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Ramping RFMD gets analyst upgrade

Surprised by the strength of RF Micro Devices' product shipments into Asian supply chains, an investment analyst raises his revenue, profit and stock price expectations for the GaAs chip maker.

Impressed by a strong outlook for sales in early 2007, an investment analyst at Jefferies and Co now expects RF Micro Devices to outperform its peers in the RF semiconductor market.

After checking the latest supply chain inventories in Asia, Jefferies analyst John Lau, who covers a number of semiconductor stocks, says that the GaAs chip manufacturer will perform much better than had previously been anticipated in 2007 and 2008.

"We believe that RFMD will continue to gain market share to become one of the largest RF semiconductor manufacturers in the world," Lau said.

He has now increased his revenue estimate for RFMD s fiscal year 2007 (which runs until the end of March) by $9 million to nearly $1.02 billion. The Greensboro, NC, company seems certain to break the billion-dollar revenue barrier for the first time in the current fiscal year.

Flush with optimism, Lau has also raised his target share price for the company from $10 to $11, even though its stock has traded between $6 and $8 for most of the past six months.

"RFMD continues to fill up its fabs," added Lau. "Phase two [of the expansion] is almost ramped and will start delivering returns by the back end of fiscal 2007."

The analyst also indicated that a more diverse set of applications were now within RFMD s scope. "The expansion will focus on increased production of GaAs PAs for the cellular and notebook PC markets, and gives RFMD the flexibility to switch capacity at older, depreciated fabs to GaN production (set to ramp in fiscal 2007) for the infrastructure market."

"The new capacity will also mean that RFMD can perform in-house wafer-level packaging, module assembly and flip-chip packaging, thus reducing production costs," Lau added.

That increased manufacturing efficiency, coupled with the sale of its low-margin Bluetooth business to Qualcomm late last year, will also help to improve RFMD s profit margins.

Another trend in RFMD s favor is the continued consumer shift from GPRS cell-phones to more advanced EDGE technology. Many high-end cellular handsets operating with EDGE and wideband-CDMA platforms contain $7 worth of RFMD components, and sales of 690 million such handsets are predicted by 2009.

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