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27 October 2008


Hittite’s growth sustained by Asia and Eastern Europe telcos

For third-quarter 2008, Hittite Microwave Corp of Chelmsford, MA, USA, which designs and supplies RF, microwave and millimeter-wave ICs, modules and subsystems, has reported revenue of $45.5m: $18.1m (40%) from the USA (after 7% year-on-year growth) and $27.4m (60%) from outside the USA (after 19% growth).

Total revenue is up 14% on $39.9m a year ago and up 1.1% on last quarter’s $45m due to factors including the increased international orders, continued growth from the introduction of new products, and increased market penetration with both new and existing customers.

“Our diverse product lines continue to penetrate and gain market share,” says chairman & CEO Stephen Daly. “In total, we introduced 30 new products during the quarter across our product lines [bringing the standard product portfolio to 701].” New products include 11 mixers, 11 high-speed logic, three VGAs, two VCOs, and one product each in the mixer, modulator, and frequency-divider product lines. Since the beginning of 2006, Hittite has launched eight product lines and over 300 products: 91 in 2006; 101 plus 51 products from Velocium in 2007; and 68 so far this year. “These products address many markets and are just getting started,” Daly adds. “It typically takes 1-3 years for our products to ramp to meaningful revenue,” he adds.

Revenue distribution across Hittite’s target eight markets was slightly more concentrated than in 2007 and Q2/2008 due to strong sequential growth in three markets (cellular infrastructure, microwave and millimeter-wave communications, and military) which, together, accounted for about 76% of total revenue. The remaining markets (automotive, broadband, fiber-optic, space, and test & measurement) accounted for the other 24%.

In particular, demand for high-data-rate communications services is driving customers to either upgrade or deploy new equipment. Demand in the microwave and cellular market segments was driven by telecom infrastructure deployments across Asia and Eastern Europe. Demand in the military market was driven by US programs. However, a notable trend was a slowdown in broadband business, partly due to Hittite’s position changing at certain high-volume accounts as a result of platform changeovers.

Gross margin was 72.5%, up from 71% a year ago and 70.8% last quarter. Net income was a better-than-expected $13.7m, up on $13.5m last quarter and level with a year ago.

Cash flow from operations was $16.8m. After starting a stock repurchase program in May, in Q3 Hittite repurchased about 500,000 shares for $16.8m, raising the total to 638,000 (the target is 1.7 million shares over three years). Total cash and cash equivalents fell by $0.5m to $185.7m.

Capital spending in Q3 was $1.2m, focused on microwave test & measurement equipment for engineering and production tooling. In particular, Hittite is expanding R&D staffing in its four design centers and continuing to invest in design tools and equipment. R&D spending grew by $542,000 sequentially (including personnel and equipment costs).

Hittite ascribes its continued growth to the diversity in its product portfolio, the markets that it serves, and its customer base (with over 2500 customers), as well as its effort over the last three years to move into international markets. The firm expects international revenue growth to continue to outpace domestic growth in future.

In the past three years, revenue growth has been 31%, 61%, and 20%, and year-to-date growth is 17.7%. For fourth-quarter 2008, Hittite expects revenue of $45-46m (level on Q2 but up 8% year-on-year) and net income of $13-13.5m. In particular, Hittite expects the slowdown in broadband business to continue in Q4.

“The recent slowdown in our growth is not an indictor that we are lacking opportunities,” says Daly. “While we are impacted by our existing customers’ current growth rates, we stand before a multi-billion dollar market and we have more resource than ever before to take market share,” he adds. “Our ability to capture market share depends on our ability to execute on successful MMIC design and product launch and design-win activities... Our strategy of launching innovative products and product lines is intended to keep Hittite’s growth rate ahead of the markets we serve and our competition.”

See related items:

Hittite rebounds slightly, but next quarter to be flat

Hittite’s Q1 revenues rise 19% year-on-year

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