RFMD ($12-$9) Shares Drop on Weak Demand for TDMA Products
Wednesday January 21, 1:07 pm ET
By Adam L. Freeman
Dow Jones Newswires
NEW YORK -- Shares of RF Micro Devices Inc. (NasdaqNM:RFMD - News) fell Wednesday after the company warned that declining demand for products based on the TDMA wireless network would result in quarterly profit well below Wall Street expectations.
At about 12:29 p.m. EST on the Nasdaq Stock Market (News - Websites) , shares of RF Micro were down $2.23, or 18%, at $10.03 a share.
The Greensboro, N.C.-based maker of microchips for wireless communications late Tuesday projected profits for the fiscal fourth quarter ending in March of between two cents and four cents a share on revenue of between $153 million and $162 million.
Both numbers were below the mean estimate of analysts surveyed by Thomson First Call (News - Websites) for earnings of seven cents a share on sales of $174 million.
RF Micro said the quarter would be hurt by a decline in time division multiple access, or TDMA, components as U.S. operators change to other standards. RF Micro does about $25 million to $30 million in business each quarter in TDMA components, said Christopher Caso, a Schwab Soundview Capital Markets analyst who downgraded the stock to underperform from neutral.
"We believe the loss of higher margin TDMA business will serve to delay [RF Micro's] margin improvement," Mr. Caso said in a research note issued Wednesday.
As users increasingly turn to Internet-enabled mobile phones, handset makers are accommodating the trend by manufacturing more products that run on the third-generation GSM/CDMA standard, which allows for larger files, video clips and more Internet functions.
The new product mix also carries lower margins than TDMA, raising worries of lower profits for RF Micro.
RF Micro said it expects TDMA revenue to fall 50% from the prior quarter. A fall was expected, but its magnitude took investors by surprise.
In a Tuesday conference call with analysts to discuss its quarterly results, Dean Priddy, RF Micro's chief financial officer, said the company is in the process of positioning itself to profit from where the TDMA standard will be strong.
Company officials couldn't be immediately contacted for comment about the decline in TDMA business.
Mr. Caso, the Schwab analyst, in his research report said he believed RF Micro's TDMA technology was in an order of phones postponed by Cingular Wireless in December - a possible indication of a growing trend as mobile providers meet stronger demand for other standards.
Earlier, RF Micro said it turned profitable during the fiscal third quarter as revenue rose 32.3% on vigorous demand in the cellular phone market and improved margins.
The company reported net income for the fiscal third quarter ended Dec. 31 of $28.2 million, or 13 cents a share, compared with a loss of $5.2 million, or three cents a share, a year earlier.
Gross profit for the quarter was $80.4 million, up 47.8% from $54.4 million in the prior-year period, and gross profit margin increased to 41.7% from 37.3%. RF Micro attributed these improvements to higher volumes, improved yields and cost savings from the conversion from four-inch to six-inch gallium arsenide wafer fabrication.
Revenue for the third quarter jumped to $193 million from $145.8 million in the comparable fiscal 2003 quarter. The company said sales also benefited from an additional week in the latest quarter.
Wall Street had expected the company to post fiscal third-quarter earnings of 10 cents a share on revenue of $186 million, according to Thomson First Call.
-By Adam L. Freeman, Dow Jones Newswires; 201-938-5023; adam.freeman@dowjones.com |
