For its fiscal second-quarter 2014 (ended 28 September 2013), RF Micro Devices Inc of Greensboro, NC, USA has reported record revenue of $310.7m, up 6% on $293m last quarter and 48.2% on $209.7m a year ago. The growth is attributed primarily to generation-over-generation increases of RFMD's RF solutions in the industry's marquee smartphones.
Fiscal Q2/2013 Q3/2013 Q4/2013 Q1/2014 Q2/2014 Revenue $209.7m $271.2m $280.6m $293m $310.7m
Revenue for the Cellular Products Group (CPG) was $255.4m, up 7% on $237.7m last quarter and 59% on $160.4m a year ago. In particular, CPG benefited in the entry-level segment, with leading market share on major reference designs and expanded customer engagements with Xiaomi, Coolpad, Lenovo, Huawei, and others. In addition, it expanded its dollar content in the world's leading 4G LTE smartphones. CPG also ramped production of new average power tracking (APT) and envelope tracking (ET) power amplifiers (PAs), PA duplexers, antenna control solutions, antenna switch modules, and diversity switches. It also saw favorable design activity for the carrier aggregation switch portfolio.
Revenue for the Multi-Market Products Group (MPG) was $55.2m, flat on $55.3m last quarter but up 12% on $49.2m a year ago. Growth spanned multiple markets, demonstrating the stable nature of MPG's industrial and communications end-markets. In particular, high-performance Wi-Fi grew by 49% (across a broad range of mobile and CPE applications, including routers, access points and set-top boxes) and broadband cable TV and hi-rel applications both grew more than 20%. MPG also experienced strong design activity for its Wi-Fi front-ends for both mobile devices and consumer premises equipment.
RFMD's markets continue to grow with the expanding demand for high-performance, broadband connectivity. "For RFMD, the shift taking place in the entry-level from voice-centric 2G devices to 3G entry smartphones is doubling and even tripling our content opportunity, with an even greater jump anticipated with the deployment of TD-LTE," says president & CEO Bob Bruggeworth. This is enabling RFMD to expand its dollar content generation-over-generation in the highest-tier smartphones as well as in the highest-volume entry-level phones and reference designs.
Solid financial performance is highlighted by "continued diversification, margin expansion and operating leverage," says Bruggeworth. On a non-GAAP basis, gross margin was 36.2%, up from 35.1% last quarter and 35.2% a year ago. Net income has risen from $7.8m a year ago and $25.6m last quarter to $33.9m (exceeding the target). During the quarter, the firm repurchased 2.4 million shares of stock at an average price of $5.03 (for $12.1m in total). Cash flow from operations was $21.5m. Including investments in assembly capacity and equipment to reduce gold usage, capital expenditures were $16.7m, with depreciation of $11.3m and intangible amortization of $6.7m. During the quarter, cash, cash equivalent and short-term investments hence fell from $159.4m to $149.5m.
"In the December quarter, RFMD anticipates another quarter of significantly improved financial performance, given our expectations for continued dollar content growth, expansion into new categories, and the benefit of ongoing new product ramps," says Bruggeworth. "We are increasing our participation on the industry's most critical reference designs and highest-volume devices, across all tiers, and we are executing on multiple opportunities to further expand our dollar content next year," he adds.
RFMD believes the demand environment in its end-markets supports expectations for sequential revenue growth in CPG (despite Tier 2 customer BlackBerry falling by perhaps $10m). This should be partially offset by a sequential decline in MPG of 5-6% (about $3m). Hence, total revenue should be roughly flat to up 5% sequentially. RFMD expects gross margin to expand sequentially by 120 basis points.
"RFMD is delivering diversified revenue growth and executing on our margin expansion initiatives," notes chief financial officer & VP of administration Dean Priddy.
"Two quarters ago, on our quarterly earnings call in April, we outlined our intent to expand RFMD's gross margins by 300-400 basis points by the March 2014 quarter. Now we expect to deliver on that goal this quarter," says Priddy. "RFMD has delivered 180 basis points of gross margin improvement since March, and we intend to deliver another 120 basis points this quarter. This is a result of an intense focus on cost reductions and our ongoing efforts in support of three key margin initiatives," he adds.
"First, RFMD has transitioned to a flexible GaAs sourcing strategy. As part of this, we have sold our UK fab [in Newton Aycliffe]. We consistently stated that this will support approximately half of our gross margin expansion goal, and we now expect to achieve the full benefit of that goal this quarter," continues Priddy.
"Second, RFMD is seeing very strong adoption of our ultra-low-cost CMOS power amplifiers and next-generation handset platforms targeting emerging markets. Over time, we intend to migrate all of our customers for 2G PAs to this product family.
"Third, we have installed and qualified additional assembly capacity in our Beijing facility. And we've begun capturing the benefit of this investment in the December quarter," Priddy notes.
"Beyond December, our confidence in margin expansion allows us to project margin improvement in a seasonally down March quarter [expected to be typically down 10-15%]," he adds. "Even more importantly, for the first time in recent history, we can look into the next calendar year [2014] and project achieving our quarterly non-GAAP gross margin model of 40%."
