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11 May 2015

Anadigics' revenue falls 12% in Q1 to $18.4m

For first-quarter 2015, broadband wireless and wireline communications component maker Anadigics Inc of Warren, NJ, USA has reported revenue of $18.4m, down 11.7% on $20.9m last quarter and 21% on $23.3m a year ago.

Fiscal Q1/2014 Q2/2014 Q3/2014 Q4/2014 Q1/2015
Revenue $23.3m $23.3m $18.9m $20.9m $18.4m

The number of greater-than-10% customers has proliferated from just two a year ago (Samsung and Huawei) and three last quarter (adding Asia-Pacific distributor Alltek Technology Corp) to five now (including Cisco and Asia-Pacific distributor Long Trump Corp).

Mobile revenue was $6.4m (just 35% of total revenue), down 42% on $11.2m (53% of total revenue) last quarter and down 54% on $14m (60.5% of total revenue) a year ago. However, this decline was partially offset by Infrastructure revenue of $12m (a more-than-expected 65% of total revenue), up 23% on $9.7m (47% of total revenue) last quarter and $9.2m (39.5% of total revenue) a year ago, driven mainly by the Wi-Fi and small-cell markets.

"We are very pleased with the 23.3% sequential increase in Infrastructure revenues… enabled by our ongoing strategic shift to an Infrastructure business model [announced in June 2014]," says chairman & CEO Ron Michels.

Gross margin has risen further, from 10.9% a year ago and 18.7% last quarter to 23.2% (exceeding the forecasted 22.7%). This was driven by the Infrastructure revenue growth and a more favorable product mix, offsetting the decline in total revenue, some further inventory reduction (from $13.9m to $11.5m) that improved cash efficiency, and consequent slightly lower fab utilization (falling back from 35% to 32%).

Operating expenses were cut by a more-than-expected 4.4% from last quarter and by a third from a year ago, demonstrating continued benefits of the more efficient infrastructure business model.

On a non-GAAP basis, net loss has been cut for a fourth consecutive quarter, from $9.6m ($0.11 per share) a year ago and $4.7m ($0.05 per share) last quarter to $3.8m ($0.04 per share). Likewise, earnings before interest, taxes, depreciation and amortization (EBITDA) loss has improved further, from $m a year ago and $2.1m last quarter to $1.6m, "demonstrating the continued benefits of our strategic restructuring and focus on infrastructure markets," the firm says.

Capital investment was basically zero for a third consecutive quarter. During the quarter, net cash hence fell from $14.4m to $13m (excluding the $4m drawn under the firm's $10m credit facility)

For Q2/2015, Anadigics expects revenue to fall 10-15%, driven principally by a 20-25% drop in Mobile revenue, in accordance with the firm's ongoing transition to Infrastructure. Following higher-than-expected growth in Q1, Infrastructure revenue is expected to fall back by 7-9%, due to (1) some softness in forecasted demand from a key Wi-Fi infrastructure customer that is digesting some excess inventory (creating a slight headwind on new sales) and (2) a slower-than-anticipated rate of small-cell deployment (due partly to certain carriers delaying the award of hardware contracts to OEMs). "The anticipated Q2 infrastructure decline represents a temporary pause in our long-term growth infrastructure revenues," believes Michels. Due to the lower expected revenue, gross margin is expected to decline by 100-300 basis points.

"With significantly higher revenue and profitability per wafer in infrastructure, we believe that the rate of decline in Mobile wafers can be outpaced by the expected increase in Infrastructure wafer demand while the company's financials improve over the long term," says Michels. "To achieve this, though, we must continue to align our manufacturing capacity, overall investments, and cost structure to our [leaner] Infrastructure business model," he adds.

"We are proceeding with a staff reduction, primarily in manufacturing, and implementing other cost-improvement measures that in aggregate represent a $4-5m improvement in our annual cost structure," says executive VP & chief financial officer Terry Gallagher. "These actions are expected to enable a more streamlined operating structure that lays the foundation for Anadigics' long-term improvement," he adds. 

"Based on our planned expense improvements and new leaner infrastructure business model, we expect a sequential reduction in our operating expenses of 5-7%," says Gallagher. "We expect cash usage to largely align with the anticipated EBITDA loss, adjusted for a small restructuring payout," he adds.

