here is a run-down of the company from last fall:
September 28, 1998
dougsimpson.com
www.geocities.com/wallstreet/5175
Archived at Net Nuggets:
Focus On:
SFNB(SONE) * HCOM * PPOD * ACCS * RFMD
Focus on
Radio Frequency Micro Devices (NASDAQ:RFMD):
Greensboro, North Carolina
Gallium Arsenide Specialist -
Radio Frequency (RF) Integrated Circuits (RFICs)
... updated October 4, 1998)
Background and History of RF Micro:
RFMD designs, develops, manufactures and markets proprietary radio frequency integrated circuits
("RFICs") for wireless communications applications. Much of its revenues comes from the sale of RFICs
used in cellular telephones and PCS handsets, but it offers many other standard and custom products. For
the three months ended June 30, 1998, 87% of the Company's revenues was derived from the sale of
gallium arsenide heterojunction bipolar transistor ("GaAs HBT") products.
TRW Inc. ("TRW") is the Company's largest shareholder, owning 32.7% of its common. According to the
recent 10K, in June 1996, the Company and TRW entered into a broad strategic relationship that included
$15 million of equity and debt financing from TRW. The key goal of the Company in entering into this
alliance was to enable the Company to construct a four-inch wafer fabrication facility to manufacture
products using GaAs HBT technologies developed by TRW and licensed to the Company. Until June
1998, TRW manufactured all of the Company's GaAs HBT products. TRW granted the Company a license
to use its GaAs HBT process, and RFMD recently began manufacturing its own GaAs HBT products
under this license at its new wafer fabrication facility. The Company's GaAs HBT power amplifiers and
small signal devices have been designed into equipment manufactured by OEMs such as Nokia, Hyundai
Electronics, Phillips Consumer Communications, Motorola and LG Information and Communications,
Ltd.
Recent Business and Financial News
According to the latest 10Q filed in August '98, revenues increased 129% from the same quarter last year
to $23.4 million for the quarter ended 6/30/98, which the company attributed to strong demand for both
GaAs HBT and silicon products and the availability of more wafers from its GaAs HBT wafer supplier.
Also according to the 10Q, International shipments accounted for 62% of revenues for the three months
ended 620/98, compared to 45% for the same quarter last year. The Asian flu has adversely impacted
RFMD's revenues, and the company expects continuing decline in sales to Asia during FY '99. The
company reports that it expects to offset the Asian decline with other order sources, but is making no
promises.
Third Quarter Results:
(in millions, except per share data)
3rd Q'r 98
3rd Q'r 97
Revenues
$23.4
$10.2
Pre-tax Income
2.2
1.2
Income per share (diluted)
0.10
0.08
Shares Out
17.1
14.5
The company reports that it may need to raise additional equity or debt financing during fiscal 1999 to
finance a portion of the cost of the new fabrication facility and other corporate requirements.
For the quarter ending 6/30/98, RFMD's effective tax rate rose to 23.0%, still less than 40% standard rate
due to the use of net operating loss carryforwards. Income tax expense for the quarter ended 6/30/98 was
about $500,000, compared to $26,000 for the same quarter last year. The rising tax rate skews the
year-to-year comparison of after-tax income as tax loss carryforwards 'burn off'.
In connection with TRW's investment in the Company, the Company issued to TRW a warrant for the
purchase of up to 1,000,000 shares of RFMD common at $10 per share. This warrant was exercised in
September 1998, according to a Beneficial Ownership filing at the SEC, where it states: "TRW beneficially
owns 5,621,487 shares of Common Stock. The numberof shares of Common Stock beneficially owned by
TRW represents 32.7 percent of the 17,170,528 shares of Common Stock outstanding as of September 14,
1998."
Capital Plans
RFMD's recent 10K reported the completion of the first phase of $40 million fab to fabricate four-inch
GaAs HBT wafers using TRW technologies. The Company has completed the transfer of TRW's
manufacturing process and begun commercial wafer production. Production at the facility is expected to
increase throughout fiscal 1999. Completion of the second phase, budgeted for $30 million, would transfer
additional TRW technology and expand wafer fabrication capacity, but is dependent on a raising
necessary capital and other factors.
Primary Competitors
The recent 10K identifies RFMD's primary competitors as including Anadigics, Fujitsu, Hewlett-Packard,
Hitachi, Motorola, NEC, Philips, Raytheon, Rockwell, Siemens and TriQuint.
Gilder Technology Report Comments on GaAs:
Vol II, No. 3 (3/97): The Tetherless Telecosm:
..."Tetherlessly transcending most of the limitations of the current PC era, the most common PC will
be a digital cellular phone. ... Thus the first PC of the new paradigm will probably have to be
CDMA (code division multiple access), built from the bottom up to provide bandwidth on demand,
according to TCP-IP standards, at a handful of milliwatts of communications power (see GTR,
January 1997) ... This up-spectrum bias assures the continued success of companies pressing the
frontiers of microwave integrated circuits, low noise amplifiers, power amplifiers, and other devices
that function in the gigahertz." - p. 6-7.
..."This is the spectronic paradigm ... [which] tends to favor the manufacturers of gallium arsenide,
indium phosphide, and silicon germanium devices. ... [T]he current ride of ... gallium arsenide
(GaAs) innovators is likely to continue. ... The major long term threat is silicon germanium. [Which]
combines much of the manufacturability of silicon with the high frequency operation of gallium
arsenide." -- p. 7.
Vol. II, No. 7 (7/97): "Strong growth in the wireless and satellite communications industries has
raised the fortunes of producers of gallium arsenide (GaAs) radio frequency and digital
semiconductors. ... Threatening the ambitions of the GaAs specialists, however, are recent
advances in silicon germanium (SiGe) semiconductors now coming to market in commercial
products. ... With performance comparable to GaAs, SiGe chips cost one third as much to build
since they can be manufactured on traditional silicon lines. ... Given the advantages in cost and
performance of the SiGe chips, GaAs is now maturing and has been deleted from our Table of
ascendant technologies." -- p. 5.
Vol. II, No. 12 (12/97): Telecosm Outlook: 1998 "With SiGe pulling even with GaAs, but at a
significant cost advantage, the technology is poised to explode into the RF IC marketplace. ...
While SiGe will not supplant existing gallium arsenide designs, the single chip systems of the
future will move toward the new process." -- p. 3.
Other voices:
"Charles Huang, executive vice president of engineering at gallium arsenide company Anadigics
Inc., Warren, NJ, says that silicon germanium still has to prove itself. He expects gallium arsenide
products to co-exist with its new rival for years." -- Electronic Business "Silicon Germanium
finds the Spotlight" (1/98)
RF Micro Devices is the subject of a message thread on Silicon Investor, and another message thread at
Yahoo! Financial. Check there for breaking news and views. See the right side gutter for links.
This article will be archived at nnarc-rfmd.html and may be edited in the future. Check in with Net Nuggets
from time to time. The information contained herein is believed to come from reliable sources, but no
warranty of accuracy is expressed or implied. The author |
