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Analysts tip booming RFMD

"Torrential" growth at RF Micro Devices puts a strain on manufacturing capacity, as the company beats all sales estimates.

Leading GaAs component maker RF Micro Devices has posted a blow-out financial quarter, registering nearly $256 million in sales - a sequential rise of 21 percent.

Part of that increase is attributable to seasonal strength in the cell phone handset business, a market which overwhelmingly dictates the Greensboro, NC, company's fortunes.

Even so, analysts had not predicted such a strong performance. Describing RFMD s recent growth in sales as "torrential", John Lau from Jefferies & Company said that demand was strong across all of the firm s product channels.

RFMD s cellular business unit is benefiting from both the rapid adoption of 3G technology, which requires high-end modules, and a faster-than-expected ramp of its mid-tier Polaris 3 product at lead customer Nokia.

And that s not all, commented CEO Bob Bruggeworth: "Beyond cellular, we increased shipments of wireless LAN front-ends for handsets, MP3 players, gaming devices and other applications."

Morgan Stanley s Aaron Husock, who is generally a little cooler on RFMD s prospects than Lau, added that strong demand and a rapid shift to more integrated modules is forcing the company to buy more GaAs PHEMT switch components, just as its main supplier raises its prices.

That sounds like good news, at least in the short term, for UK-based PHEMT maker Filtronic, although RFMD will increasingly bring PHEMT switch manufacturing in-house through next year.

"We continue to add GaAs manufacturing capacity and we plan to reduce our reliance on outsourced PHEMT as that capacity comes online," said RFMD s financial chief Dean Priddy.

That move to add capacity will help RFMD to improve its profitability, which was hit in the latest quarter by the manufacturing squeeze.

At $8.1 million, RFMD s operating profit was up strongly from the previous quarter, when canceled orders from Motorola led to a loss of $1.8 million, but down nearly 40 per cent on the equivalent period in 2006.

See our newsfeed for full details of RFMD s latest financial results.

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