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New GaAs tools dent flat-out Anadigics output

A bumpy ramp-up to fulfil unprecedented levels of demand takes the gloss off a profitable quarter for the PA manufacturer.

Anadigics has missed its profit target for the quarter ending on September 29 2007, despite achieving sales in excess of its prior estimates, because of manufacturing inefficiencies.

The inefficiencies result from the company s capacity ramp-up to meet “overwhelming” demand for its GaAs communications chips, which has seen it post record revenue in this period.

This $59.5 million revenue still enabled the company to record $2.4 million profit, up from $1.9 million three months ago and a loss of $1.3 million last year, irrespective of any problems.

“Q3 represented our tenth successive quarter of revenue growth. Demand has never been stronger,” said Anadigics CEO Bami Bastani.

Bastani explained that while ramping-up at Anadigics Warren, New Jersey, facility to guarantee continued revenue growth, issues had arisen with new tools for processing 6-inch GaAs wafers. The tools the company would previously have ordered have now been discontinued, meaning they must now use more advanced versions, with new peculiarities to learn.

“We hit an air pocket in gross margin, primarily due to manufacturing inefficiencies,” he said. “These things sometimes stick their ugly head up in the middle of your ramp, but the issues are well understood.”

“It takes you a quarter or two to work them out, but they're workable.”

PAs get megatrendy
Three megatrends are responsible for Anadigics success, according to Bastani: 3G multimedia handsets, WiFi and wireline communications.

In handsets, power amplifiers (PAs) for system-on-chip chipsets and integrated power PAs that feature Anadigics BiFET technology are both doing well for the company.

The recent acquisition of Fairchild Semiconductor s RF team has given Anadigics a stronger relationship with NXP and Broadcom on the chipset front, alongside existing business with Qualcomm.

Intel continues to be amongst Anadigics most important WiFi customers. The two companies are now working on the next generation of chips beyond this year's successful introduction of Santa Rosa chips for mobile broadband.

Under wireline communications, sales for Anadigics broadband products fell 2 percent sequentially this quarter to $25 million, as part of the an annual demand cycle in this business. In this cycle the highest demand occurs in the first two quarters of the year, neatly offsetting the PA cycle, which typically peaks at Christmas.

This combination of products sees Anadigics already 100 percent booked for a 10 percent increase in revenues over the next three months.

Despite a great many positives, the stock market responded to Anadigics manufacturing difficulties by lowering the company's share price to from over $19 to around $15.

However, John Lau of analysts Jefferies sees the problems as “a temporary issue that will be resolved in the next few quarters” and maintains his buy rating for the company. Bastani obviously agrees, citing the reasons that Anadigics and its PA competitors have to be cheerful.

“All 3G handsets require multiple PAs. If you look at wireless LAN, it s not just notebook PCs that drives that. Very soon PDAs and, smart phones are going to have very good wireless circuitry and the PAs to go with them.”

“We see the demand pull for the products is accelerating. All the companies need to add capacity "“ that s a good sign for our industry, it means that demand is getting ahead of capacity.”

“It also shows that prices are firming up for the next year or two, and that s good for the industry.”

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