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RFMD to cut UK fab workforce by a third

With customers delaying delivery schedules for already-placed orders and a $230 million debt due to be paid in 2010, RFMD cuts jobs to reduce expenses.

Cellphone power amplifier manufacturer RF Micro Devices is to lay off up to 99 out of around 300 employees at its Newton Aycliffe, UK, GaAs fab.

The redundancies are expected to become effective December 19, as the company reduces costs to offset weaker demand and the impact of customers pushing out orders into 2009.

“We ve taken steps to significantly reduce workforce to save on cost related to wafer production,” said Dean Priddy, RFMD s chief financial officer at the Barclays Capital investor conference in San Francisco on December 9.

The Newton Aycliffe fab was bought by RFMD from Filtronic in March 2008, when Priddy said the company had intended to increase capacity there.

Instead, it is now instituting cuts as part of a cost reduction scheme that includes a freeze on hiring and pay across the firm. Together with previous measures this should cut operating expenses in the three months to March 2009 by 25 percent over the same period in 2008.

On December 4 RFMD announced cost reduction measures as it cut its revenue outlook for the current quarter by up to 20 percent from its previous minimum expectation of $251 million.

The company is witnessing a build-up of inventory in supply chains, with demand dropping as recession descends on markets across the world.

“Early in October we started to see some signals that demand was weakening, and weakening rather substantially,” Bob Van Buskirk, vice-president of RFMD s multimarket product group, told the audience in San Francisco.

“That accelerated in October, and then early in November we actually started to get some push-outs of orders already on the books out of this quarter, into the next quarter.”

Van Buskirk concedes that the company s ability to predict how it will recover over the next few months is limited, but says that early signs are comparatively positive.

“The inventory level as far as we can see is much lower than in 2001 and 2002,” he said, referring to the last time the company went through such a recession.

“I ve asked customers point blank, Is March the bottom? and the answer I get is: It s too early to tell, but if it s not, we re probably not far off .”

At the end of the September RFMD had $219 million in cash in the bank, but also a convertible bond debt of $230 million due to mature in 2010.

Consequently cost reductions and improving cash flow have been particularly important, and Priddy says this has already increased the company s cash balance to $250 million.

RFMD has also been able to redeem 10 percent of this debt early, meaning it now has $40 million more than required to pay it off.

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