On January 30 Nokia warned that the entire wireless industry would slow this year, as consumers bide their time in expectation of next-generation services that will not come to market for several months. The Finnish giant said that global handset sales for 2001 might range between 500550 million units, with the bottom end of the range being the most likely scenario. Handset sales have been growing at a furious pace over the past several years, so much so that the global penetration rate for mobile phone subscribers is now believed to be around 12%. The key to moving that figure even higher was intended to be third generation (3G) digital services that would require new handsets. But the rollout of these services is taking longer than initially expected. In fact, operators are still working on the so-called 2.5G phones. Global Packet Radio Service, also called GPRS, is an upgrade of the Wireless Application Protocol currently in use to allow phones to make rudimentary connections to the Internet. GPRS was initially planned to be up and running late last year, but the absence of appropriate handsets has made that impossible. So far, only Motorola has presented a model. But Nokia is now saying that it will release GPRS phones in the third quarter of this year, with sales expected to reach millions of units by the fourth quarter. The forecast proposed by Nokiaa current lull, with brighter prospects for the second half of the yearwas also present in many of the earnings announcements by GaAs IC companies. And it seems to apply to the fiber-optic industry as well. As shown below, current market conditions are unfavorable for consumption of GaAs ICs, because manufacturers of wireless handsets, fiber-optic networks and CATV digital set-top boxes are sitting on top of large inventories that they need to work through before they can order new parts. But yet there is nearly universal optimism that the situation will correct itself in the second half of the year. Alpha Industries Alpha Industries announced record results for the December quarter, but warned that their book-to-bill ratio had dipped below 1.0, indicating a downturn ahead. For the quarter net sales increased to $78.7 million, up 7% over the September quarter and up 64% compared to the December 1999 quarter. Net income rose to $11.6 million, compared to $5.5 million for last year. David Aldrich, Alpha s President and CEO noted that he was pleased with his company s performance, but also reported a decline in orders late in the quarter, which resulted in a book-to-bill ratio of 0.97. (The book-to-bill ratio compares the value of new orders received, or "booked", to the value of orders filled and shipped, or "billed".) Commenting on this turn of events, Aldrich said, "Our forecast is cautious and reflects the uncertainty that currently exists in the component supply chain." He went on predict that Alpha would show no growth in revenue for the next two quarters, but that it would maintain solid operating profit margins. But he also offered hope for improvement in the second half of the year, saying, "we expect order rates to rebound, along with a return to strong net sales gains . . . This forecast is based on our customers projections for rising global handset growth in the second half of calendar 2001, our increased customer penetration and a reduction of inventory in the supply chain." In the December quarter, Alpha s broadband sales exceeded forecast, topping $16 million, or more than 20% of total sales. This category includes GaAs HBT and PHEMT products such as amplifiers and switches as well as ceramic filters. Applications include digital set-top boxes, cable modems, digital broadcast satellites, fixed wireless access and fiber-optic equipment. In the mobile wireless area, Alpha recorded "high levels of design and production activity" from emerging manufacturers of wireless handsets. In the quarter Alpha received their first production Major News from December Quarter Earnings Announcements

