28 April 2011

RFMD’s quarterly revenue drops 23% to $213.3m

For fiscal 2011 (ended 2 April), RF Micro Devices Inc of Greensboro, NC, USA has reported net income of $124.6m (up on fiscal 2010’s $71m) on revenue of $1051.8m (up 7.5% on fiscal 2010’s $978.4m). However, fiscal fourth-quarter revenue was $213.3m, down 18.2% on $260.8m a year ago and 23.5% on $278.8m last quarter. In addition to seasonality, the drop is due mainly to a greater-than-expected decline in revenue at largest customer Nokia (falling from half of total revenue at the beginning of fiscal 2011 to less than a third, due to legacy POLARIS transceiver business running down plus Nokia losing market share in the RF front-end market).






Nevertheless, chief financial officer & VP of administration Dean Priddy says that RFMD is executing on a proven growth strategy supported by multiple revenue drivers, including sequential growth in its switch and signal conditioning product line, sequential growth in 3G power amplifiers (PAs), the addition of a second 10% customer in Samsung, and 17% year-on-year growth in the Multi-Market Products Group (MPG).

During the quarter, MPG started production of new gallium nitride (GaN)-based products for high-power military radar (for firms including Elta, Raytheon and Rockwell) and cable TV (for firms including Motorola, Eris and Aurora Networks). Also, RFMD’s portfolio of high-performance WiFi front ends is driving exceptional growth (for customers including Samsung, LG, Motorola, Nokia and RIM), as consumer enterprise markets are “exploding”, driven by the ongoing convergence of wireless and networking devices.

Meanwhile, RFMD's Cellular Products Group (CPG) has started volume production of new, higher-margin 3G/4G solutions, including the RF724x family of ultra-high-efficiency PAs and PowerSmart power platforms (shipping just over 1 million chipsets, including starting shipments to Samsung).

“RFMD’s strategic restructuring, announced three years ago, is now complete and driving diversified growth opportunities for RFMD,” says president & CEO Bob Bruggeworth. “Sales in our Multi-Market Products Group grew by more than 30% in fiscal 2011 over fiscal 2010, and in our Cellular Products Group sales to customers outside our largest customer grew by more than 50%,” he adds. Nevertheless, CPG has fallen from 80% to about 75% of company revenue, while MPG has risen from 20% to 25%.

On a non-GAAP basis for fiscal Q4, gross margin has fallen from 39.6% a year ago and 38.7% last quarter to 37.5%. However, gross margin for core revenue was just below 40%. Net income was $21.7m, less than half the $43.8m a year ago and $52.6m last quarter.

Net cash provided by operating activities was $36.2m. So, after capital expenditure of $4.8m, RFMD generated $31.4m in free cash flow during the quarter (making $188m for full-year fiscal 2011, up from $177m for fiscal 2010).

“With all major growth drivers intact, we have the confidence to actively put RFMD’s superior free cash flow to use,” says Priddy. During the quarter, RFMD repurchased about 1.7 million shares of common stock and retired $35.5m principal amount of convertible debt due in 2012. Consequently, during the quarter, total cash and cash equivalents and short-term investments have fallen from $304.3m to $291.6m. “In addition to the ongoing optimization of our capital structure, RFMD will continue investing in the R&D and customer-facing resources necessary to outpace the growth rate in our markets,” says Priddy.

During the quarter, CPG secured multiple design wins for high-performance, silicon-based switches and switch filter modules across the world’s leading smartphone and tablet makers. MPG secured major design wins across multiple growth markets, including wireless infrastructure, smart energy, high-performance WiFi for smartphones and tablets, and point-to-point radio for cellular backhaul.

RFMD expects to further diversify its revenue base, with its largest customer Nokia dropping towards just 15% of revenue in the June quarter. Dictated by Nokia front-end revenue, this should be the lowest-revenue quarter in fiscal 2012: flat to down 5% sequentially, as 8–12% growth in RFMD’s core business (driven by new product cycles and technologies, including more than 50% growth for smartphones) is offset by declining sales of legacy products (with POLARIS transceiver products immaterial to financial results).

“The transformation of RFMD has created a highly diversified company with multiple growth drivers,” says Priddy. “This sets the stage for accelerating top- and bottom-line growth, driven by continued strength in core revenue and the elimination of the revenue headwinds caused by declining transceiver sales,” he adds.

“We expect to achieve our most diverse quarter of customer mix in RFMD’s history as a public company,” notes Bruggeworth. Driven by the continued customer diversification and improved product mix, gross margin should rebound by about 100 basis points. Priddy adds that 40% is within range over the next two to three quarters as low-margin transceiver business ends, leaving just the higher-margin core business.

After starting PowerSmart shipments to Samsung in the March quarter, shipments to LG and RIM will ramp in the June quarter (earlier than originally planned), reaching $25m per quarter in total PowerSmart revenue (and $75m cumulatively) by the end of fiscal 2012 (with several other design-wins expected to ramp beginning in the December quarter, and maybe even in September). RF724x 3G PAs will start shipping in volume in the June quarter to first customer RIM, with multiple smartphone customers ramping in fiscal second-half 2012.

RFMD hence expects to return to sequential growth in the September quarter. “We expect RFMD will take full advantage of global secular growth trends and grow faster than our core markets,” says Priddy. RFMD also expects a more diversified customer base and a product mix that is more robust, with a greater representation of new products in MPG and a higher percentage of 3G and 4G products in CPG. “This will enable broad improvement in our financials, supporting margin expansion, operating leverage, earnings growth, continued strong free cash flow, and superior return on invested capital,” Priddy concludes.

See related items:

RFMD’s revenue falls 2.4% due to 3G drop at Nokia

RFMD’s quarterly revenue grows 12% year-on-year to record $285.8m

RFMD’s revenue grows 29% year-on-year

Strong demand gives RFMD 51.4% increase in revenue year-on-year

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