- 30th October 2006-

Mixed Bag for Latest Financials – RFMD, ANADIGICS, TriQuint, Endwave, Cree, Veeco, Alcatel and Lucent Technologies

The ups and downs of the chip industry are a subject of continual intense discussion. All should be rosy since most companies have been able to increase sales. However, at the same time their profitability is proving more elusive than ever. Lately the emphasis is on striving to overcome declining unit prices. This is only one side of the coin of course. The chipmakers are trying to satisfy seemingly irreconcilable opposite trends. Chip products such as MMICs and RF modules are becoming ever more complex. Customers who are in a competitive market wanting product differentiation demand this. Such chips cost more to design and make. But at the same time the customer base is constantly forcing prices down.

This situation is prevalent in most sectors but handsets are amongst the toughest. This situation affects not just RF chipmakers. This segment is also a staple for LED suppliers such as Cree. This company is also hurting from the steep decline in chip prices. The situation is not quite the same as for the likes of RFMD and Anadigics but it is worrying enough for Cree to be looking into new markets with better prospects.

So here are the results as they came in over the past week or so. Industry barometer, RF Micro Devices Inc., reported its second-quarter 2007 (to end September) results. The RF MMIC module specialist disappointed and surprised. Though it returned its sixth consecutive quarterly rise in revenue: up 3.6% sequentially, 39.5% year-on-year to a record $246.9 m, it has swung to a loss. Net loss was $19.9 m in operating income, or 10 cents a share, compared with net income of $5.9 m, or 3 cents a share a year ago. The industry should not be too worried, however. RFMD booked a $33.9 m charge relating to the sale of its investment in Jazz Semiconductor in the investment firm Acquicor deal in September. This pushed RFMD into the red for the quarter by $20 m. The company was confident that its business was on course for resumed profitability next time around. Moreover, is seems likely it will soon become an annual billion dollar revenue earner in due course.

Meanwhile, ANADIGICS was making progress with third quarter 2006 net sales of $44.8 m, an increase of 11.5% compared with net sales of $40.2 m in the prior quarter, and an increase of 53.2% compared to net sales of $29.3 m in the year ago quarter. However, this meant another net loss, some $1.3 m, compared with a net loss of $2.8 m, in the prior quarter.

"ANADIGICS achieved an important milestone as the Company delivered on pro forma profitability in its sixth consecutive quarter of net sales growth," said Dr. Bami Bastani, President and CEO of ANADIGICS. "Our strong product portfolio in both the wireless and broadband growth markets, including 3G cellphones, Wi-Fi, and tuner ICs and our Tier I relationships continue to drive revenue growth and momentum in operating leverage."
When TriQuint Semiconductor, Inc., reported its financial results for the third quarter it declared revenues exceeding $100 m up 37% from the prior year - this is its sixth consecutive quarter of revenue growth and its best quarterly operating results since March 2001. In fact its net income improved over 200% from the third quarter of 2005.
Ralph Quinsey, President and CEO, stated, “We set new revenue records in Q3 for both our transmit modules and our power amplifier modules as TriQuint continues to gain share with major handset manufacturers. Orders for 3G products were up 168% in Q3 over Q2. The broadband and base station products generated higher than expected revenues in the quarter offset by lower revenues from our foundry products. We saw stronger orders for military products and order softness for broadband and base station products as compared to the previous quarter.”

Endwave Corp., another provider of high frequency RF modules, reported financial results for its third quarter ended September 30, 2006. Revenues were $18.8 m, compared with $14.3 m for third quarter 2005 and $16.3 m for second quarter 2006. Net income in the third quarter of 2006 was $911,000, compared with net loss for the third quarter of 2005 of $193,000, and net loss for the second quarter of 2006 of $207,000.
"We experienced record revenues and profits this quarter based on strong customer demand for our mobile infrastructure products," said Ed Keible, Endwave's CEO and President. "In addition, non-telecom revenues increased 15% sequentially due to increased sales for our high-frequency defense and homeland security sub-systems."
Cree Inc., reported revenue of $103.9 m for its fiscal first quarter 2007 (to end-September), this represents 1% up on a year ago. Moreover, net income dropped from $21.7 m to $13.3 m; gross profit was 41% with operating profit 16% of revenue.
“Q1 was a solid quarter for Cree, as we delivered earnings at the high end of our previously announced target range,” stated Chuck Swoboda, Cree chairman and CEO. “While short-term market conditions remain challenging, we continue to make outstanding progress towards our goal of enabling LEDs to become a cost-effective, energy-saving alternative for lighting applications".

