chojiro,
Feeling better about your entry today? You could at least bail for a small gain if you don't. Whatever, I have been remiss with my conference calls. I plead connectivity problems -- now corrected -- following the reformatting of my hard drive, and a climbing trip. Time to catch up, and I'll start here. I won't recap much of the various numbers in the PR, but try to integrate them into their statements and responses to questions.
Despite the guidance, there are some good aspects to RFMD's current position. For one, despite putting a new fab online, their gross margins actually improved a percentage point to 38%.
Further the MAP line, which includes satellite radio, GPS, Bluetooth, wireless LAN, and telematics products will enjoy slightly higher margins than the overall business. These are starting to launch. The wireless LAN products are shipping now, and the Bluetooth stuff ships in March, for examples. The former is apparently very big in Taiwan, for some reason. OTOH, they guided margins down a little for the next quarter along with the revenue guidance; simply an issue of less capacity utilization magnifying the impact of fixed costs.
Small signal handset business is growing 15% sequentially, reflecting progress in RFMD's efforts to get a "bigger footprint in the phone."
They said their two acquisitions were already complete (one was for base stations based on Gallium Nitride technology).
Operating cash flow was $38.5 million despite the cash munches. Inventory turns improved to 6.3, and all inventories declined. OTOH, OEM customers' inventories also declined. Apparently, they are taking advantage of short cycle times, a la "just in time." RFMD says its lead time for large customers is 8 weeks, a fast time, and that this is an advantage when (OK, if) demand picks up. When pressed, they gave a rather broad range for global handset growth of 10 - 20 percent. They said guidance was lowered due to more seasonality (huh?), less visibility, and OEMs lowering inventories.
Order rates were strong in the first two months of the quarter, but dipped in December. Sounds like customers were gearing up for X-Mas. I haven't noticed if this happens every year. In any case, they said booking for January improved over December. They guess channel inventory is still there, but will be cleaned up this quarter.
The Hitachi partnership is something of a wild card. It will use some of the new fab capacity, and there is a small backlog to ship this quarter for JCDMA, a new market for RFMD. They expect to develop better module assembly techniques in the form of better thermal and package design via this partnership. But it is open ended; hard to say how much business might come directly from the deal at this point.
They mentioned design wins for "gate" phones, and shipment of the products in the next couple of quarters, though these were expected to be a small part of the overall product mix. I have no clue as to what a gate phone might be (also heard "mimics" as if that, too, was some kind of product). If no one can edify me shortly, I will eventually go digging for that info.
I got three general points out of all this. One, RFMD seems to be diversifying, both into new products and into more parts of the handset. Two, they seem to be doing a good job with costs and cycle times. Thus three, it is all about global demand. If it comes they will kick butt. If not, they will languish some more, but will survive longer than some competitors, IMO. RFMD may be here in the teens for a little while longer. But if the '02 handset numbers are to be believed, and the new products are well received, I would expect RFMD's stock price to improve after one more quarter.
Given that, I intend to rehedge the half of my position that currently is not hedged on a bounce over $20, near term. Somewhere around March, I expect to unwind the hedge and let her rip.
Cheers, Tuck |
