News Article

Hittite Bolstered By $35m Military Deal

The fabless MMIC specialist is faring better than most in the unfolding recession, and will be further boosted by a major order relating to hardware for an advanced weapons system.

Hittite Microwave, the GaAs MMIC designer based in Chelmsford, MA, has received a $35 million production order from the US military.

The company, which revealed details of the award in its investor conference call on February 19, said that it had been working on the deal for six years before finally receiving the official purchase order in December.

CEO Stephen Daly said that Hittite had beaten off competition from much larger rivals to win the contract, which relates to shipments of microwave subsystems for an advanced US military technology platform. The company will take about one year to “get optimized" for the production ramp, which largely involves putting the necessary test systems in place this year.

Hardware shipments for the weapons system are then expected to ramp in early 2010, with the $35 million shipment target expected to be met before the end of 2011. Hittite expects additional orders to follow after this stage is completed.

Although its fabless model and highly diversified range of products helped Hittite avoid the late-2008 meltdown in demand witnessed by other GaAs chip companies, Daly indicated that January had seen a steep drop-off in orders.

February should show an improvement, added the CEO, but Hittite is cutting costs anyway. Measures include eliminating all contracted and temporary staff at the firm, prioritizing research projects and reducing sales and marketing expenses.

Daly stressed that Hittite would be careful not to impact key research and development work with the cuts, however, as the focus on innovation is crucial to the company s strategy. During 2008, spending on research and development jumped more than 30% on the 2007 figure.

Despite that generous research spend, and unlike a number of its peers, Hittite continues to be a highly profitable operation. In the final quarter of 2008 it even posted a slight sequential increase in revenues to $46.4 million, and an operating income just shy of $21 million.

Much of the cash generated is now being re-invested in the company through a substantial share buy-back scheme. On February 17, Hittite completed the repurchase of 1.7 million shares, for a total of $52.1 million.

As well as being bolstered by the military market, Hittite says that it is benefiting from a surge in demand for transimpedance amplifiers (TIAs) used in fiber-optic systems, and growing market pull in most of its market sectors.

Even so, it does look as though impact of the economic downturn on the microwave and millimeter-wave wireless communications sectors in particular will subdue Hittite s figures in the current quarter.

Daly said that net revenue would drop by close to one-fifth sequentially, and expects sales for the March quarter to be between $36 million and $38 million. Net income should be in the range $8.3 million-$10.2 million.

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