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Skyworks advances on ruthless fab efficiency

The company is leading the GaAs field in profitability after six consecutive quarters of margin growth, even before its transition to 6-inch wafers is complete

Skyworks Solutions has snatched business from luckless fellow GaAs chipmaker Anadigics, as it stormed to a near-doubling of annual profit.

The Woburn, Massachusetts, headquartered company gained $233 million record sales in the three months ended September, combining with increased efficiency to provide $35.3 million in profit.

That s up from $20.5 million in the previous quarter, on the back of the company s improved manufacturing yields and increased output. Such effective production has helped it grow sales with its key cell phone power amplifier (PA) customers, who were recently stung by Anadigics inability to meet their demands.

“Our customers have been increasingly selective,” said CEO David Aldrich. “We re ramping production with customers who experienced some supply chain disruptions a year ago.”

“We are in fact being awarded that business because we are able to deliver.”

Through 2007 and 2008 Skyworks has underlined this ability by improving profit margins six quarters in succession to return $111 million net profit for its fiscal 2008, also ended September.

The annual total revenue of $860 million total that produced this profit has also jumped 16 percent from $742 million in 2007, which itself produced a $56 million net profit.

At 40.3 percent, Skyworks can claim the highest gross profit margin out of any of its peers, and has reason to believe that it can improve still further.

One reason is the ongoing transition of manufacturing at its Newbury Park, California, fab from 4-inch to 6-inch GaAs wafers. Skyworks will prepare for the final switch by ramping additional HBT production at partners like Kopin over the next months.

“Going to 6-inch will give us a material reduction in the overall die costs, sometime in very late 2009, 2010,” Aldrich said. “You won t see any disruption, I'm very confident of that.”

A second reason is that uptake of 3G handsets by consumers, although slower than expected in 2008, will continue to increase into 2009.

“This expands our addressable market by billions of dollars from roughly $2 per phone in 2G to $6 when in 3G multi-mode,” said Aldrich, “as we re uniquely able to sweep in switching, logic, filtering and wireless local area network functionality.”

Aldrich also emphasizes the impact of company s linear product business as a third driver of additional profitability that will not be subject to the seasonality of cell phone PAs.

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