RFMD CC Notes
PR Info
- Diluted Earnings Per Share Of $0.05
- Company Receives Production Orders For Key High Volume GSM Module
- Company Announces Co-Development Of PA3300TM With QUALCOMM CDMA Technologies
- Company Receives Production Orders For Motorola's Talkabout(TM) T900 Two-Way Data Pager
- Module Products Accelerate To 16% Of Total Revenue
- CDMA Revenues Increase 11% Sequentially
- RF Micro Devices Added To S&P MidCap 400
Consistent with guidance given on October 17, 2000, revenues for the quarter were approximately $79.9 million, an increase of 9.2% over revenues of $73.2 million for the corresponding quarter of fiscal 2000 and a decrease of 21.8% versus the previous quarter's revenues of $102.2 million.
Gross profit for the quarter increased 5.3% to $37.5 million, versus $35.6 million for the corresponding quarter of fiscal 2000, and decreased 27.7% sequentially over gross profit of $51.9 million for the quarter ended September 30, 2000. The year-over-year improvement in gross profit was primarily attributable to increased volume and a lower cost structure attributed to output from the Company's wafer fabrication facility (fab). The sequential decline in gross profit was primarily attributable to the decrease in the Company's revenues.
During the quarter the Company added a line item to the statement of income called "Other operating expenses." "Other operating expenses" represent startup costs associated with the Company's second wafer fab facility, which is expected to commence operation during the summer of 2001. In accordance with AICPA SOP 98-5, the Company will expense costs associated with preparing the second wafer fab facility for production. When the second fab is qualified for production and economic value can be obtained, its costs will flow through the "Cost of goods sold" line on the Company's statement of income and the "Other operating expenses" line item will be omitted.
Net income for the quarter was $7.8 million, or $0.05 per diluted share, based on a tax rate of 36%, compared to net income of $12.6 million, or $0.07 per diluted share, for the third quarter of fiscal 2000, based on a 35% tax rate, and net income of $17.7 million, or $0.10 per diluted share, for the second quarter of fiscal 2001, based on a tax rate of 36%. Earnings per share for all periods have been adjusted to reflect a 2-for-1 stock split effective August 8, 2000.
Quarterly Highlights
RF Micro Devices attained several new milestones during the quarter. First, the Company received production orders for a high-volume GSM power amplifier module. Not only does this represent a sizable new win for RF Micro Devices' multi-chip module products, it also provides a significant opportunity for the Company to gain additional share in the market for GSM components. The GSM power amplifier module is manufactured using RFMD's advanced GaAs HBT process.
The Company also announced the achievement of a significant strategic milestone in its alliance with QUALCOMM CDMA Technologies (QCT), a division of QUALCOMM Incorporated. The PA3300(TM) series of power amplifier modules, announced on December 5, 2000 by QUALCOMM, is the second product developed by QCT and RF Micro Devices, and is manufactured by RFMD using its advanced GaAs HBT process. The PA3300(TM) series of power amplifier modules is intended to help handset manufacturers reduce production time while extending talk-time.
RF Micro Devices' module revenue increased 302% sequentially in dollar terms, and represented 16% of revenue in the December quarter, versus 3% of revenues in the September quarter. Additionally, CDMA revenues grew 11% sequentially and represented 24% of revenue in the December quarter, versus 16% in the September quarter.
Also during the December quarter, RF Micro Devices announced it had begun production shipments of its RF2173 GaAs HBT power amplifier to be used in Motorola's Talkabout(TM) T900 two-way data pager. The RF2173 helps produce a very low-cost, small-size pager with outstanding battery efficiency. The announcement is particularly significant because RF Micro Devices anticipates the RF2173 will be featured in additional Motorola two-way data paging products in the future - reflecting the Company's expanding relationship with Motorola.
Finally, the Company announced during the fiscal third quarter that it had been added to the Standard and Poor's MidCap 400 Index. The S&P MidCap 400 Index consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation.
Business Outlook
The Company's outlook for the March quarter has been affected by a number of factors. First, the Company believes the handset industry is in the midst of a transition, during which some mature, high-volume handsets incorporating integrated circuit power amplifiers are nearing the end of their product lifecycles and are being replaced by new models incorporating more complex, highly integrated multi-chip module power amplifiers. New handset models that utilize the Company's module technology are increasing in volume but not as rapidly as the decline in mature handsets. While this has affected demand in the near-term, the Company believes some modules designed into new handsets could be among the highest running products ever manufactured by the Company.
Second, some OEMs have cancelled or delayed introductions of new models, some of which were expected to ship in the March quarter. In spite of this, the Company continues to see robust design activity, especially for its module products.
Third, as stated earlier, the Company will expense costs associated with preparing its second fab for operation, consistent with SOP 98-5. While this practice will enable it to minimize amortization costs when the second fab begins operation, it is expected to negatively impact earnings in the March 2001 quarter by approximately $0.01 per share after tax.
