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RFMD Expects March Quarterly Non-GAAP Gross Margin of 40%

Quarterly Highlights: Quarterly Revenue Increases 6% Year-Over-Year To $288.5 Million
GAAP Gross Margin Is 37.3% And GAAP Diluted EPS Is $0.02, Versus 32.0% And $(0.01) In Q3 Fiscal 2013

Non-GAAP Gross Margin Is 39.7% And Non-GAAP Diluted EPS Is $0.13, Versus 35.5% And $0.08 In Q3 Fiscal 2013

In The March 2014 Quarter, RFMD Anticipates Revenue Of Approximately $250 Million To $260 Million, Non-GAAP Gross Margin Of Approximately 40%, And Non-GAAP EPS Of Approximately $0.09 To $0.10

RF Micro Devices, reported financial results for the Company's fiscal 2014 third quarter, ended December 28, 2013.

December quarterly revenue increased approximately 6% year-over-year to $288.5 million, compared to $271.2 million in the corresponding quarter of the prior year. The year-over-year increase in revenue was primarily attributable to dollar content increases in smartphones.

GAAP quarterly gross margin expanded 530 basis points year-over-year to 37.3%. GAAP quarterly operating income totaled $15.4 million, and GAAP quarterly net income totaled $6.2 million, or $0.02 per share.

On a non-GAAP basis, quarterly gross margin expanded 420 basis points year-over-year to 39.7%. Non-GAAP quarterly operating income increased to $40.0 million, or 13.9% of sales, and non-GAAP quarterly net income increased to $36.4 million, or $0.13 per diluted share.

Strategic Highlights

RFMD's Cellular Products Group (CPG) launched a broad family of envelop tracking- (ET-) capable RF solutions in support of multiple next-generation smartphones featuring the industry's leading 4G LTE baseband.

CPG experienced strong design activity for its antenna control solutions for leading smartphones and tablets

RFMD made a multi-million dollar investment to secure BAW filter capacity and now has preferred access to SAW, TC-SAW, and BAW filter capacity from multiple sources

RFMD's Multi-Market Products Group (MPG) secured a major contract funding advanced gallium nitride (GaN) process transfer and development

MPG delivered year-over-year growth across multiple markets, including high-performance Wi-Fi, CATV networking, and wireless infrastructure

(excluding share-based compensation, amortization of intangibles, inventory revaluation associated with MBE transaction, acquisition-related costs, intellectual property rights (IPR) litigation costs, start-up costs, restructuring and disposal costs, certain consulting costs, expenses related to a potential strategic transaction that was terminated, (gain) loss on PP&E, income from equity investment, non-cash interest expense on convertible subordinated notes and tax adjustments)

Financial Outlook

RFMD currently believes the demand environment in its end markets supports the following expectations and projections for the March 2014 quarter:

RFMD expects quarterly revenue of approximately $250 million to $260 million
RFMD expects non-GAAP gross margin of approximately 40%
RFMD expects a non-GAAP tax rate of approximately 10%-15%
RFMD expects non-GAAP EPS of approximately $0.09-$0.10

RFMD's actual quarterly results may differ from these expectations and projections, and such differences may be material.

Comments From Management

Bob Bruggeworth, president and CEO of RFMD, said, "RFMD is executing on multiple opportunities to increase our dollar content generation-over-generation in the world's leading smartphones and tablets while materially enhancing our operating model. In the March quarter, we anticipate another quarter of margin expansion and year-over-year improvements in operating income and earnings per share.

"While the launch of marquee smartphones and tablets is weighted toward the back-half of this calendar year, our visibility into design win activity gives us confidence in delivering double-digit revenue growth, gross margin of greater than 40%, expanding operating margin, and significant EPS growth. With this, RFMD expects to deliver robust growth in operating income along with ROIC well above our cost of capital."

Dean Priddy, CFO and vice president of administration of RFMD, said, "RFMD's non-GAAP gross margin of 39.7% in the December 2013 quarter represents 530 basis points of margin expansion since we announced our margin improvement initiatives three quarters ago. In our current quarter, we anticipate continued margin expansion to 40%, and longer term we are targeting gross margin at the top of our industry with more predictability and less volatility in our operating results.

"In the December 2013 quarter, RFMD's non-GAAP operating margin increased 400 basis points year-over-year to 13.9%, supporting cash flow from operations of $70.4 million and free cash flow of $54.8 million. In the coming year, we expect revenue growth and expanding gross margin and plan to manage expenses to our financial model, which we project will support substantial operating leverage and robust growth in EPS."


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