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Celeritek exits handset power amplifier business

Component and sub-system supplier Celeritek is exiting the wireless handset power-amplifier business, and will focus on GaAs-based subsystems for the defense market and standard GaAs semiconductors for the defense and communications markets.
The company says that this strategic action will allow it to concentrate its resources on markets with the greatest growth and profitability potential, thereby better positioning the company to create value for its shareholders and to achieve profitability in the future.

Around 20% of Celeritek’s staff will lose their jobs as a result of the reorganization.

"We believe the severe pricing pressure and other adverse market conditions in the wireless handset industry will prevent our handset-related business from achieving acceptable gross margins," said Tamer Husseini, president and CEO of Celeritek.

"Recent quarters have demonstrated that there is steady demand for Celeritek products that support the defense and communications markets. The strategic action announced today aligns our cost structure with revenue opportunities and puts Celeritek on its clearest path to achieving profitability."

Husseini stated that Celeritek s defense business is experiencing an increased demand for engineering proposals and solutions, which should lead to longer-term growth in defense revenues.

Also, Celeritek plans to focus its R&D on products that support increased levels of integration; the company already produces a growing number of multi-function assemblies for missile guidance and radar applications.

Interestingly, Celeritek believes that there is currently a demand from defense customers for GaAs chips, in addition to the market for integrated sub-system products. The company will also market its GaAs chips to commercial communications customers.

Cost savings

Celeritek expects to decrease its cash burn by approximately $14-16 million annually, and to significantly reduce its breakeven revenue level from the current level of around $18 million per quarter, to approximately $10 million.

For its financial quarter ending June 30, Celeritek reported revenues of $6.6 million, compared with $15.3 million in the year-ago period. The net loss for the June 2003 quarter was $6.9 million (see Celeritek’s losses widen (July 2003)).

Celeritek was badly hit when Motorola decided to stop second-sourcing its handset PA modules (see Celeritek revenues hit by Motorola strategy (January 2003)).

Celeritek hopes to realize annual cost savings in the range of $9-10 million, primarily from the consolidation of Celeritek s headquarters facilities in Santa Clara, California, the closing of the company s sales and technical support office in South Korea and workforce reductions. Celeritek s current revenues do not include any revenue related to the wireless handset business.

Celeritek expects to record a charge for severance costs of approximately $400,000 in the December quarter, as well incurring other non-cash charges of $4-5 million related to asset and lease impairments, and cash charges of approximately $700,000 related to facilities consolidation over the next several quarters.

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