28 January 2010


RFMD grows revenue 24% year-on-year

For its fiscal third-quarter 2010 (ended 2 January), RF Micro Devices Inc of Greensboro, NC, USA has reported revenue of $250.3m (down 1.8% on $254.8m last quarter but up 24% on $202m a year ago). About 80% of revenue came from the Cellular Products Group (CPG) and 20% from the Multi-Market Products Group (MPG).

CPG experienced robust order and design-win activity, driven by secular growth trends and new product cycles. Sales of WCDMA front ends, including the rapidly growing TD-SCDMA segment, rose about 80% year-on-year. Sales into smart phones and 3G devices approached 50% of cellular front-end revenue, and transceiver business 10–15%. Sales to reference design customers in China more than doubled year-on-year.

In MPG, Defense and Power end-market applications grew 17% sequentially, driven by military high-reliability and commercial point-to-point radio applications. After declining the most through last year’s downturn, cable TV (CATV) is beginning to recover, with sales to MPG’s largest CATV customers more than doubling sequentially. Shipments of WiMAX components rose about 22%. Shipments of automatic meter reading (AMR)/smart grid components grew by 60% and are on track to double year-on-year.

On a non-GAAP basis, fueled by customer and product diversification, gross margin has risen from 22.6% a year ago and 38.1% last quarter to 38.4%. Also, compared to an operating loss of $8.3m a year ago, operating income has risen from $41.7m last quarter to a record $44.6m, with operating margin rising from 16.4% to 17.8%. Net income has risen from $36.9m last quarter to a record $38.8m, compared to a loss of $12.4m a year ago.

Free cash flow (cash flow from operations of $44.5m minus $2.6m property and equipment expenditure) was $41.9m. After capital expenditure of $2.6m, depreciation of $18m, intangible amortization of $4.7m, and retiring $197m of convertible notes due in July, cash and cash equivalents are $121.5m.

“RFMD’s strategic focus on RF components and compound semiconductors is driving sustainable improvements in gross margin, operating margin and free cash flow,” says Dean Priddy, chief financial officer & VP of administration. Fiscal Q3 was RFMD’s second consecutive quarter of record operating profitability and the third of sequential and annual increases in gross margin, operating margin and earnings per share.

During the quarter, CPG launched 14 new products (including its first fully qualified CMOS-based switch products for cellular handsets) and is on track to release more than 40 new products in fiscal 2010, driving customer diversification and margin expansion. MPG launched 86 new and derivative products (including its first fully qualified GaN power product) and has released 255 products so far in fiscal 2010 (on track to release more than a product per day). The firm plans to launch multiple GaN-based power products in the March quarter.

“RFMD is capitalizing on major global secular growth trends, such as mobile broadband [including the proliferation of data-enabled wireless devices and increased RF dollar content per device], smart grid/AMR and green technologies, while entering lucrative new product segments, like switch-based products for smart phones and GaN-based amplifiers for communications and defense systems, which expand our serviceable market, diversify revenue and expand margins,” says president & CEO Bob Bruggeworth.

“As the global demand for data mobility accelerates, the adoption of smart phones, netbooks, data cards and other connected devices is significantly increasing the available RF dollar content for RFMD,” he adds. “Similarly, the increasing demand for AMR/smart grid applications and green technologies is creating new, incremental opportunities to diversify revenue and expand margins by leveraging RFMD’s leadership in RF components and compound semiconductor technologies.”

RFMD is enjoying strength in CPG, supported by strong calendar 2010 handset unit forecasts, expanded participation across customer programs and increasing adoption of connected devices, including smart phones and 3G devices. “We are a primary beneficiary today as customers expand the smart-phone experience from the upper tier to the mid tier, and we continue to forecast being in production in support of all the major smart-phone manufacturers over the next 15 months,” says Bruggeworth.

In the diversified markets served by MPG, RFMD continues to see positive demand trends, supported by increasing customer order activity. In particular, during fiscal Q3, RFMD completed its first GaN foundry shuttle run, and a major North American cable TV customer continues to move forward with broad-based adoption of the firm’s GaN technology.

Given the demand environment, for the March quarter RFMD expects CPG revenue to show better than the handset industry normal seasonality of about 12% down, and MPG revenue to be flat to up sequentially (helped by strong CATV order backlog).

For full fiscal 2010, non-GAAP operating margin is expected to approach RFMD’s annual target of 15% (about a year ahead of expected). RFMD also expects strong free cash flow (in-line with recent quarterly performances).

In particular, smaller die sizes are driving significantly more saleable units per wafer (giving a meaningful increase in fab capacity) and RFMD will ramp CMOS-based switches in fiscal 2011 (giving added flexibility to outsource or insource switches). “We’re confident we can significantly grow our front-end business without additional capital expenditures for at least the next couple of years [especially with fab utilization currently at just 70%],” says chief financial officer William A. Priddy. “We think a range of 2–4% of sales for CapEx is appropriate going in to fiscal 2011, and 4–5% of sales longer term,” he adds.

“For fiscal 2011, we expect a contribution margin of approximately 60% on each incremental dollar of revenue, and we believe we’re on track to deliver continued revenue and earnings growth in fiscal 2011 and beyond,” concludes Priddy, adding that RFMD is looking to exceed 15% operating margin.

See related items:

RFMD’s revenue grows 20%, boosted by CATV growth of 70%

Greater-than-expected revenue returns RFMD to profit

RFMD seeing better-than-expected order activity

RFMD still generating cash despite further 15% drop in revenue

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