Broadband now accounts for 20% of Alpha s sales

Anadigics wireless business down 70% from last year

Celeritek investing in a Taiwanese foundry

Endwave angling for Ericsson outsourcing

Filtronic seeks to contain losses from GaAs operation

Module manufacturing said to be key for RFMD s revival

Stanford Microdevices doubles sales in first year as a public company

TriQuint tops $300 million in revenues for 2000

Vitesse one of the few semiconductor companies to actually beat earnings estimates order for RF semiconductors from Sony, and also made their first shipments of GaAs ICs for Siemens newest dual-band GSM wireless handsets for the European market. Shipments to Motorola, Alpha s biggest customer, increased 14% over the previous quarter on the strength of power amplifier and switch shipments for Motorola s newest GSM phones. Anadigics As expected, Anadigics logged a disappointing December quarter. Late last year the company warned that its results were going to suffer due to inventory corrections at major customers and a slower than expected volume production ramp of the company s newly introduced HBT power amplifier products. The final figures, released on January 29, showed net sales of $30.7 million, a 24% decline from the year-ago period and a 40% decline from the September 2000 quarter. The company reported a net loss of $0.3 million, including $1.3 million inventory write-off. Sales to the CATV industry accounted for nearly 60% of sales, followed by wireless (22%) and fiber-optics (18.5%). The wireless segment showed the largest decline, dropping 67% from the previous quarter and 70% from the year-ago period [see ]. In comparison, broadband revenues (CATV + fiber optics) were down 22% from the third quarter. "Our December quarter performance was affected by overall communications market conditions and inventory corrections at certain customers," said Bami Bastani, President and CEO. "We continue to focus on introduction of new products and diversification of our customer base and the results of our efforts are expected to materialize in first half 2001." Celeritek Celeritek reported record revenues and income for the December quarter ($24.2 million and $2.6 million, respectively). You might think that was good news. Unfortunately, the analysts who follow the company had been expecting $3.25 million or more in income. Moreover, the company reported that its gross margin fell to 24% of sales in the December quarter from 29% in the September quarter. It also announced that sales in the March quarter would show little growth. As a result, Celeritek shares lost nearly half of their value on the day following the announcement, in the heaviest day of trading ever for the stock. But Celeritek is showing some growth in its semiconductor operation. For the December quarter sales of semiconductor products increased 12% to $13 million, which equals 53% of total sales. Tamar Heusseini, President and CEO of Celeritek, indicated that semiconductor revenues are around 150% higher than last year. "We are confident of continued improvements in our semiconductor business, as we expand and diversify our customer base," he said. Celeritek received orders worth more than $1 million for newly introduced fiber products in the December quarter, including a production contract from Vitesse for a driver amplifier for use in high bandwidth external fiber-optic modulators. Celeritek also reported $2.6 million in new production orders for InGaP HBT modules, and subsequent to the close of the December quarter the company announced an additional $15 million dollars in orders for these products. "Both our orders and design wins demonstrate the expansion of our customer base and product offerings and the success of our technologies in various markets," said Husseini. As an example he cited receipt of a recent contract for $4.5 million contract to "process wafers for millimeter wave applications". The company is working to expand its semiconductor manufacturing capacity. One of the steps taken is a $2.4 million investment in Suntek Compound Semiconductor Co. Ltd, a GaAs foundry being constructed in Taiwan. "It is our stated manufacturing strategy to outsource a portion of our foundry work and we expect this investment to secure increased semiconductor fabrication capacity for Celeritek in the future," said Husseini. The foundry is targeted to be in production in 18 to 24 months. In addition, Celeritek has added more semiconductor test capacity, and is in the process of expanding its own fab in Santa Clara, CA. Endwave Endwave Corporation reported revenues of $13.3 million, more than double the results for the year-ago quarter. But the company recorded a net loss of $9.2 million, which is also roughly double the year-ago results. These figures are based on a retroactive combination of the accounts for Endgate Corporation and TRW Milliwave, which were merged in March 2000 to form the current company. Commenting on the news, Ed Keible, President and CEO, said, "Looking ahead to 2001, we anticipate strong demand from the cellular backhaul and point-to-point broadband access markets, and we are very pleased with our renewed agreements with Nokia and Allgon." In November Endwave announced a multi-million dollar contract with Nokia Networks for transceivers that Nokia plans to install in its FlexiHopper microwave radios. These will be used in broadband wireless networks over the next two- and-a-half years. And in late January Endwave announced a three year, multi-million dollar agreement with Allgon Microwave for 23, 26, 29, and 38 GHz transceivers for 2G and 3G cellular networks. As Endwave tries to improve its profitability picture, it is making adjustments to its manufacturing strategy. In late January it opened a second volume manufacturing facility in Diamond Springs, CA, giving the company capacity to manufacture over 100,000 transceivers per year. Current production is running at a rate of approximately 40,000 units per year. Endwave will concentrate volume manufacturing for all of its electronic productsRF modules, mm-wave transceivers and outdoor units (ODUs)at the new Diamond Springs facility, which has a lower cost structure than the company s other facility in Silicon Valley. Endwave already has many of the major players in the wireless infrastructure business as customers. Nokia, Nortel, and Hughes are their top three customers, each accounting for more than 10% of Endwave s total revenues. In a conference call with investors, Endwave management hinted that they might be close to landing a few more "10% customers". The most promising candidate would like be Ericsson, in light of it s recently announced decision to outsource the manufacturing of its mobile handsets. Ericsson is the last major captive manufacturer of millimeter-wave transceivers. If the company chooses to outsource this activity, analysts believe that Endwavethe largest merchant manufacturerwould be a logical choice. Filtronic Filtronic plc is taking steps to contain the losses stemming from its GaAs operation. A new group, Filtronic Compound Semiconductors, has been formed within the company. It consists of Filtronics new 60 fab in Newton Aycliffe, England and the former Litton Solid State GaAs fab in Santa Clara, California. For the six months ended November 30 the company as a whole reported revenues of $214.7 million, with an operating profit before goodwill of $9.16 million. However, the Compound Semiconductors group generated a loss of $10.76 million on $7.4 million in sales. According to a company statement, merchant sales from the Santa Clara operation have increased, mainly due to an increase