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27 July 2009


Hittite revenue rebounds, driven by China 3G roll-out and microwave

For second-quarter 2009, Hittite Microwave Corp of Chelmsford, MA, USA, which designs and supplies analog and mixed-signal RF, microwave and millimeter-wave ICs, modules and subsystems, has reported revenue of $39.7m: 36.3% ($14.4m) from customers in the USA and 63.7% ($25.3m) from outside the USA (although this is expected to return to a more typical 40:60 split in future). Revenue is down 11.9% on $45m a year ago but up 3.9% on last quarter’s $38.2m.

“The business climate has stabilized relative to Q1,” says chairman, president & CEO Stephen Daly. “It was a solid quarter with sequential growth driven primarily from the cellular infrastructure and microwave communication markets.” Of the firm’s eight markets, three (cellular infrastructure, microwave & millimeter-wave communications, and military) accounted for 82% of revenue.

Compared to just two in Q1, in Q2/2009 four end markets grew sequentially, including double-digit increases for cellular infrastructure and microwave & millimeter-wave communications. Cellular infrastructure growth was related to the 3G (TD-SCDMA) rollout in China; microwave communications growth was due to new back-haul radio-linked bandwidth requirements in international markets, and to some degree due to minor inventory restocking required by customers.

Though one of Hittite’s smaller markets, fiber-optic revenue more than doubled, driven by design wins and new products and product lines. The firm is winning sockets in traditional 10Gb/s and newer 40Gb/s transceiver modules due to the engineering focus in its product development, Hittite reckons. A recent report forecasted that the fiber-optic transceiver market will fall in 2009, suggesting that revenue growth is being driven by market share gains.

Broadband revenue was flat sequentially, while automotive, military and space revenues declined. Space dropped the most (by 25%), due mainly to typical lumpiness of production lot shipment, and to some extent because of following a strong Q1. However, overall, space business is robust: “We continue to expand our capability and offerings in this area,” comments Daly.

“We continue to experience strong customer demand,” Daly adds. “In light of the current economic environment, we believe that Q2 declines in certain areas of our business were not due to market-share losses or competition, but were rather end-demand driven.”

Gross margin was 70.4%, down from 70.8% a year ago and 71.5% last quarter due to factors including product mix, production cost, and pricing. Though down from $13.5m a year ago, net income of $10.6m was up on last quarter’s $10.2m. During the quarter, total cash and cash equivalents rose by $13.4m to $197.9m.

Also, during the quarter, Hittite introduced 21 new products, including 13 amplifiers, four mixers, two phase-locked loops (the 16-bit fractional-N synthesizer ICs HMC701 and HMC702: the second and third products in the new PLL product line, joining the HMC700), and one new product each in the switch and digital high-speed logic product lines. This brings the standard product portfolio size to more than 765.

Since the beginning of 2006, Hittite has launched 10 product lines and over 360 new products. Correspondingly, the firm has increased R&D spending annually by 30-50%: from about $10m in 2005 to $15m in 2006, $18.5m in 2007, $24.5m in 2008 and, so far, $11.2m year-to-date in 2009 (and about the same as last year by the end of 2009). Consequently, during 2009, the firm will increase the size of its existing 20 product lines, and expand its portfolio by adding new product lines to address new applications. “We expect to launch a similar number of new products and product lines in 2009 as we did in 2008,” says Daly. “We will continue to enter new product areas and new markets.”

Order backlog grew during Q2. Recently, orders from all regions have been steady, although the firm expects some short-term weakness from Europe. For third-quarter 2009, Hittite expects net income of $10-10.9m on revenue of $40-41m (sequential growth of 3.4% at the high end of this range).

“Some of our core markets will get stronger, specifically military and microwave, and those are two of our four largest markets,” says Daly. “We also believe we’ll see continued growth coming from the fiber-optic markets... fiber-optic growth will come from our improved ability to address the 10 Gigabit and 40 Gigabit Ethernet, SONET and DWDM transceiver module markets.” Broadband business will also begin to improve, he reckons. However, he categorizes the cellular market as ‘neutral’: “We’ve had some tremendous growth in the first half, primarily coming out of Asia. We think that our cellular business in the second half is going to be just a bit more tempered.” Specifically, 3G infrastructure in China may be facing a multi-quarter pause while operators digest the equipment they’ve purchased. Meanwhile, the test & measurement and automotive sectors are categorized as ‘generally weak’.

See related items:

Hittite’s revenues fall 18%, but Q2 to show slight rebound

Hittite grows in Q4, but expects 20% revenue drop in Q1

Hittite’s growth sustained by Asia and Eastern Europe telcos

Hittite rebounds slightly, but next quarter to be flat

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