Looking ahead, for its second quarter of fiscal 2007, Cree currently targets revenue in a range of $105 m to $109 m.

Curiously, suppliers of equipment for the manufacture of the RF and opto chips were doing fairly well. Notably, Veeco Instruments Inc., the maker of MOCVD and MBE reactors reported third-quarter 2006 revenues of $112.4 m. This is an increase of 12% from a year ago forecast in July. In summary, revenue, bookings, earnings and net income were all up. In addition, revenue from HB-LED/wireless market was up 34% for the first nine months of the year, as new consumer HB-LED applications emerge. Operating income more than doubled during the nine months and net income has increased to $7.3 m from a loss of $3.6 m last year.

Edward H. Braun, Veeco's Chairman and CEO, commented, "Veeco remains aligned to important technology changes in data storage, semiconductor, LED/wireless and scientific research that will propel our growth. Our R&D efforts are bringing exciting new technologies including Veeco's new physical vapour deposition and atomic layer deposition equipment for the data storage market, next-generation MOCVD for the HB-LED growth opportunity, and new metrology products in semiconductor, scientific research and life sciences."

Fibre optics companies have continued to lead a troubled existence. There has been some progress in certain segments leading to better financial reports for the leaders like Alcatel and Lucent Technologies. The industry is keeping an eye on these players ahead of their prospective merger. They continue to believe they are on track to complete their merger transaction by the end of calendar year 2006.

Lucent Technologies reported its results for the fourth quarter and fiscal year 2006. It reported revenues of $2.56 bn in the quarter, an increase of 25% sequentially and an increase of 5% from the year-ago quarter. The company's revenues were $2.05 bn in the third quarter of fiscal 2006 and $2.43 bn in the year-ago quarter. Net income of $371 m compared with net income of $79 m in the third quarter of fiscal 2006, and net income of $372 m in the year-ago quarter.

"We are pleased to have ended what's been a challenging year with a strong quarter. As anticipated, we posted our highest quarterly revenue period for the year, driven primarily by mobility deployments in North America, and we recorded a gross margin of 44%," said Lucent Technologies Chairman and CEO Patricia Russo.

Serge Tchuruk, Chairman and CEO, commented: "The third quarter once again confirmed Alcatel's leading position in the transformation of networks toward a high bandwidth, full IP architecture providing enhanced triple play services to end users and reducing operating costs for the carriers. The strong inroads of Alcatel in the IP routing market were again highlighted by a near doubling of revenues over the same period last year. Likewise, terrestrial optics as well as enterprise applications revenues grew by over 20% and 30% respectively, with Alcatel's product portfolio clearly outpacing competition.

This strong performance was partially offset by a decline in our wireless revenues, whose annualized growth had averaged 25% in eight successive quarters, and where the evolution toward IP technologies and new video services is still at an early stage. We are continuing our strong focus on investment in next generation technologies such as NGN, IMS, and WiMAX to secure a leading position in future network builds.

"We continue to make good progress toward our pending merger with Lucent Technologies and believe we will complete a successful closing before the end of the year. Both the Thales transaction and our acquisition of Nortel's UMTS radio access business are also on track and we maintain our objective of nearly simultaneous closings before year end".

Websites:
ANADIGICS: http://www.anadigics.com
RFMD: http://phx.corporate-ir.net
Veeco Instruments: http://phx.corporate-ir.net
Cree: http://www.cree.com
Endwave: http://www.shareholder.com
Alcatel: http://www.alcatel.com
Lucent Technologies: http://www.lucent.com/press
TriQuint: http://www.triquint.com