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RFMD: Handset supply chain back in synch

GaAs company's share price soars as it sees rising demand during the current quarter.

Better-than-expected demand for RF components and a “synchronized” cell phone handset supply chain have triggered another upward surge in the share price of RF Micro Devices.

Presenting to the investor community at the Barclays Capital Wireless and Wireline Conference on May 27, CEO Bob Bruggeworth said that the III-V chip maker was seeing significant growth in both its cellular and multi-market product groups.

The positive outlook prompted an upgrade from wireless industry specialist Charter Equity Research, and sent RFMD's share price up nearly 10 per cent on the day to $2.73. Since hitting a 2009 low of $0.76 in early March, the firm s share value has near-quadrupled.

Although Bruggeworth still expects the handset market to contract by between 10 and 12 per cent this year, compared with 2008, he stressed that the industry supply chain was now “synchronized”.

In September last year, that synchronicity was disturbed when consumers stopped buying handsets in such large numbers. Within a couple of months, the industry supply chain had reacted, with demand for components like RFMD s GaAs power amplifiers plummeting as inventories were cleared.

As a result, RFMD s factory utilization rate stood at just 25 per cent in the March 2009 quarter, with the company idling its original 4-inch wafer fab and consolidating III-V manufacturing into its two 6-inch fabs.

For the current quarter, which ends in June, utilization is now expected to be in the 75 per cent range, indicating that the supply chain is working normally again.

Outside of handsets, Bruggeworth said that, apart from a sluggish market for line amplifiers used in cable TV infrastructure, all product lines were witnessing an upturn in demand.

At next month s MTT-S show in Boston, which focuses on the wireless infrastructure market, RFMD will launch new products based on its GaN technology, which Bruggeworth described as “game-changing”.

The CEO added that the firm was working on a new type of switch, based on silicon-on-insulator technology. RFMD currently uses a GaAs PHEMT process to make switches.

Efforts to reduce the size of the GaAs die in its products also appears about to come to fruition, with some 40 customers now engaged, and the March-June period representing the first full quarter of volume shipments of products using the smaller die.

During the recession, RFMD has concentrated on improving cash generation and reducing debts "“ cutting overheads by $140 million.

Part of the company s $550 million or so of long-term debt is due to be paid off in August next year, and with free cash of $268 million now registered on its balance sheet, Bruggeworth says that RFMD is well on track to service that liability.

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