As a result of these factors, the Company currently expects revenues for the March quarter to be down sequentially from the December quarter by approximately 10 percent. Gross margin for the March quarter currently is anticipated to be in the range of 42 to 45 percent. The decrease in gross margin is due primarily to higher costs associated with the startup of module manufacturing. Operating expenses in the March quarter currently are expected to be flat, while other operating expenses associated with the Company's second wafer fab facility are anticipated to range from $3.0 to $3.5 million. Based on initial findings in an R&D study, the annualized tax rate for fiscal 2001 is expected to be in the range of 32 percent to 33 percent. Year-to-date, the Company has accrued taxes at 36.8 percent. These factors are currently expected to result in diluted earnings per share for the March 2001 quarter in the range of approximately $0.02 to $0.03.
Looking beyond the March quarter, RF Micro Devices anticipates the handset industry will grow between 25 and 35 percent in 2001, consistent with current industry estimates. Additionally, the Company remains optimistic about opportunities for growth and market share gains. The manufacturers of new, high-volume handsets are increasingly requiring that these phones contain multi-chip modules. In response, RF Micro Devices has embarked upon a technology shift from stand-alone integrated circuits to multi-chip modules that contain one or more integrated circuits as well as passive components in a single package. The Company believes this strategy and its expectations for market share gains in CDMA and GSM will enable it to achieve growth in fiscal 2002 at an annualized rate in excess of growth in the overall handset market.
Comments From Management
"Fiscal 2001 third quarter results were in line with our expectations and consistent with the guidance provided in our October 17th earnings release," said, David Norbury, President and Chief Executive Officer of RF Micro Devices. "However, we experienced lower than anticipated order activity in the December quarter, which is expected to negatively impact our March quarter.
"While we view December's order activity as disappointing, we are seeing significant opportunities for future growth for the Company. Our ability to capture GSM market share has been greatly enhanced, as evidenced by production orders for a key GSM module. Additionally, we believe our transition to a supplier of multi-chip modules, while negatively impacting our near-term results, has positioned the Company to be a key industry supplier in the future. In fact, we view the investment we've made in module technology to be as strategic to the Company's future growth as the decision to adopt GaAs HBT several years ago. We're seeing essentially all major handset manufacturers transitioning to modules in their next generation handsets."
Dean Priddy, CFO and vice president of administration, stated, "The production ramp of our module products is accelerating rapidly as shown by the December results. The continued ramp of module products, while creating great opportunity, is also challenging for the Company, particularly in supply chain management. But we're taking every step we can to mitigate manufacturing risks. Successful execution of our module strategy positions the Company for growth in excess of the overall industry during our next fiscal year.
"In light of the reduced sales in the December quarter, we believe appropriate action has been taken in managing our business. Operating expenses were held essentially flat sequentially. Additionally, the Company was able to generate $39.0 million in cash flow from operations by significantly reducing receivables and holding inventory flat."
Norbury concluded, "In spite of our current outlook for the remainder of this fiscal year, we view this as near-term and we believe we are extremely well positioned to participate in - and, in fact, exceed - growth estimates for the handset industry. Specifically, we anticipate our module technology will enable us to take additional share in GSM and CDMA while remaining strong in TDMA. Our customers tell us the transition to modules is mandatory, and we see tremendous potential for our module products across all air interface standards beginning at the end of the March quarter."
CC Notes
Dean Norberry
- Receipt for GSM order, ramp begins in the March quarter, should be high volume
- Another order will ramp up
- QCOM power amp module is shipping, begun sampling higher amp module
- Continue
- 79.9M in revs, 21.8% decrease q2q, 92% revs were Hbt
- 90% of revs were from handsets
- 63% international sales
- 25% gsm, 41% tdma, 24% cdma rev split
- 10.2M in korea sales
- 46.7% GMargins
- SG&A declined 1.2 M q2q
- R&D up 1.2M q2q
- 1.3M in extra start up costs for new fab
- 7.8M in Net Income
- 36.5% tax rate
- 5.6 cents EPS
- 345M in cash
- 39M in cash flow
- 58 days collection vs. 66 days
- 61.1M inventory
- 3.3 turns
- CAPEX was 19.2M
- Opportunity to gain market share in GSM and CDMA
- New fab at 66% of completion
Dave
- Modules that transition into mulit-chip module is manditory per customers
- 300% growth q2q , 16% of revs was modules vs. 2% in Sep00
- Expect two modules to be highest volume in RFMD, significant design wins for the company against tough competition
- Order activity is disappointing in Dec, so figure rev down 10% for Mar and EPS to be 2-3 cent per share. View it as disappointing news
- Handset market is changing; Going to module components, Going from 2g to 2.5/3g generation, much harder to design it than anticipated
- Got a good opportunity for sequential growth after march quarter
- Holding down expenses
- CDMA opportunity is great to increase market share
- Largest GSM customer looks good
- MOT will expand in GSM
- TDMA strong in our largest customer
- Siemens GSM looks good in the future
- Working on wireless 11b and bluetooth products
- March quarter will be a disappointment but June should hit after burners
Q&A
- March should be 20% of module for revs, depends how much can get out the door. Shipping CDMA to QCOM and GSM to Korea. 60/40 or 70/30 GSM/CDMA rev split
- TDMA not going to modules until later half of this year
- Margins will be lowered in TDMA modules as we work on test yields
- Second fab is production is needed in June/July timeframe, but we must execute and be able to bill
- Sagem (France) is opportunistic, last year was unforecasted upside, trying to make inroads, not sure if see revs, will be IC circuits vs. modules.
