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30 April 2009


RFMD still generating cash despite further 15% drop in revenue

For its fiscal fourth-quarter 2009 (ended 28 March), RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $172.3m, split 75:25 between its Cellular Products Group (CPG) and its Multi-Market Products Group (MPG). Revenue is down 14.7% on $202m last quarter and 21.9% on $220.6m a year ago. Nevertheless, 3G-related revenue still grew sequentially, to about 50% of CPG sales.

On a non-GAAP basis, gross margin has fallen from 30.6% a year ago and 22.6% last quarter to just 19.8%, due mainly to unusually low factory utilization of about 25%. Net loss almost doubled from $12.9m last quarter to $25.4m, compared to a net profit of $2.2m a year ago.

“Despite the challenging macroeconomic environment, the RFMD team executed extremely well on a number of important company goals,” comments president & CEO Bob Bruggeworth. “We took decisive steps to reduce manufacturing costs and operating expenses, and we lowered our requirements for future capital expenditures significantly [to $4m in fiscal Q4/2009, and $10-20m for fiscal 2010],” he says. “RFMD continued to structure manufacturing costs and operating expenses in a manner that we believe will allow us to achieve our target operating model at reduced revenue levels while still investing in our growth,” adds chief financial officer Dean Priddy.

RFMD has cut non-GAAP operating expenses by 31% year-on-year to $55.5m, and is making progress converging on its expense model of 25% of sales. In the past four quarters, RFMD has reduced annualized manufacturing costs and operating expenses by more than $130m.

Consequently, following $45.7m last quarter, cash flow from operations was $29.4m. Over the past three quarters, RFMD has generated over $85m in free cash flow and reduced its net debt by $125m. During the quarter, cash and short-term investments rose by $28.3m to $266.5m.

Regarding cost cutting, during fiscal Q4/2009 RFMD idled its 4-inch GaAs fab (transitioning all production to more efficient 6-inch facilities) and reduced costs at its 6-inch GaAs fab in Newton Aycliffe, UK, and is consolidating the Shanghai test & assembly facility into the Beijing facility by the December quarter. Also, RFMD has completed qualification of its more cost-efficient die-shrink technology and has been ramping up the first products to use the process (for 2G handsets). Implementation is now being accelerated across the firm’s product portfolio, with 35% of revenue expected to come from reduced-die-size technology in the next 2-4 quarters.

RFMD is also introducing new products for new markets and refreshing products in existing markets. In the March quarter, CPG launched 14 new products (and plans to launch a record number in fiscal 2010). As well as securing major GSM/GPRS design wins at top-five handset OEMs and leading platform providers, CPG continued to diversify its 3G customer base with multiple 3G multimode design wins. The group also expanded its smart-phone customer base and increased its content opportunity across cellular front ends, cellular switches and low-noise amplifiers. Based on existing design activity, CPG expects near-term market share gains in China, Korea and Taiwan.

Also, MPG launched 24 new RF components and 59 derivative products (and expects to launch more than 100 new products in fiscal 2010). In particular, the group received its first order to supply highly integrated multi-chip modules into new multi-standard wireless base-stations (which can support 2G, 3G, 4G/LTE and WiMAX air interface standards). MPG also formed its GaN Foundry Services business unit, and expects increased GaN-based revenue from CATV line amplifiers as well as defense and commercial power applications in fiscal 2010. The group saw robust design activity across a broad range of markets, including automatic meter reading (AMR), electronic toll collection (ETC), WiFi, defense radar, commercial power, CATV amplifiers, and 3G cellular infrastructure (led by China). “We have increased our share at key accounts while expanding our exposure to large growth markets,” says Bruggeworth.

Regarding current trends, Bruggeworth says that the environment began strengthening in mid to late February as excess channel inventories were reduced and as customers began to better understand actual levels of real normalized demand. “We saw a clear inflection point about midway through the March quarter in terms of demand at the component level,” adds CPG president Steven Creviston. For the June quarter, RFMD is currently booked for sequential growth (in both CPG and MPG), and expects revenue to outpace the growth rate of its main end-markets.

Because of the improved demand, RFMD has aggressively increased factory utilization rates in its 6-inch fabs (to closer to 65-70%, approaching historical levels). But, by idling its 4-inch fab, it has reduced its total GaAs capacity by 10% while reducing manufacturing overhead by a much higher percentage. Coupled with the proliferation of new product cycles and a richer mix of MPG revenue (with inherently higher margin), gross margin is expected to be boosted to the mid-30s in fiscal 2010. RFMD doesn’t rule out achieving its target of 40% in the next 4-6 quarters.

More immediately, for the June quarter, with CapEx of less than $5m, RFMD expects roughly break-even operating profitability on a non-GAAP basis. For fiscal 2010, the firm continues to expect $80-$120m in free cash flow.

See related items:

RFMD’s fab utilization rebounding as orders improve

RFMD generates cash flow despite 25% revenue drop

RFMD generates $40m free cash flow; March quarter to be free cash flow positive

RFMD improves operating income after restructuring

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