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RFMD: We are number one

Though cautious about the potential impact that macroeconomic events will have on mobile handset demand, RF Micro Devices is rapidly gaining both market share and profitability.

Growing market share and a leaner cost profile combined in RF Micro Devices latest financial quarter to greatly improve the GaAs and GaN chip maker s sales and profitability.

In the three months that ended on September 27, the Greensboro-based firm posted total sales of $271.7 million, up 13 per cent sequentially.

That substantial increase was driven by gains at Samsung in particular, which is now close to joining Nokia and Motorola in contributing more than 10 percent of RFMD s sales.

“We are number one in compound semiconductors, and we are number one in RF components,” declared CEO Bob Bruggeworth during a conference call to discuss the latest results with investors.

The company s restructuring earlier this year "“ in which it decided to focus more on its core activity of compound semiconductors "“ is now starting to have a positive effect on the bottom line.

And although RFMD posted an official operating loss of $19 million in the latest quarter, a large portion of that was attributed to the cost of implementing the restructuring, which is now complete.

Bruggeworth and his senior management team indicated that RFMD would feel the full benefit of the restructure in the current December quarter, and that bookings remained very healthy despite global economic fears:

"A lot of people out there think that the world is going to end," acknowledged the CEO.

That pessimism, while not shared by RFMD, was reflected in the company s revenue outlook, which anticipates a potential slide in sales of up to 7 percent. But with its much leaner cost profile now in place, plus substantial cash holdings, Bruggeworth sees RFMD as well-equipped to weather any storm:

"We expect our restructuring to serve us well, regardless of the market environment," the CEO said. He added that the company s conservatism regards future sales was "prudent" given global uncertainties "“ rather than a true representation of the levels of demand that it is witnessing.

New technological developments in chip manufacturing are also starting to aid RFMD s drive to improved profitability.

The company has just launched the first product to feature smaller GaAs die sizes and cheaper substrate material, and expects a major ramp of products incorporating these innovations over the next 6-9 months.


With the price of gold also now falling, RFMD ought to be able to improve its operating margins significantly.

In the company s multi-market business unit, which includes all but cellular handset products, RFMD is particularly excited about the prospects for GaN-based amplifiers next year.

As well as garnering new US government funding to develop such devices, RFMD is expecting cable TV operators to begin using GaN-based line amplifiers shortly, with revenues to follow in 2009.

For all the good news, RFMD does still register a large amount of debt on its balance sheet "“ more than $600 million as of September 27, and likely a major factor in the company's depressed stock price.

Though some analysts may feel that RFMD could do more to reduce that debt, Bruggeworth currently sees more value in holding onto a growing pile of cash, just in case the economic situation does take a seriously malevolent turn.

On October 29, RFMD s stock opened trading at $2.12, valuing the company at $554 million.

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