28 July 2010


RFMD’s revenue grows 29% year-on-year

For its fiscal first-quarter 2011 (ended 3 July 2010), RF Micro Devices Inc of Greensboro, NC, USA has reported its fifth quarter of sequential revenue growth, to $273.8m (up 5% on $260.8m last quarter and up 28.8% on $212.5m a year ago).

Demand was strong for both the firm’s cellular products group (CPG) and multi-market products group (MPG), with both achieving revenue growth sequentially and year-on-year.

President & CEO Bob Bruggeworth believes that results are impressive considering that sales to RFMD’s largest customer Nokia (which has been losing market share) have fallen to 43.5% of total revenue, from 59% a year ago.

RFMD says that it achieved key diversification initiatives, with sales to customers other than this largest customer growing by 77% year-on-year and 18.3% sequentially (adding $270m in annualized incremental revenue). Sales into Asia were particularly strong as RFMD continues to build on relationships with Samsung, HTC, Walway, ZTE, and with MediaTek’s hundreds of customers.

On a non-GAAP basis, though up on 37% a year ago, gross margin of 39.2% was down slightly on 39.6% last quarter due to a temporary rise in the product mix of low-margin legacy Polaris transceivers (to nearly 15% of total revenue). However, RFMD’s core business (excluding the effect of Polaris transceivers) achieved gross margin of 42% (closely matching the firm’s recently updated financial model).

“RFMD’s markets are expanding quickly with the deployment of broadband data across both fixed and mobile networks,” says Bruggeworth. “This is accelerating the demand for always-on mobile data,” he adds. “RFMD is a major beneficiary of these secular trends. We benefit as fixed broadband infrastructure is deployed, as demand grows for these mobile broadband devices, and as these devices increasingly offer more modes of wireless connectivity,” Bruggeworth continues. “Over the past four quarters RFMD has outpaced the market, expanding sales and diversifying our customer base significantly to drive strong earnings and cash flow.”

Net income has risen from $18.9m a year ago and $43.8m last quarter to a record $44.3m. During the quarter, RFMD generated $46m in free cash flow. Cash, cash equivalents, short-term investments, and trading security investments was $281.4m, reflecting $10m of convertible bond repurchases. Since spring 2008, RFMD has repurchased 30 million shares of common stock, retired $372m of convertible debt, and reduced net debt from $375m to under $50m (after a recent bond repurchase).

“We have made significant progress in broadening our customer base and generating superior free cash flow, which has strengthened our balance sheet and given us the flexibility to fund our growth strategies,” comments chief financial officer Dean Priddy.

RFMD says that its product development engine continued to execute to plan, delivering 92 new and derivative products for diverse market segments including SmartEnergy, high-performance WiFi, 3G/4G wireless infrastructure, fixed and mobile broadband, and 3G/4G smart phones.

“On the strength of our product leadership and diversification initiatives, we believe we’ve secured the major design wins that will power the next wave of our revenue growth,” says Bruggeworth. During the quarter, RFMD secured major design wins, including handset and smart-phone platforms, SmartEnergy, high-power gallium nitride (GaN) and 4G wireless infrastructure applications at new and existing customers that are expected to ramp to volume beginning in calendar year 2011.

RFMD believes that the demand environment in its end-markets remains strong. It also expects to continue ramping new customer programs to offset declining end-of-life legacy products. Hence, for the September quarter it expects revenue to be flat to maybe slightly up on the June quarter, with largest customer Nokia falling further (to below 40% of revenue). In particular, legacy Polaris transceiver products will ramp down to about 10% of revenue (followed by well below 10% in the December quarter, then below 5% in the March quarter), reducing the drag on margins. When the roll-off of legacy products is complete in early fiscal 2012, RFMD expects an acceleration in revenue growth to drive continued margin expansion.

In particular, Priddy says that RFMD is on track to grow revenue and achieve double-digit earnings growth in fiscal 2011 as it offsets end-of-life products with incremental wins while transitioning to a more diversified revenue base. With $189m in trailing 12-month free cash flow, for fiscal 2011 RFMD expects free cash flow to be consistent with fiscal 2010’s $177m. “We are very confident in our ability to achieve a positive net cash position sooner than originally anticipated [as early as the September quarter],” adds Priddy. “Our potential future uses of cash include share buybacks, additional bond repurchases and incremental investment in our growth.”

RFMD also expects revenue growth to accelerate in fiscal 2012 as major programs at new and existing customers ramp into volume production.

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