qcom has been extremely strong in this lousy market.
rfmd information below looks great. the only problem i have is that insiders keep selling. don't know if that is simply a routine or some negative foreboding information.
RF Micro Devices: The Wireless Wonder
by Chris Connor
RF Micro Devices {RFMD} makes radio frequency (RF) integrated circuits primarily for the ascendant wireless industry. To a lesser extent, the company supplies some of its products that include power amplifiers, linear amplifiers, switches, and transceivers to the broadband cable industry, but those products amount to a smaller portion of actual sales figures. To get somewhat of an idea of RFMD's presence in the wireless industry, just take a quick look at some of its key customers: Nokia {NOK} (its biggest customer), Motorola {MOT}, Ericsson {ERICY}, and Qualcomm {QCOM}. Suffice it to say that those companies represent the elite of the wireless industry and give RFMD's products considerable world-wide reach in cell phones and wireless base stations.
Gallium Arsenide
When looking at RFMD, it is important to know the basics of gallium arsenide (GaAs) because a large percentage of the company's products are made using this material. The advantage that gallium arsenide has over most other materials is superior electrical performance. With gallium arsenide, electrons are able to move five times faster than they could in silicon. Furthermore, gallium arsenide can offer lower power consumption at the same speed of silicon. Offering lower power consumption is extremely important in cell phones because of a phone's limited battery life. The lower the power, the longer the phone is able to operate. Gallium arsenide also offers less performance degradation at higher frequencies because of its semi-insulating substrate. On the other hand, silicon has a conductive substrate and faces major problems at high frequencies not the least of which is excessive heat, increased noise, and a substantial increase in power consumption. Price might be considered the largest downside to gallium arsenide because it is significantly more expensive than silicon. However, RFMD has experienced great success in reducing the cost of GaAS by mass producing it in high volumes.
The HBT Advantage
RFMD is the world's leading supplier of GaAs HBTs (heterojunction bipolar transistors). HBTs are vital to digital systems because those systems require a linear signal (one that is left completely intact when amplified). The predecessor to the HBT for GaAs integrated circuits, GaAs MESFET has trouble providing a linear signal and is not able to shrink the device size as well as GaAs HBT can (the difference is in the transistors). Maximizing the performance of digital systems is important because digital systems will be more prevalent in cell phones going forward instead of analog due to digital's better capacity and voice quality. Investors should take special note that RFMD holds the exclusive industry license for the HBT process, which was originally developed for the military.
Power Amplifier Expertise
RFMD holds two patents for its GaAs HBT power amplifiers. Power amplifiers boost signals through the antenna of a wireless device or system and are usually regarded as the most crucial RF component because they are the most expensive, the hardest to design, they dissipate a considerable amount of heat, and they are the biggest single consumer of power of the RF components. In a major vote of confidence for RFMD's power amplifiers, Qualcomm is bundling RFMD's power amplifiers into its industry-leading CDMA chipsets. By adding Qualcomm as a major partner in 2000, RFMD's dependence on Nokia (around 60 percent of sales during fiscal 2000) is somewhat diminished.
Rapidly Growing Both Revenues and EPS
As can be seen in RFMD's Quick Facts report, the company has generated remarkable revenue and EPS growth over the last 3 years with growth rates of 115.68 percent and 158.02 percent respectively. RFMD's 3 year growth rates handily thump the 3 year growth rates of fellow wireless chipmakers Triquint {TQNT), Kopin {KOPN}, and Anadigics {ANAD}. On a sequential basis, RFMD's numbers continue to impress as well. For example, RFMD has grown its revenues sequentially for 9 straight quarters at an average of 25.6 percent each quarter. However, investors should note that sequential growth has slowed considerably over the last 5 quarters. As far as sequential EPS is concerned, RFMD has not suffered a loss or a declining quarter since its fiscal fourth quarter of 1998 (9 quarters ago). Very few wireless chipmakers can make the same claim.
This sequential earnings growth is one of the reasons that RF Micro Devices was even mentioned today. I recently ran a search that looks for chip stocks with high expectations for the future entitled The Best Chip Stocks For the Future and RFMD was one of the top stocks in the search results. This search can also show customers similar stocks in this same industry group, so be sure to check out the results.
Looking Forward
RFMD looks to extend its current leadership in GaAs HBTs going forward to emerging semiconductor processes such as silicon germanium and indium phosphide. Spearheaded by IBM {IBM}, small amounts of germanium have been added to silicon to enhance its power capacity and create silicon germanium (SiGe). A SiGe transistor can also exchange some of its speed to operate at lower power levels which allow for high performance while using less energy. By using less energy, battery use is decreased which in turn extends battery life. Furthermore, SiGe transistors have also shown to be more stable over various temperature ranges when compared to their gallium arsenide counterparts. To put things in perspective, GaAs is prevalent today but SiGe looks to be the future. Looking at an even newer semiconductor material, indium phosphide (InP) is heralded to be not only superior to GaAs but also could represent RFMD's gateway into the lucrative fiber optic industry because of its high frequency response rates and its ability to operate at lower voltages. RFMD has an advantage over a number of competitors in making InP integrated circuits, having most of the infrastructure needed already in place. In fact, look for RFMD to be able to start mass-producing InP products in around 18 months, according to the company.
All in all, RFMD possesses several key characteristics that should make it attractive to investors: it has a major presence in the booming wireless industry, it has a history of rapid earnings and revenue growth, it is a leader in a key industry technology, it is willing to experiment with superior technologies, and it could eventually develop a major presence in the ultimate source of broadband, fiber optics. |