in the production of PHEMT devices for photonics applications, but sales are still below the break-even point. With regard to the other facility, the company said that "the yields now anticipated from the Newton Aycliffe facility substantially exceed our earlier expectations and, as a result, will provide a capacity far in excess of that required for our foreseeable internal use. Additionally, the time scale required to establish and qualify products with customers was underestimated." The costs of operating the facility are now more than $1.5 million per month, and stemming the cash outflow from the group "has assumed the highest priority". Filtronic says it is looking for a strategy that will "reduce or eliminate the financial burden" of the Compound Semiconductors group as soon as possible, including discussions with potential commercial and financial partners. RF Micro Devices For the December quarter RF Micro Devices reported revenues of $79.9 million, a decrease of more than 20% from the September quarter. Net income was $7.8 million, compared to net income of $17.7 million for the previous quarter. RFMD management predicted that revenues for the March quarter would decline another 10%. The company will also suffer a hit of $33.5 million stemming from their decision to delay opening their second fab until sales pick-up again. Looking beyond the March quarter, RFMD is betting that the handset industry will grow at 2535% in 2001, consistent with current industry estimates. RFMD hopes to post even higher growth rates by increasing its market share. To achieve this, it is emphasizing sales of multi-chip modules as opposed to the traditional single-chip power amplifier. RFMD s sales of modules in the December quarter increased 3X over the previous quarter, accounting for 16% of revenue. David Norbury, President and CEO of RFMD, said "We view the investment we ve made in module technology to be as strategic to the company s future growth as the decision to adopt GaAs HBT technology several years ago." Analysts who follow RFMD had believed that the company was losing a significant portion of its business with Nokia to Hitachi, who took the early lead in module production. The impressive growth shown in the December quarter is believed to be a sign that RFMD is clawing its way back into the good graces of its largest customer. The company is also hoping for gains in the CDMA market. In the December quarter revenues from sales to CDMA handset manufacturers grew 11% sequentially and comprised 24% of revenue for the quarter, versus 16% in the September quarter. RFMD is involved in a strategic alliance with Qualcomm, the leading developer of CDMA technology. During the quarter RFMD also announced that it had begun production shipments of a GaAs HBT power amplifier to be used in Motorola s popular Talkabout two-way pagers. Norbury summarized the overall outlook for the company by saying that the disappointing results for the December quarter, and their extension into the March quarter, was largely a "near-term" problem. In the long run, Norbury said, "we believe we are extremely well positioned to exceed growth estimates for the handset industry. Specifically, we anticipate our module technology will enable us to take additional share in GSM and CDMA while remaining strong in TDMA. Our customers tell us the transition to modules is mandatory, and we see tremendous potential for our module products across all air interface standards beginning at the end of the March quarter." Stanford Microdevices Stanford Microdevices reported net revenues of $10.7 million, up 87% from the year-ago period and up 20% from the September quarter. Net income was $1.3 million, a more than 5X improvement over the September quarter. These results were in-line with analysts expectations, thus the company s stock did not get much of a "pop" from the announcement. Net revenues for the full year were $34.6 million, nearly double the $18.1 million reported for 1999. "Solid revenue growth continued through the December quarter, driving sequential earnings momentum, as we fortified our market position and strengthened our business," said Robert Van Buskirk, president and CEO. "During the quarter, we expanded our product lines for current and next-generation (2G/2.5G/3G) mobile wireless infrastructure equipment, while extending our leadership in the design and marketing of broadly applicable, technology-enabled RF components. Overall, we re pleased with our first year s performance as a public company. Our current outlook for 2001 calls for continued growth in revenues and earnings, as we manage the business conservatively through near-term uncertainty in the telecommunications market." Looking forward, the company has indicated that revenue growth will be flat in the March quarter, but that they expect to resume double-digit sequential revenue growth in the following quarters of the year. In fact, management has gone so far as to say that sales are expected to ramp roughly at 15%, 25% and 30%+ on a sequential basis for the last three quarters of 2001. Some analysts, however, are taking a more conservative view and making their own forecasts that are a few percentage points lower. TriQuint TriQuint reported record revenue and income results for the December quarter. Revenues were $90.3 million, an 83% increase over the comparable period of 1999. Net income was $23.2 million, a 127% improvement over the $10.2 million reported for the December quarter 1999. Sequentially, revenues increased 12% and net income increased 10% over the September quarter. In commenting on the results, Steven Sharp, TriQuint s Chairman, President and CEO stated, "This has been an un-believable year for all of us at TriQuint, one that we will never forget. We have not only been involved in a number of rapidly growing markets but we have continued to diversify our products, our technologies, and our customer base while at the same time improving our business and operational processes." Vitesse Vitesse reported December quarter revenues of $165.1 million, an increase of 85% over the year-ago period and an increase of 20% over the September quarter. Net income was $47.6 million, compared with $20.4 million for the December 1999 quarter and $40.3 million for the prior quarter. The income figure was about 5% better than most Wall Street analysts expected, making Vitesse one of the few semiconductor companies to produce a pleasant surprise in an otherwise rather gloomy earnings season. Commenting on this fact, Vitesse President and CEO Lou Tomasetta said, "Despite the slowdown in some of our larger customers, we were able to provide significant growth through initial production ramps in our upper architectural layer product families and to numerous new customers in the optical transport and enterprise space." Vitesse is seeing strong growth in OC-192 (10 Gb/s) shipments, which grew by 23% in the December quarter to reach $24 million. OC-48 (2.5 Gb/s) revenue grew by 18% to reach $71 million. Communications now account for 93% of Vitesse s total revenue [see ], growing 21% over last quarter and 120% since last year. While GaAs is still the mainstay process at Vitesse, CMOS semiconductors accounted for 18% of Vitesse s total revenues for the quarter, and the company says this figure could rise to 33% or more within the next twelve months. Cisco ($16 million) and Lucent ($14 million) are the company s largest customers. Looking forward, company management indicated that a 1015% increased in revenue could be expected in the March quarter, and that "significant further acceleration" was likely in the second half of 2001.