Business News

RFMD(R) Announces Fiscal 2008 Fourth Quarter Results

Wednesday 07. May 2008 - Company To Focus On RF Components, Expects To Eliminate Approximately $75 Million In Annual Wireless Systems Expenses

Business Highlights:

– March 2008 Quarterly Revenue Totaled $221.9 Million

– Quarterly Revenue For RFMD’s Multi-Market Products Group (MPG) Was Approximately $51 Million, Or 23% Of Revenue

– March 2008 Quarterly GAAP Loss Per Share Was ($0.06)

– March 2008 Quarterly Non-GAAP Diluted Earnings Per Share Equaled $0.01

– GAAP Gross Margin Was 25.7% And Non-GAAP Gross Margin Improved 140 Basis Points To 31.0%

– RFMD Repurchased 30 Million Shares In The March Quarter, Reducing The Total Number Of Shares By Approximately 10%

– June 2008 Quarterly Revenue Is Expected To Be In The Range Of Approximately $230 Million To $245 Million

RF Micro Devices, Inc. (NASDAQ:RFMD), a global leader in the design and manufacture of high-performance semiconductor components, today reported financial results for its fiscal 2008 fourth quarter ended March 29, 2008. The financial results include a partial quarter of results from Filtronic Compound Semiconductors Ltd (“Filtronic”), which was acquired by RFMD(R) on February 29, 2008. Quarterly revenue decreased approximately 13.7% year-over-year and approximately 17.2% sequentially to $221.9 million. Operating loss was approximately ($31.6) million on a GAAP basis, and operating loss was approximately ($12.1) million on a non-GAAP basis. Non-GAAP gross margin improved 140 basis points during the quarter, due primarily to the sequential increase in MPG revenue. Consistent with guidance provided on January 31, 2008, RFMD’s March 2008 quarterly revenue reflected relative strength in MPG and a mid-quarter increase in demand related primarily to GSM/GPRS cellular front ends.

Separately today, RFMD announced that it is focusing its investments on RF components, including cellular front ends and other cellular handset components in its Cellular Products Group (CPG) and MPG’s high-value RF components. RFMD is reducing its expenses in wireless systems, including cellular transceivers and GPS solutions. RFMD will continue to support current generations of POLARIS(R) products, including POLARIS 2 and POLARIS 3, at leading customers. RFMD expects these actions will eliminate approximately $75 million in annual product development expenses related to wireless systems. As a result, RFMD forecasts at least 10% non-GAAP operating income and double-digit return on invested capital (ROIC) by the end of the calendar year. For more details, please see the press release titled, “RFMD Announces Strategic Restructuring To Leverage Leadership In RF Components And Compound Semiconductors,” issued today.

RFMD Product Group Highlights

CPG

— As a result of the strategic restructuring, RFMD expects to eliminate
approximately $75 million in annual product development expenses
related to wireless systems
— CPG revenue for the quarter was approximately $171 million, or 77% of
total revenue
— RFMD experienced a mid-quarter improvement in GSM/GPRS front end unit
volume, related primarily to a major customer platform ramp
— RFMD experienced increased design activity during the March 2008
quarter and estimates channel inventory levels have improved
significantly, especially in Asia
— RFMD commenced the production ramp of its industry-leading EDGE front
ends at a leading handset original equipment manufacturer (OEM) in the
March quarter, resulting in production volume shipments to all five of
the world’s leading handset OEMs
— RFMD experienced strong bookings and increased design activity in
WCDMA, driven by multiple customers
— RFMD previously announced the consolidation of its production test
facilities for high volume cellular products and anticipates these
actions will improve cash flow and profitability by $3.0 million to
$3.5 million per year


MPG

— MPG revenue for the quarter was approximately $51 million, or 23% of
total revenue
— The sequential increase in MPG revenue contributed to the 140-basis
point improvement in non-GAAP gross margin
— RFMD’s March 2008 quarterly results included approximately $7 million
in annualized operating expense savings, in line with the previously
identified “hard synergies” from the Sirenza Microdevices acquisition
— RFMD expanded its industry-leading RF product portfolio to include
microwave and millimeter wave components and introduced InGaP HBT power
amplifiers for wireless infrastructure applications across all cellular
standards and frequencies
— MPG is on track to release more than 100 new products in fiscal 2009
— MPG is currently booked for double-digit sequential revenue growth in
the June quarter and is on track for its fiscal 2009 revenue goal of
$250 million




GAAP and non-GAAP financial measures are presented in the tables below, and non-GAAP financial measures are reconciled to the corresponding GAAP financial measures in the financial statement portion of this press release.

