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Sales dip shocks Anadigics into fab U-turn

Efforts to accelerate the development of the company's Asian operation to increase output prove unnecessary, as cellphone customers turn to PA makers more capable of meeting their demands.

Anadigics has reversed its decision to boost its China fab investment by $50 million after a drastic loss of handset power amplifier business to its rivals.

The GaAs chipmaker axed 20 percent from its revenue prediction for the third quarter of 2008 after meeting its phone manufacturing customers at the beginning of the period. The company says it will make between $62 million and $65 million in sales, down from the $75 million to $81 million it estimated just three weeks ago.

Following its announcement, Anadigics shares sank nearly 35 percent at the opening of trading on the NASDAQ exchange on August 8, slumping from $5.93 to $3.88.

The company says that the lower expectations come from a mixture of market share loss and inventory buildup caused by Anadigics capacity problems at the end of 2007. Then, demand for the company's chips exceeded its ability to supply.

“Because they were concerned about receiving the number of PAs they needed they were building a buffer of our inventory,” explained Bami Bastani, Anadigics' CEO.

Bastani said that these problems have now lost Anadigics business at several phone manufacturers, with Samsung the one named customer switching to other PA makers.

“It s a natural reaction by the customer to say "˜I can't wait for the product, therefore I ll get it from someone else,'” said CFO Tom Shields.

Since the end of 2007, Anadigics has upgraded its Warren, New Jersey, fab to a level where it can support $90 million to $100 million production per quarter. With that level of demand now some way off, and the upcoming quarter looking financially difficult, the company has decided to postpone growing its total Chinese investment to $100 million.

The rapid change in Anadigics thinking has come at the time when component orders normally accelerate in preparation for the manufacturing run-up to Christmas.

The firm says it has enough orders on its books to fulfill the lower end of its revised guidance, and had previously anticipated that backlog growing. However, Anadigics predictions are based on an outlook into the behavior of cellphone manufacturers that reaches six weeks, at best, into the future.

As it turns out, the hoped-for level of third quarter orders have not yet materialized.

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