- Working on a discrete PA that operates with Bluetooth, will transmit and receive with their product
- Two phones at two different manufacturers were cancelled in the last two days (MOT is one I bet and ERICY the other)
- A lot of Siemens opportunity is GSM and GPRS handsets.
- MOT GPRS handset not being received well though
- Expects GPRS to accellerate in the second half of the year
- Two modules that will be largest RFMD orders will be GSM will be low end phones with high feature contents, will not say if it two different customers though
- NOK rev is up a little percentagewise from historical data,
- older handset in GSM are ramping down substantially
- Our products are well received
- Visibility should be improving this quarter but depends on module billing capacity
- Pricing pressure on module not that tremendous, but should increase as volume increases. As volumes goes up ASP declines
- NGAP comes close Hbt that we ship now and Hbt3G. It’s a change in epitaxial structure in broken concentration. It’s an Lgas derivative
- InPh is not a commercial item yet. InPh better thermal propetries, higher gain, better for designers
- Fiber optics networks is logical for us to look at but only small developments to get familiar with it
- Largest customer is supplier manager inventory, other customers seeing lower inventory now than previously
- Inventory; raw good was 22.6M, most components for multichips. Work in progress inventory was down, finished goods inventory was down
- GaAs wafers are in ample supply for substrate
- CMDA PA revs was 18%,
- We are shipping two contract mfrs now only 5-10% of revs is contract. A few are top ten customers.
- NOK is going under transition for March, our ability to execute is key for the future
- QCOM and MOT may be 10% customers in next quarter, Not Siemens for next quarter . Maybe not for the FY though
- 25-30% growth for handsets next year globally
- no present news for all that cash on hand
- 80-90M in Capex in 2001 and 80M in 2002, probably not complete second half for fab plant in 2001
- 60K-70K in wafers starts for next year
- tax rate for FY 2001 and 2002 should be 32%, r&d tax credits factor in, but not rule out foreign credit offshore
- SiGe parts shipped this quarter for CDMA maker, they were receiver chips, will have SiGe in Bluetooth effort and WAN efforts
- Upgraded version of Hbt (Hbt3G) is much more stronger competitor between SiGe due noise characteristics and something else
- Some new phones continue use TDMA technology
- RFMD FY2002 revs will grow faster than handset market revs
- Lgas products not mandatory transition to InPh, but see InPh as more expensive. More a price vs. performance. 1.5 years out for InPh before any commercial products starts
- Always a tradeoff if having a dual GSM/TMDA phones, give up efficiency, working on products designs for ATT and OEMS though no wins yets
- ASP erosions for chips was normal 10-15% per year, modules less
- NOK was only 10% customer this quarter, MOT was second largest customer though
- Will not comment on delays with MOT
- Korea is up a little from last q. Up 2M from sep00 quarter. Seems to have bottomed out.
- Surface mount devices and chip/wires are products being shipped in a same module now
- Mar00 RFMD will grow less than handset market due to transitions issue. Some phone models may run longer, but some orders delayed or canceled
- IC circuits to module transition is the biggest industry issue now.
- Shipping some GSM modules. The two big orders will see revs late March quarter
- Shipped 3M modules in Dec quarter, new two GSM orders will be over 10M units
- Broadband 3.5% of revs
- June Quarter depends on ability to execute the quantity of modules for our customers
- Mar01 has most design wins for the next two quarters, not having to beat bushes for design wins, just have to be able to make the modules for our customers
- Cancelled orders were large OEM and MMICs?
- Hbt3G is being used by our design engineers, will not see revs for a few quarters. It is a change in epitaxal structures.
- Mar01 is booked 80%+
- Will not update Phase 2 of fab expansion until see need for it
Dean
- Looking for a strong June quarter
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Previous post has quarter numbers.
I heard disappointing several times. NOK keeping this company afloat. Should tell one about the ERICY and MOT problems for the next three months. They blew guidance from last CC. March is much worse now than from Sep. This 10M order could be pushed out if handset market is weak in three months. I bet the GSM orders are from MOT and Siemens. The strength in the European market is why aI say that.
Although the CC did not discuss defects and returns, I wonder how many they had for QC since the theme of execution was prevalent. If they don't need design wins, then quality control maybe be having a problem so not as many modules being shipped as they would have liked. No proof of it though. Just a random thought.
80% booked is same as last q and they warned so lower guidance was adjusted appropiately.
When the market for phonmes does ramp up, RFMD has the capacity to ramp revs very fast.
Apparently the InPh price holding back orders. I remember the theme was to flood the market with cell phones using GSM last spring. Apparently that is continuing. People may not be paying for a high priced phone as a new customer. This goes along with the prepaid cellular phones that I see gaining in popularity. Use a cheap phone and a prepaid phone card. These pones are under $100 and maybe going lower. No contract with a cellular customer.
Although I am not in RFMD now, I look for an entry in 2001 as they are pushing the technology forward.
Jack |
