RFMD CC Notes 1/21/03
PR
GREENSBORO, N.C., Jan. 21 /PRNewswire-FirstCall/ -- RF Micro Devices, Inc. (Nasdaq: RFMD - News), a leading provider of proprietary radio frequency integrated circuits (RFICs) for wireless communications applications, today reported financial results for its fiscal 2003 third quarter, ended December 31, 2002.
Financial Results
Revenue for the quarter was $145.8 million, an increase of 45.0% versus revenue of $100.6 million for the corresponding quarter of fiscal 2002, and a sequential increase of 21.8% versus revenues of $119.7 million for the quarter ended September 30, 2002. The Company's financial results for the quarter reflect market share gains in its core market of power amplifiers (PAs) for cellular handsets and continued strength in the WLAN market.
Gross profit for the quarter increased 39.9%, versus $38.9 million for the prior year period, and increased 18.3% sequentially to $54.4 million, versus $46.0 million for the quarter ended September 30, 2002. The year-over-year and sequential increases in gross profit were primarily attributable to the increase in the Company's revenues.
Net income (loss) is presented according to generally accepted accounting principles (GAAP) and on a pro forma basis. Pro forma results exclude special items related to the Resonext transaction and the retirement of an interest rate swap agreement related to the synthetic lease, both of which were previously announced.
On a GAAP basis, net loss for the quarter was $5.2 million, or ($0.03) per diluted share, based on a 0.01% tax rate, compared to net income of $3.5 million, or $0.02 per diluted share, for the third quarter of fiscal 2002, based on a 14% tax rate. This compares sequentially to net income of $6.5 million, or $0.04 per share for the second quarter of fiscal 2003, based on a 0.01% tax rate.
On a pro forma basis, net income for the quarter was $13.4 million, or $0.08 per diluted share, based on a 0.0% tax rate, compared to net income of $3.5 million, or $0.02 per diluted share, for the third quarter of fiscal 2002, based on a 14% tax rate. This compares sequentially to net income of $6.5 million, or $0.04 per share for the second quarter of fiscal 2003, based on a 0.01% tax rate.
The special item related to the Resonext transaction totaled $10.9 million and was comprised of a $10.5 million one-time, non-cash charge related to acquired in-process R&D, which has been expensed in accordance with Financial Accounting Standards Board (FASB) Statement No. 141, and $0.4 million in operating expenses incurred at the end of the December quarter. The one-time special item related to the retirement of the interest rate swap agreement totaled $7.8 million.
Business Outlook And Financial Guidance
RF Micro Devices currently has backlog to support March 2003 quarterly revenue of approximately $135 million. Expenses in the March quarter related to the acquisition of Resonext currently are expected to be approximately $8.1 million, of which approximately $2.1 million will be non-cash. The Company currently anticipates March 2003 quarterly earnings per share ranging from a net loss of ($0.01) to break even.
RF Micro Devices believes order visibility has improved and currently anticipates revenue, margins and earnings will show improvement in the June quarter and will improve sequentially thereafter throughout the remainder of the calendar year.
Comments From Management
Bob Bruggeworth, president and CEO of RF Micro Devices, said, "We increased revenues and profits in the December quarter by successfully executing on all facets of our growth strategy. We strengthened our number- one position in PAs, we increased our dollar content in handsets, we continued expansion into new markets with new products and we continued to strengthen our blue-chip customer base. We entered the quarter with record expectations, and we exited the quarter with record revenues. The entire organization has reason to be proud of our performance.
"Our growth rate was roughly four times that of the overall handset market in calendar 2002, and we continue to expect growth in excess of the handset market as we execute on our proven growth strategy. In our core market of handsets, not only are we actively taking share against major competitors, we are also benefiting from market share consolidation as our customers tighten and streamline their supply chains. Additionally, in new markets such as wireless LAN, cellular transceivers, Bluetooth(TM), GPS and satellite radio, we continue to see significant growth opportunities in calendar 2003.
"We are seeing increased customer interest in products combining our product offerings and expertise in multiple wireless markets. For example, our combined expertise in wireless LAN and cellular applications uniquely positions us to drive growth as wireless LAN and cell phones converge. Furthermore, we believe our expertise in GPS and Bluetooth will bolster that growth, as these technologies begin to coexist in handsets as well. We are optimistic about the future, and we believe our competitive position is stronger than it's ever been."
