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RF Micro Shares Soar on Demand for Cellular Phones: Spotlight
RF Micro Shares Soar on Demand for Cellular Phones: Spotlight
Greensboro, North Carolina, Sept. 9 (Bloomberg) -- RF Micro Devices Inc. is catching the eye of
investors by making things easier on the ears of cellular-telephone users.
RF Micro's semiconductors help phones sound clearer and their batteries last longer. It's a key supplier
to Nokia Oyj, the world's biggest cell-phone maker. Motorola Inc. and Qualcomm Inc. also recently
began buying its chips for their phones, leading RF Micro to boost manufacturing to meet demand.
''Business is just booming,'' said Eric Zimits, an analyst with Hambrecht & Quist LLC, who rates the
stock a ''buy.'' ''People are buying a lot of cell phones.''
Shares of the Greensboro, North Carolina-based company are surging too. They've soared 12-fold in
the past year, fueled by a more than 50 percent increase in sales of cell phones. The stock rose 3/4 to
50 3/16 in recent trading, after touching a record 51. A year ago it traded at 4.
Although RF Micro's fortunes are linked directly to Nokia, which accounted for 73 percent of the
company's fiscal 1999 sales, RF Micro's shares trade at about half the price of the Finnish company's
American depositary receipts. That makes RF Micro attractive to many investors looking for a toehold
in the wireless market. ''They are a direct play on Nokia's success,'' said Melissa Floren, a research
analyst for Janus Capital Corp., which owned about 568,000 RF Micro shares as of June 30. ''We love
the fact that we can own Nokia in a small-cap stock.''
Janus also is the biggest holder of Nokia's ADRs.
Meeting Demand
RF Micro sales more than tripled to $152.9 million in the fiscal year that ended in March. Though
Nokia's success bolstered RF Micro's business, it may have hampered the company's ability to sell to
other cell-phone makers. ''They were taking everything that we could manufacture,'' said Dean Priddy,
RF Micro's chief financial officer. ''We just hadn't had the capacity until recently to make inroads.''
Until about two years ago, RF Micro relied on defense contractor TRW Inc. to make most of its chips.
Now, the company is manufacturing about 50,000 units a year at a new plant in Greensboro. That's
expected to increase to more than 200,000 in two years with the opening of a new factory, Priddy said.
As new production lines have opened in the past year, the company has signed agreements with
Motorola, Qualcomm and Ericsson AB.
RF Micro's own manufacturing now accounts for about 25 percent of its sales, and that could climb to
75 percent in two years, Janus's Floren predicts.
The increased capacity helped RF Micro boost fiscal first- quarter sales almost threefold to $62 million.
Texas Instruments
RF Micro's chips complement those that Texas Instruments Inc., the biggest maker of semiconductors
for cell phones, supplies to Nokia and others.
Texas Instruments makes digital-signal processors, the central chips that convert the sound of a phone
conversation into the digital computer language that is used to transmit the signal. Like RF Micro,
Texas Instruments' shares have surged in the past year, more than tripling on a split-adjusted basis.
Texas Instruments, based in Dallas, predicts worldwide sales of digital phones will top 245 million units
this year, up from its earlier estimate of 230 million. ''Even a small percentage of that is good,'' said Will
Strauss, president of Forward Concepts Co., a Tempe, Arizona, market researcher.
Chip Designs
As demand for cell phones increases, manufacturers are contracting out more chip design work to
companies such as RF Micro to speed production and reduce costs, Priddy said.
About 88 percent of RF Micro's chips are made with gallium arsenide instead of silicon and are based
on a military design licensed from TRW, which is RF Micro's biggest shareholder. ''Gallium arsenide
allows for higher performance, but it's harder to produce than silicon,'' said Bill Keithler, a portfolio
manager for Invesco Funds Group Inc., which holds about 367,000 RF Micro shares.
RF Micro is expanding into other areas of the wireless market, such as cable modems, security systems
and baby monitors.
That should push RF Micro's shares even higher, analysts say. Zimits, the Hambrecht & Quist analyst,
expects the company to keep exceeding earnings forecasts, as it has for the last few quarters.
''There's no indications that things are decelerating,'' Keithler said.
NYSE/AMEX delayed 20 min. NASDAQ delayed 15 min. |