GAAP RESULTS
(in millions, Q4 Fiscal Q3 Fiscal % Change Q4 Fiscal % Change
except percentages 2008 2008 vs. Q3 2007 vs. Q4
and per share data) 2008 2007

Revenue $221.9 $268.2 (17.2)% $257.3 (13.7)%
Gross Margin 25.7% 26.2% (0.5)ppt 35.2% (9.5)ppt
Operating (Loss)
Income $(31.6) $(24.4) 29.2% $21.4 (247.2)%
Net (Loss) Income $(16.5) $(15.1) 9.1% $30.1 (154.6)%
Diluted (LPS) EPS $(0.06) $(0.06) (3.2)% $0.14 (143.8)%





NON-GAAP RESULTS (excluding share-based compensation, amortization of intangibles, amortization of acquisition-related inventory step-up, acquired in process research and development charge, manufacturing facility relocation and related costs, discontinuation of WLAN chipset development efforts, impairment of intangible license, manufacturing start-up costs, loss on investment, gain on sale of substantially all Bluetooth(R) assets, restructuring charges, and the tax effect on certain non-GAAP adjustments)

(in millions, Q4 Fiscal Q3 Fiscal % Change Q4 Fiscal % Change
except percentages 2008 2008 vs. Q3 2007 vs. Q4
and per share data) 2008 2007

Gross Margin 31.0% 29.6% 1.4ppt 35.7% (4.7)ppt
Operating (Loss)
Income $(12.1) $6.1 (298.2)% $25.7 (147.1)%
Net Income $3.0 $15.4 (80.6)% $29.2 (89.7)%
Diluted EPS $0.01 $0.06 (82.8)% $0.13 (91.8)%



Financial Guidance And Business Outlook
— Revenue in the June 2008 quarter is currently expected to be in the
range of $230 million to $245 million, representing 4% to 10%
sequential growth
— RFMD forecasts MPG revenue will increase sequentially approximately 15%
to 20% in the June 2008 quarter as a result of strength in wireless
infrastructure, CATV amplifiers, wireless LAN front ends, RF components
for point-to-point digital radio applications and standard, or catalog
RF, components
— RFMD forecasts CPG cellular front end revenue will increase 10% to 15%
sequentially in the June 2008 quarter, and RFMD expects POLARIS(R) 3
revenue will increase sequentially in the June quarter, driven by new
and existing handset models
— RFMD’s CPG revenue guidance reflects significantly reduced expectations
for transceiver revenue at RFMD’s largest POLARIS 2 customer
— RFMD is engaged in discussions with strategic and financial buyers for
some of its wireless systems assets, but is not commenting currently on
any potential transactions, including possible proceeds
— RFMD projects approximately $40 million – $50 million in restructuring
charges, approximately two-thirds of which is expected to be non-cash,
over the next two quarters
— GAAP net loss in the June 2008 quarter is currently expected to be in
the range of ($0.03) to ($0.04) per diluted share and does not reflect
any restructuring charges resulting from today’s announcement
— Non-GAAP net income in the June 2008 quarter is currently expected to
be in the range of $0.01 to $0.02 per diluted share, excluding
estimated share-based compensation expense and amortization of
intangibles of approximately $13 million in the aggregate




The methodology used by RFMD to estimate share-based compensation expense does not factor in items such as new grants, terminations or amounts that may be capitalized in inventory, and the methodology used to estimate amortization of intangibles assumes no additional intangible assets are recorded. RFMD does not estimate the impact of share-based compensation expense on gross margin or operating expenses and will provide this information with its June 2008 quarterly results. Accordingly, actual quarterly results may differ from these estimates, and such differences may be material.

Comments From Management

Bob Bruggeworth, president and CEO of RFMD, said, “During the March quarter, RFMD experienced an improved demand environment for our industry-leading RF components. We commenced high volume shipments of our industry-leading GSM/GPRS front ends to a top-five handset OEM for a major new handset platform, and we experienced a rebound in demand among multiple handset customers based in China. Additionally, our diversification efforts continued to pay off as steady execution drove MPG revenue to approximately $51 million and as we introduced multiple high-value products for a customer list numbering in the thousands. In the June quarter, we are positioned for cellular front end market share gains at additional top-five OEMs as new handsets commence production, including a popular music phone for EDGE networks and a highly anticipated WCDMA handset manufactured by a Korea-based OEM.

