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27 October 2008


Anadigics’ revenue falls more-than-expected 28%

For third-quarter 2008, GaAs-based component maker Anadigics Inc of Warren, NJ, USA has reported revenue of $58.1m, down 27.8% on last quarter's record of $80.5m and down 2.4% on $59.5m a year ago. This is also short of August's guidance of $62-65m (which was already a revision from July's initial guidance of $75-81m).

About $3m of the shortfall resulted from order rescheduling in the broadband segment by wireless LAN customers including Intel (reflecting the weaker economic environment, as well as Intel taking on a second source of power amplifiers).

Of total revenue, wireless contributed $29.3m (down 14% on a year ago and 41% sequentially) and broadband contributed $28.8m (up 12.6% on a year ago but down 7.6% sequentially), with the latter being about half for WLAN and half for set-top box/cable infrastructure.

Compared with net income of $2.4m a year ago and $6m last quarter, net loss was $15.5m. Pro forma earnings (excluding non-GAAP adjustments of $15.5m) was break-even, compared with a profit of $11.6m last quarter. Gross margin was 31.5%, down from 38.4%. During the quarter, capital expenditure (CapEx) was $12.4m, and cash and short- and long-term marketable securities fell from $161.4m to $152.2m.

Anadigics’ record revenue of $80.5m in Q2/2008 represented a 13th consecutive quarter of growth (up 49% year-on-year), leading to July’s decision to accelerate construction of its 6” GaAs wafer fabrication plant in Kunshan, China (doubling investment in the build-out from $50m to $100m, to enable completion by October and start up in Q3/2009, ultimately double the firm’s existing capacity in Warren).

However, quarterly revenue of $80m is not a sustainable capability. “The fab had been pushed too hard, basically to overheating,” says Gilles Delfassy (who has been chairman & interim CEO since the resignation of president & CEO Dr Bami Bastani in mid-August). “When we weren’t able to meet some of our customers’ increased demand during the past several quarters, they looked for other sources of supply,” he adds. “Our third-quarter performance primarily reflects loss of market share [after having to put some customers on allocation].” Due to this, as well as the weakening economy, in early August Anadigics decided to delay the extra investment in the China fab (scaling back from $100m to $50m again) until it has better visibility as to when the fab needs to become operational.

Anadigics is committed to CapEx of $15m in Q4, mainly in China. However, “We have not made any decisions recently to spend any CapEx, especially on the China fab,” says Delfassy. “The last thing we want to do now is continue to spend... now is the time is to turn CapEx that we have already spent into additional capacity and revenue.”

For Q4, Anadigics expects revenue to fall a further 20-24% sequentially to $44-46m (down 32-35% on a year previously), due almost entirely to WLAN broadband revenue declining. Gross margin could be just 24.5-26%.

“In light of the change in quarterly revenue along with the uncertain macro-economic environment, we are taking immediate measures to realign our cost structure [relative to demand] across the company,” says Tom Shields, executive VP & chief financial officer. “Between now and maybe the next couple of weeks we will finalize identifying all the actions and the measures we have to take... Head-count certainly would be part of the decision making as we consider options,” he adds. “These actions will have a significant impact on our operating performance in the near term without compromising our new product design and development,” Shields reckons. Design activity is very strong, so the firm wants to protect its R&D efforts.

“We certainly have work to do to regain the trust and confidence of our customers, but I am optimistic," Delfassy comments. “We are making the necessary changes to solidify our operations in order to deliver what our customers expect from us,” he adds.

The first step to recovery is installing the right procedures and total quality system to make the Warren fab capable of doing $80m in revenue on a sustainable basis, not just once at the expense of the next quarter and the quarter after, Delfassy states. “We are going for a complete overhaul of our operations to improve our execution and productivity, starting with our leadership.” Anadigics has recently replaced its head of operations with Sunil Banwari (who spent spending more than 20 years at Intel, mostly in the technology and manufacturing organization), and the firm has a new fab manager, processing manager, and equipment manager. “With improved operational performance and continued product differentiation, I’m confident we can regain our market position and resume revenue growth and profitability,” Delfassy concludes.

See related items:

Anadigics’ president and CEO Bastani resigns

Anadigics slashes Q3 revenue guidance from $75-81m to $62-65m

Anadigics’ sales grow to record $80.5m, driven by broadband

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