Dean Priddy, CFO and vice president of administration, said, "Our operations employees have done an outstanding job ramping production to meet better-than-expected customer demand. We've increased throughput in our factories by about 50% in two quarters while improving inventory turns. Our efforts to integrate the supply chain from our customers to our suppliers is giving us improved order visibility and the ability to respond more rapidly to changes in demand. We believe supply chain integration has also accelerated the cash conversion cycle. Cash flow from operations was $23.1 million and our receivable days sales outstanding were under 39 days.
"We currently anticipate revenue, margins and earnings will show continued improvement throughout the calendar year beginning in the June quarter. The markets we serve are growing, and we have reason to expect continued market share gains and manufacturing cost reductions, all of which give us confidence in achieving our financial objectives."
CC NOTEs
Bob Bruggeworth - CEO
Dean Priddy, CFO
Bob
- Extremely happy to 145M and 0.08 EPS
- Broke out of quarterly rev rang o f 100M
- Exceeded FY 2002 revs
- Our growth was four time sector average
- Growth PA and small signal devices for handsets
- 21% q2q in wireless LANs
- 42% q2q cdma PAs (power amplifiers)
- 37% q2q gsm PAs
- PAs market share is 40% far above anyone
- Top 3 customers are top 3 mfrs.
- Sales to ODM doubled
- Today, we are seeing continued improvement in order pattern and abilty to capture growth.
- We have integrated our products into our customers supply
- Our record sales of CDMA and GSM PAs were due to focusing on our customer.
- Only RFMD is able to integrate radio and other wireless technology. We believe wireless LAN, Bluetooth, and satellite radio will be up next year.
- $25M in wireless LAN revs.
- Wireless LAN will be intergrated into handset for one customer and we are the only company to led in both markets.
- GSP with satelite radio, bluetooth with cellular, will be future products.
- Gallium Nitride will prove to be disruptive technology in the future.
- 802.11a products will ship.
Dean
- 145.8M in rev
- HbT 87% of rev
- Handsets 89% of rev
- GSM 45.6%, CDMA 45.5%, TDMA 18%
- Modules 63%
- 21% q2q growth in wireless lan
- 16M in rev to korea
- 38.6% GM decline to demand in module
- 37.8M in op exp due R&D
- 16.M in operating inc.
- Other inc showed a loss
- Net inc 13.4 or Eps 0.08
- Total 263.1M in cash, used 94M to payoff fab lease, and 30M to invest in jazz semiconduct
- 62.1M in acct rev
- 34 DSO
- 63M in inventory up slightly
- 5.8 in inventory turn
- 10M in capex
- cashflow was 23.1M
- orderflows and shipment up
- backlog of 135M
- EPS breakeven to penny loss EPS
- We continue to gain market share in the growing market
- We continue to believe GM will improve in the June
- We got low cost from Jazz semiconductor
- Our customer want more integration
- We see rev and earning to improve during the year
Q&A
C.E. Unterberg Towbin analyst Kalpesh Kapadia- June quarter GM improvement?
A: We are focusing on integrating GaAs into passive (resistors and inductors) components which will reduce costs.
Q: When will you see GM improvements?
A: The products will ship midyear. Two years to get to modules.
Unknown analyst - GM in the 40-50% by June
A: Not given guidance in GM. We focus on market share and increasing topline. Will see improvement.
Q: Polaris?
A: Margin curve in Polaris will be better.
Q: Bill of Material GaAs vs. non GaAs?
A: Modules wil the trend. Things are filling up.
Q: John Miles RD Capital - March guidance on one time charges.
A: Not going to be one time charges. Saw alot in Dec. quarter for Resonext. There will be a reoccurring expenses that must be amortized under GAAP.
Q: Sam Parkinson - MOT increased?
A: Yes they did.
Q: Samsung a 10% customer?
A: Not 10% but close and up.
Q: NOK?
A: Low 40%
Q: ODM 12% of sales?
A: Yes
Q: 90 ees from Resonext?
A: Yes. 2.1M was development work that Volume is going on wireless lan in combo chipsets.
Q: Oper expense down in JUNE?
A: Could happen
DAL CIBC - 1.8M in R&D from Resonext?
