RF Micro’s loss totaled $62.2m, or 33 cents per share, for the quarter ended March 31, compared with $859,000, or 0 cents per share, a year ago. Revenue for the quarter dropped 8% to $150.4m, compared to $163.4m a year ago.
The slowdown was primarily the result of lower sales to handset manufacturers in Asia, which are still grappling with overcapacity issues, and the demise of the US market for the old-style TDMA handsets, which are fast being replaced by GSM systems, said James Faucette, an analyst at Pacific Crest Securities, which does not have an investment banking relationship with RF Micro.
RF Micro president and CEO Bob Bruggeworth said the biggest slowdown was in China. Korea also was a weak market for the company as sales from customer Samsung Electronics dropped during the past year.
However, Bruggeworth, in a call to analysts, said Samsung’s orders grew significantly during the recent quarter. And, yesterday, RF Micro received its first CDMA order from Samsung, which previously had ordered just GSM products, he said.
His optimism may be well founded. Despite the disappointing numbers, RF plans to continue to cut costs and expects business will pick up in the second half of the year. For its next quarter ending June 30, or its first quarter of fiscal 2006, RF Micro said it expects revenues in the mid-$150m range and losses of 3 cents to 4 cents per share.
RF Micro’s results came in at the high end of the company’s updated guidance on April 14. Still, it disappointed Wall Street. Excluding $45.8m worth of charges, the company would have posted a $16.4m loss, or 9 cents per share, below analysts’ expectations of 8 cents per share, according to a Thomson First Call poll.
Analyst Faucette said its overall outlook is somewhat lighter than what Wall Street had hoped for, particularly the timing of its Polaris 2 product.
Gross profit margin in the quarter was 29.9%, versus 37.3% in the corresponding quarter of fiscal 2004, primarily attributable to lower sales volumes. RF Micro CFO Dean Priddy said margins likely will improve in the June quarter and expects expenses as a percent of sales to decrease throughout the year.
We’ve gone to great efforts to communicate to our managers and employees that we will be controlling expenses this year, Priddy said in a call to analysts.
RF Micro also expects to lower costs by having a greater number of its products manufactured by outsourcer Jazz Semiconductor of Newport Beach, California.
Demand for RF Micro products across the board had picked up during the quarter and the company has had some success in negotiating favorable pricing, Bruggeworth said.
The Greensboro, North Carolina-based company’s cash reserves withered a whopping 74% to $26m for the quarter, compared to $103m a year ago. But, now that the company has purchased the bulk of equipment it needs at its new chip-making factory in China, Priddy expects to begin to fill RF Micro’s coffers again this year.
By making its own chips at its new manufacturing facility, or fab, in Beijing, RF Micro will curb expenses, according to Priddy. The company continues to ramp up production at the fab.
Last quarter, the fab churned out one million of its Polaris 2 Total Radio units, which are transceivers that perform the functions of a handset’s radio section (giving customers a smaller form factor, lower cost and faster time to market.
Priddy expects the Chinese fab will increase the volume of Polaris 2 production six times in the June quarter. By October, the fab will be in full production, producing roughly 8 million units per month, he said.
However, overall shipments of its Polaris 2 product slightly disappointed analyst Faucette. But it’s pretty minimal; we’re talking about the difference of just a few hundred thousand units, he said.
During the quarter, RF Micro shipped about 2 million Polaris 2 units, which brings total shipment to more than 4 million units. Bruggeworth said it expects a strong ramp in Polaris 2 in the second half of 2005. Faucette pegs Polaris 2 as driving roughly 10% of RF Micro’s revenues, but agrees it is a fast-growing product.
Faucette said it is key that the company executes on its promise of shipping more Polaris 2. While RF Micro has the best-designed product of its type in Polaris 2, according to Faucette, it is just a matter of time before its rivals, who include Skyworks Solutions Inc of Woburn, Massachusetts, become more competitive. Others will come out with capable designs, Faucette warns.
RF Micro expects year-over-year growth in its upcoming fiscal year in all three of RF Micro’s business units: cellular, wireless connectivity and infrastructure, and plans to launch an undisclosed number of new products.
We have no new products to announce today, but stay tuned, Bruggeworth said.
