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RFMD Will Ride Out Capacity Concerns "“ Analyst

Despite improved performance from second-tier power amplifier vendors and tight capacity, RF Micro Devices will continue to outperform its rivals, says analyst John Lau.

RF Micro Devices (RFMD) is set to ride out concerns over capacity constraints and maintain its leading position among suppliers of RF semiconductors.

That's according to John Lau, an analyst who covers the company for US-based broker-dealer Jefferies and Company.

Lau says that business is extremely brisk at the Greensboro-based firm: "[RFMD is] capacity-constrained for the current quarter to the upper end of its revenue guidance of $230 million-$245 million," Lau wrote in his latest report on the company's financial performance.

He reckons that RFMD is now being very selective in making sure that it can support key accounts with leading handset makers including Nokia and Motorola, both of which are said to be accelerating orders.

Although the major capacity contraint is at RFMD s test facility in Beijing, China, the firm s GaAs wafer facilities are also thought to very full because of red-hot demand for products containing HBT die.

Responding to rumors that RFMD had lost out on a Taiwanese contract recently, Lau said that such talk was inevitable but added that RFMD was responding in the right way by declining such low-margin business.

"We believe RFMD is making prudent business decisions to build longer-term relationships with its customers. Since it is capacity-constrained, it is making the right choices with regard to which orders it can support," explained the analyst.

RFMD has already taken steps to expand its GaAs wafer fabrication capacity by 40% as it seeks to alleviate capacity constraints and bring PHEMT manufacturing in-house (see related story).

With increasing dollar content in Nokia, LG and Motorola handsets, RFMD is also well-placed to head off any emerging threat from a raft of second-tier suppliers that are gaining market share in the RF semiconductor business.

Consulting firm Strategy Analytics reckons that smaller suppliers including TriQuint Semiconductor, Anadigics, Avago and Mitsubishi have doubled their share of the cell-phone power amplifier (PA) market by concentrating on innovative technologies, and they are now benefiting from fast-rising sales of wideband-CDMA phones.

Growth across the handset sector is very rapid right now, and the market for cell-phone PAs looks certain to rise strongly from the 2005 Strategy Analytics estimate of $1.5 billion as handset sales move close to 1 billion. The dollar value of the PA component averages out at just under $2 per phone, estimates Strategy Analytics.

But despite this recent good showing by the smaller firms, Chris Taylor at Strategy Analytics believes that larger companies like RFMD still hold the advantage in the longer term. This is because they have greater resources with which to develop front-end modules with greater functionality and frequency band coverage.

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