A: There were a few S&M guys brought over, some SGA and marketing
Q: GM trending in March?
A: You can come up with own estimates given the top and bottom line.
Q: 6% drop in rev in March per my est?
A: GSM and CDMA remaining strong. TDMA is becoming less 5 of sales.
Q: March quarter new ramps?
A: Backlog is solid so not need to introduce new products.
Q: Transition to 6 inch wafers in the March quarter?
A: In this business, priority is to ship on time to customer. We are booked 135M for the quarter and fabs are operating at 80%. Trying to transition the second fab to 6 Inch production.
Q: June quarter visibility?
A: Not comment on the june quarter rev. Getting forecast for a very strong June quarter.
PiperJ - ProForma GM?
A: Resonext not affect GM.
Q: Turns in the quarter?
A: We 128M in rev and ended up 140M so turns was 12M. We saw an uptick in our turns business. 9M in Sep quarter. None prior.
Q: Acct rec flat?
A: It is usual to have DSO at 45-50. More business moved to high hub model. Better than industry average.
Danny - JPM Pricing assumption?
A: ASP is 15-20% in declines. Some effort to stem decline. he vendor bases are narrowing. Not the same level of capability anymore. Not just a PA business.
Q: Rev for resonex?
A: Initial rev is low in March q. We expect to be accreditive in Dec quarter. Better than 10M level then.
Soundview - Color on Resonext GM. Suppose to been accreditive when you bought it?
A: GM are above corp average expect PAs. Wireless LAN will be accretive to GM. Any semilog product will have higher GMs. Resonext will be accretive in Dec 2003.
Q: Orders in December.
A: Solid through the year.
Q: Polaris - rec impact?
A: We rather not give estimate. Several customers engaged in Polaris. #2 in market share in Wireless LAN. Would not rule out Polaris wins in top three customer
John Keyes - CDMA is 37% q2q growth?
A: It was 42% growth. Two of the top 3 OEM saw growth.
Q: Korea?
A: Increase in was in Korea.
Q: Wireless LAN ASP?
A: ASP dropped 20-25% for 2002 and will drop same % in 2003. We expect wireless LAN will be accreditive to GM.
Mike Burke - Morgamn Keene - Why GM increase in June.
A: Benefits from test yields, benefits from 6 inch wafer production, and lower costs from Jazz semiconductor. MOdules will go up and that is accretive to GM.
WRHambretch - Where is demand gepgraphy?
A: GSM and CDMA. Strength in China. Our china factory was 20% of revs. CDMA strong all over.
Q: Wireless LAN growth?
A: Down in March. Up in other quarter.
Q: 802.11g?
A: We have a stragty but not commenting.
Q: Japan Revs?
A: Rev in Asia are growing nicely.
Needam - wireless LAN problems?
A: Most of our customer do not have MAC solutions. We have a flexible business model. We been selling basestands. We are seeing wireless LAN and handset converge. PC will drive wireless LANs.
Q: Polaris competition?
A: No comment. Q: Going to 6 inch from 4 inch problems?
A: We did a pilot 6 inch. We will do it as quickly as possible. 2.2x more production per wafer on a 6 inch wafer vs. 4 inch, the cost go way down.
Jeremy Bunting - Tom Weisel. Trends were strong in all areas?
A: Have not analyzed the backlogs. ODM in Taiwan are stronger.
Q: Impact of closing synthitic lease.
A: Savability 1M a quarter.
Q: Siemen patent in China (Time division SCDMA). Is it a technology change?
A: Our technology is compatible with SCDMA.
Unknown: Operating expense flat?
A: Fairly flat.
Q: Tax rate?
A: Zero for the year.
Q: Polaris revs?
A: We expect revs in the 2003 year.
Another anlayst. Resonext and venture capatlist?
A: They are able to sell 1/3 of their shares. The shares were registered quickly after transaction close.
Jeffress and Co. 67M in investments?
A: 60M would be the Jazz investment.
Mark Roberts-Wachovia. Next year?
A: Have some significant tax credits in R&D to take. Not sure what tax rate in 2004.
Q: What is lowering GM?
A: PAs modules.
