RFMD bets on multi-market future

"It is clearly an exciting time to be an RF company," said Bob Bruggeworth, CEO of RF Micro Devices at his company s analyst day on November 15. Few of his GaAs industry competitors would argue with that sentiment – especially after Anadigics, Skyworks and TriQuint all recorded strong results in their most recent quarter.

However, it seems that some have been taken by surprise by the extent of the recent upswing in the PA business. The speed of Nokia s production ramp for its 5310 handset, which includes RFMD s Polaris 3 front-end module, forced Morgan Stanley investment analyst Aaron Husock to recalculate his models, for example.

Another shock is being felt by an unnamed top-line PA maker that RFMD says is struggling to meet handset customers demand this quarter. These customers are apparently beating a path to RFMD s Greensboro, North Carolina, headquarters complaining of lost sales and disrupted production. Eric Creviston, the head of RFMD s handset products division, says that the company s experience is the reason why manufacturers come to them when they feel let down by others.

"What we re most proud of is the relationships we ve built," Creviston said. "That gives us insight into how to navigate this market, where to place our bets." Despite those strong relationships, the concentration of RFMD s strength in just one sector also carries significant risk. In April, at the beginning of the company s current financial year, the drop-off in orders from a troubled Motorola diminished its profits – tarnishing a record quarter s revenues.

Whether or not it was prompted by the Motorola crisis, RFMD has subsequently widened its focus with a vengeance, through its $900 million purchase of Sirenza Microdevices. It appears that RFMD is moving definitively down a road that will cut its reliance on the handset giants.

Spreading the risk
On the November 13 completion of the deal, Sirenza was re-aligned as the bulk of RFMD s "multi-market project group", or MPG. According to Bruggeworth, the additional business will allow the company to surpass the 15% annual growth it anticipates achieving with sales into the handset market. "If you look at the [financial] pie, it s our objective to both grow that whole pie and the size of the slice that says multi-market," he said.

It may be early days but, so far, the transition appears to have been smooth. The group remains under the management of former Sirenza CEO Bob Van Buskirk, whose first engagement on the day that the deal went through was an RFMD sales conference for all MPG staff. By November 15 the business unit was announcing new product lines, based on RFMD s GaAs switches.

This is one example of an important synergy from the Sirenza merger that RFMD intends to use to bolster its income. By applying Sirenza s expertise in gaining value from intellectual property (IP) to RFMD s existing technological portfolio, the combined company can "get multiple returns on the IP investment", in Van Buskirk s words.

In another example, prior to the merger Sirenza had struggled to physically integrate more functionality into its chips. Now MPG can use RFMD s in-house technology. Van Buskirk says that this will bring products to market far more quickly than a standalone Sirenza could have.

RFMD is particularly hoping it can gain from the inroads that Sirenza has made into market areas beyond its prior remit. These include aerospace (where GaN has a great deal of potential), catalogue components, and broadband and consumer products (which includes cable TV and set-top boxes).

Such areas offer a stark contrast to RFMD s conventional business – rather than selling high volumes of components to a few large customers, selling low volumes to a much wider customer base. Van Buskirk believes that within the larger company he can now grow these businesses from $250 million predicted sales in 2008, to ultimately make the MPG a billion-dollar annual revenue unit.

Picking the winning horses
Before the RFMD deal, Sirenza s gross margins were high – near 50% – thanks to a fabless manufacturing model. Now RFMD points out that its own MBE operations can be used by the unit to offer considerable cost savings, but both Van Buskirk and his new colleagues are keen to stress that the MPG will remain free to use whichever foundry it likes.

Similarly, although RFMD is trying to move more PHEMT switch production in-house, having a flexible supplier to provide backup is a key priority. However, this business will continue to move away from UK foundry Filtronic, which RFMD considers to be over-dependent on its contract.

The purchase of Sirenza also appears to have made RFMD even bolder in pushing research through to add to its product offering. What the company calls its "pipeline of game-changing technologies" brought a slew of new ideas to the podium during the analyst day (see related story).

GaAs, of course, remains at the center of RFMD s plans. But the company also openly acknowledges its interest in silicon technologies. The ultimate conclusion of its research seems to be that providing the performance that handset makers demand makes silicon more expensive than GaAs, but the company asserted that if anyone succeeds with silicon PAs, it will be RFMD.

Vic Steel, RFMD s vice-president of corporate research, is also looking within GaAs for new market opportunities, but way beyond its traditional handset territory. "Solar cells using GaAs are the highest efficiency solar cells today. We have the largest [GaAs] wafer fab in the world and there s a good opportunity to support the requirement for green energy," Steel said. "We think there s a unique contribution that we can offer here." "Additionally, solid-state lighting – now that we have moved our GaN technology into our high-volume wafer fab – this is something that we could support and we ll be looking at that as well."

After having to play well with a strong but limited cellular hand in the past – and occasionally getting burned – RFMD has put money on another RF company in the name of diversification. Now it s considering backing technology that would spell a major departure from its existing markets. Solar cells and LEDs may look like long shots right now, but who would bet against RFMD s success?