworth. The results reflected new ‘soft synergies’ from the acquisition of Sirenza Microdevices Inc (acquired in November), including supply chain savings and volume buying power on component parts.

MPG is diversifying RFMD into a broader set of customers and end markets, supporting thousands of customers with a product portfolio that is expanding rapidly. MPG released 27 new products during the June quarter, and is on track to release more than 100 new products and to now exceed its goal of $250m in MPG revenue in fiscal 2009.

CPG is also experiencing increased design and bookings activity, driven by multiple customers. RFMD sees cellular order activity improving in second half of calendar 2008, and continues to model 10% global handset growth in 2008.

For the September quarter, RFMD expects sequential revenue growth in both CPG (driven by handset unit volume growth, share gains at targeted accounts, new handset launches and improved order visibility) and MPG (supported by improved order visibility across multiple markets), increasing total revenue by 8% to $250-260m.

RFMD is on track to eliminate about $75m in annual CPG product development expenses by the end of calendar 2008. “Consistent with our strategic restructuring announcement on May 6, we have eliminated all product development expenses related to wireless systems, and we believe our organization is now positioned to achieve sustainable, long-term growth and profitability,” says Bruggeworth. “We have already begun to deliver the expense reductions forecast for later this year, and we are well on our way to achieving our stated goal of at least 10% non-GAAP operating income and double-digit return on invested capital (ROIC) by the December quarter,” he adds.

“June financial performance and September quarterly guidance highlight the progress we have made in achieving our financial goals,” says Priddy. “RFMD’s sharpened focus on RF components and compound semiconductors is driving our revenue and profitability, and our expense reductions are ahead of schedule.”

“GaAs usage is going to increase over the next few years,” adds Priddy. RFMD’s total addressable market for RF components and compound semiconductor related products is now $8-10bn, he reckons. In light of this, February’s acquisition of Filtronic Compound Semiconductor in Newton Aycliffe, UK (now RFMD UK) gives the firm a lot of flexibility. “It’s a tremendous benefit to have that capacity reserve,” Priddy concludes.

*As part of its restructuring, RFMD had intended to sell its GPS business and therefore engaged with multiple potential buyers. However, it has been unable to reach an agreement, and is now pursuing licensing opportunities.

See related item:

RFMD halting transceiver development and selling GPS business

RFMD delays Greensboro fab investment as it completes Filtronic acquisition

RFMD loss follows dip in China GSM/GPRS demand

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