Analysts:
Soundview gives RFMD: Nuetral
CIBC gives RFMD: Sector Perform
Needham gives RFMD: Strong Buy
"People don't give a hoot what they did (in the December quarter) -- it's what they're gonna do. It's a familiar RFMD scenario of delivering on the top line but under consistent margin pressure," said Sam May, U.S. Bancorp Piper Jaffray. May does not own shares of RF Micro and U.S. Bancorp does not do banking work for the company.
"This is not a revenue story. It's a gross margin story. The gross margin forecast was worse than expected and the operating costs for Resonext were higher than expected," said C.E. Unterberg Towbin analyst Kalpesh Kapadia, who does not own RF Micro stock.
Lehman - ** While we still have concerns about viz into the global handset environment as well as concerns about long term profitability we note that RFMD is at 2.1x P/S (using our CY03 rev est) vs a 5-yr historical low of 2.4x. We await Nok's earnings report later this week for further clarity on the overall handset mrkt.
** RFMD reported Q3 (Dec) revs of $145m (up 22% q/q) and EPS of $0.08 - both ahead of consensus est. Revs were driven by strong grwth in WLAN (up 21 %q/q) and CDMA (up 42% q/q) segmts. RFMD continues to gain share at key OEMs with MOT growing to ~19% of total rev vs 16% in Q2 and Samsung representing just below 10% of total rev.
** As expected RFMD expects Mar revs to decline q/q to the $135m level due to seasonality . EPS will also decline q/q to $0.00 as the result of a poorer mix of products and incr OpEx associated with the Resonext acquisition. Mar should represent the bottom for GMs w/ investors likely to see improvement in the June qtr as cost reductions begin to take affect.
Wachovia Securities
RFMD: reit` market perform - RF Micro Devices reported much better-than-expected pro-forma FQ3 2003 revenue and EPS of $145.8 million and $0.08, respectively. Our estimates had been $132.5 million and $0.06.
J.P. Morgan Securities Inc.
RFMD: reit` underweight - RF Micro Devices reported F3Q03 EPS of $0.08, $0.03 above our and Consensus estimates of $0.05. Revenues of $145.8 million were up a strong 22% QoQ, well above our $135.0 million estimate due to stronger-than-expected turns business during the quarter.
Thomas Weisel Partners LLC
RFMD: reit` buy - Results higher than pre-announced guidance. Revenue came in at $145.8mn and EPS came in at $0.08, significantly higher than our estimates of $132.0mn and $0.05, respectively.
Herb Greenberg
Two weeks ago RFMicro Devices said that its fourth quarter ending March 31 "is already fully booked to exceed current consensus revenue estimates." Now we know why the company didn't include earning estimates: Today the company guided down by saying earnings in the quarter will be break-even to a one-cent per share loss. First call consensus was 3 cents. The more they sell, the less they make! But don't worry, the company says visibility for margins, revenue and earnings from June on out looks much better. So here we go (as predicted) everybody is predicting a year-end recovery. Even Sanmina, which says most of its markets will be down 5%-10% in the March quarter, is talking about a recovery. But take a close look the wording the company used on its conference call for its various end markets, including wireless: "We believe it will bottom..." "Built into our PRESENT planning for wireless is for a bottoming duruing the first half..." "Our PRESENT thinking is to a down first half of the year followed by modest gains..." My interpretation: They don't REALLY know any more than you or I know. They're taking an educated guess. (Okay, so they have a little better insight, but that hasn't really helped in the past.) The only certainty is that at some point, in some year, the second half really will be better than the first, and as long as sales suffer the chances of that happening are greater! (Simple common sense!)
My Notes.
Bad side:
Net income went down y2y. Inventory up. Fabs at 80% of capacity. GM steadily dropping so stock fumbles until they can prove that higher sales and higher GM go hand in hand. I might nibble if it retests the fall lows. It appears SiGe, InPh, Sager, Siemens, GRPS, and Dave Norbury are ghosts of the past.
Good: Revenues up. Wireless LAN.
I read about a Samsung phone (SGH-V205) that has a color display, digital camera, and is the hottest selling phone in Asia. This is the phone that I see buying this year.
3g.co.uk
mobilemag.com
I think the question on Samsung as a top 10 customer was to see if RFMD was getting any of this action. Apparently not much. www.samsung.com has a current view. I think the PA supplier to the phone has the most potential. Samsung was one of the few companies to increase capex.
Jack |
