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Technology Stocks : RF Micro Devices (RFMD) -- Ignore unavailable to you. Want to Upgrade?

To: Mr. Miller who wrote (795)	8/17/1999 2:31:00 PM
From: Mr. Miller	Read Replies (1) \| Respond to of 4849

Last report from H&Q for reference... ** Hambrecht & Quist Hambrecht & Quist Hambrecht & Quist ** Company: RF Micro Devices Price: 76.625 Recommendation: Buy Notes: a, b, e Analyst: Eric Zimits 415-439-3282 Date: 7/30/99 RFMD Announces New HBT Facility RF Micro Devices announced plans to quadruple GaAs HBT production capacity with the construction of a new facility in Greensboro, NC. We believe the new fab will fuel revenue growth of greater than 30% a year and enable the company to hit the $1B per-year revenue rate by 2004. The two-phase build-out will add new capacity starting late next year and will be completed in 2002. The path is now clear for RFMD to diversify its revenue, customer and applications base . 1999 A 2000 E 2001 E Q1 EPS $0.05 $0.25A $0.32 Q2 EPS 0.07 0.27 0.34 Q3 EPS 0.15 0.28 0.36 Q4 EPS 0.25 0.30 0.38 FY EPS 0.52 1.10 1.40 FY REVS (M) $152.9 $278.5 $371.8 CY EPS 1.05 1.31 NM CY P/E NM 73.0 NM FY Ends Mar Current Price $76 5/8 52-Week Range $6-87 Market Cap(M) $3,241 Shares Out(M) 42.3 Book Value $5.71 Net Cash/Share $2.95 3-Year EPS Growth 39% CY00 P/E-to-Growth 1.87 New GaAs HBT facility will quadruple current capacity. The new $250 million dollar facility should begin operations late next year, ramping to a maximum capacity of about 10.5 million square inches per year by 2008. The expansion will occur in two phases. Phase one, to begin this year, will be completed by late 2000 and will increase the company's output by 60,000 4-inch wafers by the time it achieves full production in 2003. Phase 2 will likely involve a move to 6-inch wafers, and is slated to begin production in 2002. At full production, the second phase will deliver about 70,000 6-inch wafers a year (equivalent to 150,000 4-inch wafers) giving the company a total capacity of just over 13 million square inches (see Exhibit 1). Exhibit 1 Total HBT Production Capacity Forecast (millions of square inches) Please contact your H&Q Sales Broker to see the complete report. Source: Company information, H &Q Estimates We estimate RF Micro Devices' new GaAs HBT facility could drive the company's revenue to $1 B by 2004. The new fab will increase the company's growth in production from about 40% a year (CAGR) to about 60% (CAGR) in the near term. This should more than offset historic ASP declines of 15 - 20%, enabling RF Micro Devices to continue to post year-over-year revenue growth well in excess of 30% in the long term. If ASPs continue on their current trend and the company executes as well with the new fab as it has with its existing operations, we believe the company could hit the $1B revenue-per-year rate for HBT components by 2004. Source: Company Reports, H &Q Estimates Forecast for RF Micro Devices Revenue and Production Capacity. Recall that RFMD augments its HBT business with active sales and development of silicon bipolar devices and is developing silicon germanium devices as well. These parts are manufactured by outside fabs. In Q4:99, silicon components generated about 11%, or about $7M in revenue and have been growing rapidly. Vastly increased economies of scales and yield gains should allow earnings to grow faster than revenue. The size of the new fab should provide further improvements in costs of goods as the company enjoys greater volumes in raw materials. Moreover, because six-inch wafers generate more than twice as many parts as four inch wafers, we would expect to see an improvement in yields once the second phase of the new facility has begun operation. The combination of lower raw material costs and improved yields should enable gross margins and earnings to out-pace revenue growth. Expanded production should allow RFMD to satisfy market demand. The rapid growth in demand for mobile phones combined with a shift to higher content, dual and tri-mode models is causing an explosion in demand for GaAs HBT devices. Although the company is ahead of plan in wafer starts, yields and production, the demand for its product is increasing faster still. The new facility was essential if the company was to keep pace much less ever close the huge gap between supply and demand. The fab will enable RFMD to grow production more in-line with the market thereby freeing up capacity to address new applications. Considering that the vast majority of wireless equipment still employs older, less-efficient MESFET technology, the market opportunities for HBT in non-handset devices is staggering. Penetrating these markets will diversify the company's revenue and customer base. Source: Company Reports, H &Q Estimates Forecast for RF Micro Devices Revenue and Production Capacity. New fab will be built in two phases and will more than double employee count. The first phase of construction should begin this year, be completed by late 2001 and cost about $110 M. The second phase will be completed a year later and cost approximately $140 M. When completed the new facility will require 200 fab employees and 500 - 600 support personnel. The company will receive about $5.65 million in compensating payments and credits from the city, count and state governments, including $4.5 million in tax credits over three years. Reiterating BUY, maintaining current estimates pending better visibility of new production launch. Once operational, the new production lines will increase the company's lead in the GaAs HBT market, improve its cost basis and allow RFMD to enter markets it could not otherwise address. It will also further raise the barrier-to-entry to potential competitors who have yet to develop commercial HBT processes. We reiterate our BUY rating and will review our estimates once the new fab is operational.