News Article

Anadigics Doubles Investment In China Fab

An upsurge in broadband sales has helped the RF chip-maker boost its profits, and the company is acting to remove constraints on further growth despite an impending flat quarter.

Anadigics has achieved another record sales quarter thanks to its broadband business, but limited manufacturing capacity means that it lost handset opportunities in doing so.

In response the company is increasing its investment in the GaAs wafer facility it s building in Kunshan, China, from $50 million to $100 million.

The company's Warren, New Jersey GaAs fab pushed its output limit in the second quarter of 2008 in selling $80.5 million worth of RFIC components. That was up from $74.4 million in the previous period, with the difference comprised of an $8 millon gain in broadband and a $1.9 millon drop in its wireless business.

This 13th consecutive quarter of sequential revenue growth helped the company to a $6 million profit, an improvement on $3.9 million in the prior three months.

However, Anadigics upward trajectory is now likely to stall, with the upper limit of its prediction for sales in the current quarter set at $81 million. The lower end of the range is down to $75 million.

Anadigics says that customers in Korea and China working through built-up inventory could diminish revenues for its wireless business by up to 10 percent. Demand from Chinese makers of 3G handsets also appears particularly weak, although the growth in Anadigics broadband business should continue.

Beyond these issues, CEO Bami Bastani conceded that the focus on broadband had impacted sales into handsets as Anadigics could not always guarantee to provide the necessary supply.

“We did turn over some [PA] sockets to competitors because we couldn t fill the prescription," he conceded. “With one Korean customer, where the demand far exceeded supply we had to sit down and see what we could and couldn t do."

In a three-pronged capacity-expansion program, the company is improving efficiency further in Warren, parceling out 10-20 percent of its business to foundries and investing more in China. When the initial Kunshan development is completed in late 2009, Anadigics says it will add 40 percent capacity on top of the output from its Warren fab.

In spite of the slight softening experienced in the recent quarter, the $49.3 million dollar sales from the wireless unit is still up 78 percent over the same period in 2007. The company has gained Blackberry maker Research-in-Motion as a customer and is receiving forecasts for a strong Q4 2008 from existing clients, and consequently remains confident of its prospects in handsets.

“We believe the slowdown in wireless to be temporary as design-in activity has increased and therefore we are aggressively pursuing our capacity expansion in China to meet demand," Bastani said.

• The morning after these results were announced Anadigics shares opened down 27 percent, dropping to $6.45 from $8.87.

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