"We believe that Infrastructure revenue growth will return in Q3... Wi-Fi infrastructure channel inventories at our key customer will come into balance and we anticipate small-cell network deployments to resume at a pace that aligns with our customer's latest forecasts," says Michels. As the anticipated Infrastructure revenue growth returns in second-half 2015, Anadigics expects gross margin expansion to resume.

In particular, in mid-April Anadigics announced design wins for its Wi-Fi infrastructure amplifier in the high-performance TRENDnet AC3200 triband wireless router (which contains six amplifiers in each). "Coupled with the continued expansion of 802.11ac, Wi-Fi infrastructure represents a tremendous growth opportunity for us," believes Michels.

Also, in mid-March, Anadigics announced design wins for its Wi-Fi power amplifier to be used in the video transmission system of the DJI Phantom 2 Vision Series of drones. "Our Wi-Fi products offer compelling advantages for customers not only in conventional Wi-Fi connectivity equipment, but in many adjacent applications that use Wi-Fi technologies as well," says Michels.

In early April, Anadigics expanded its small-cell wireless infrastructure power amplifier family. "Small cell is a critical market for Anadigics, and we believe that we are well-positioned to be successful in it," says Michels. "Our unique products and technology are helping carriers to solve the challenge of delivering robust service and high data rates over the cellular network in densely populated areas… our design win penetration is stronger than ever," he adds. "In spite of some slowness in the small-cell market, we still expect to double our revenue in 2015 over 2014." According to Infonetics, while some service providers are revisiting the timing for small-cell rollout, the compound annual growth rate (CAGR) of small-cell equipment is expected to be 20% through 2019. 

In cable TV, product development for DOCSIS 3.0 infrastructure upgrades remains a critical focus. "In spite of recent changes in strategic activity at MSO level, CapEx spending for CATV infrastructure is continuing at a pace that can sustain our planned growth trajectory," says Michels. "In fact, our DOCSIS 3.1 products are being chosen for use in 3.0 networks, which we believe will help us hedge against potential delays in DOCSIS 3.1 deployments… We anticipate a healthy CATV revenue growth for 2015 over 2014 and that should position us for continued growth into 2016," he adds.

In machine-to-machine (M2M) and Internet-of-Things (IoT) applications, Anadigics still expects double-digit revenue growth in first-half 2015 at its largest customer in that sector. "This remains on track, and we continue to target specific applications that are a good fit for our high-performance gallium arsenide based products," notes Michels.

Regarding Anadigics' development of vertical-cavity surface-emitting laser (VCSEL) manufacturing technology, the firm reckons that its 6-inch wafer process has the necessary economic advantages over alternative 3- and 4-inch wafer processes to make the use of VCSEL technology ubiquitous. "We are positioning VCSELs to be a significant contributor to our long-term financial growth," says Michels. "Even as we optimize our near-term manufacturing capability with the demands of our new business model, we remain well positioned to service an increasing wafer demand for VCSELs over the long term," he adds.

"We expect the Q2 headwind, offset by our planned improvements in manufacturing efficiency, to slightly delay our EBITDA breakeven goal by approximately 3-6 months," notes Michels. "We believe that we remain on track to achieve a revenue split of at least 75:25 in favor of Infrastructure by year-end," he adds. "Our new operating model will deliver EBITDA breakeven results at a quarterly revenue level below $19m, with utilization approximating only 25-30%," believes Gallagher.

"Our infrastructure product portfolio and design-win penetration is strong," says Michels. "Based on existing market indicators and our business outlook, we believe our net cash and our existing line of credit give us adequate capital resources to support our business and carry us through EBITDA breakeven."

See related items:

Anadigics' quarterly sales rebound by 10.6% to $20.9m

Anadigics regains NASDAQ listing compliance

Anadigics' revenue falls 19% in Q3 due to decline in legacy Mobile

Anadigics' Q2 sales down 33% year-on-year, but infrastructure growth compensating for decline in legacy mobile

Anadigics lowers revenue guidance and cuts costs, including 30% of staff

Anadigics' revenue falls a more-than-seasonal 36% in Q1 due to inventory overhang

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