“Looking forward, RFMD is eliminating all product development expenses related to wireless systems, including cellular transceivers and GPS solutions, and this is expected to unleash the value of a very profitable core RF components business, highlighted by CPG’s cellular front ends and other cellular components and MPG’s multi-market RF, microwave and millimeter wave components. As a result, we believe RFMD is positioned for the largest increase in profitability in our Company’s history. Our RF components business consistently generates superior profitability and financial returns in excess of our cost of capital. We are increasing our focus on this core business and deploying the full force of our assets and resources behind it. We will continue to support our wireless systems currently in production, including POLARIS 2 and POLARIS 3, and we expect these products to contribute significant operating profit and cash flow over their multi-year product lifecycles.”

Dean Priddy, CFO and corporate vice president of administration of RFMD, said, “We believe RFMD is at an inflection point for both financial and strategic leverage. RFMD projects materially higher profitability as a result of our focus on compound semiconductors and RF components, where we are the established industry leader. Our progress will be measurable, and we will calculate our success based upon anticipated improvements in operating income and ROIC. We currently expect at least 10% non-GAAP operating income and double-digit ROIC by the end of the calendar year. In conjunction with our share repurchase program, these actions demonstrate RFMD’s commitment to improving shareholder value.”

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with United States (U.S.) generally accepted accounting principles (GAAP), RFMD’s earnings release contains the following non-GAAP financial measures: (i) non-GAAP gross margin, (ii) non-GAAP operating (loss) income, (iii) non-GAAP net income, and (iv) non-GAAP net income per diluted share. Each of these non-GAAP financial measures is adjusted from GAAP results to exclude certain expenses that are outlined in the “Reconciliation of GAAP to Non-GAAP Financial Measures” table on page 10.

In managing RFMD’s business on a consolidated basis, management develops an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures. In developing and monitoring performance against this plan, management considers the actual or potential impacts on these non-GAAP financial measures from actions taken to reduce unit costs with the goal of increasing gross margin. In addition, management relies upon these non-GAAP financial measures to assess whether research and development efforts are at an appropriate level, and when making decisions about product spending, administrative budgets, and marketing programs. In addition, we believe that non-GAAP financial measures provide useful supplemental information to investors and enable investors to analyze the results of operations in the same way as management. We have chosen to provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance excluding the effect of certain non-cash expenses, unusual items and share-based compensation expense, which may obscure trends in RFMD’s underlying performance.

We believe that these non-GAAP financial measures offer an additional view of RFMD’s operations that, when coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of RFMD’s results of operations and the factors and trends affecting RFMD’s business. However, these non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

Our rationale for using these non-GAAP financial measures, as well as their impact on the presentation of RFMD’s operations, are outlined below:

Non-GAAP gross margin. Non-GAAP gross margin excludes share-based compensation expense, amortization of intangible assets, an adjustment for amortization of acquisition-related inventory step-up and an adjustment for manufacturing facility relocation and related costs. We believe that exclusion of these costs in presenting non-GAAP gross margin gives management and investors a more effective means of evaluating RFMD’s historical performance and projected costs and the potential for realizing cost efficiencies. We believe that the majority of RFMD’s purchased intangibles are not relevant to analyzing current operations because they generally represent costs incurred by the acquired company to build value prior to acquisition, and thus are effectively part of transaction costs rather than ongoing costs of operating RFMD’s business. In this regard, we note that (i) once the intangibles are fully amortized, the intangibles will not be replaced with cash costs and therefore, the exclusion of these costs provides management and investors with better visibility into the actual costs required to generate revenues over time, and (ii) although we set the amortization expense based on useful life of the various assets at the time of the transaction, we cannot influence the timing and amount of the future amortization expense recognition once the lives are established. Similarly, we believe that presentation of non-GAAP gross margin and other non-GAAP financial measures that exclude the impact of share-based compensation expense assists management and investors in evaluating the period-over-period performance of RFMD’s ongoing operations because (i) the expenses are non-cash in nature, and (ii) although the size of the grants is within our control, the amount of expense varies depending on factors such as short-term fluctuations in stock price volatility and prevailing interest rates, which can be unrelated to the operational performance of RFMD during the period in which the expense is incurred and generally is outside the control of management. Moreover, we believe that the exclusion of share-based compensation expense in presenting non-GAAP gross margin and other non-GAAP financial measures is useful to investors to understand the impact of the expensing of share-based compensation to RFMD’s gross margins and other financial measures in comparison to both prior periods as well as to its competitors. We also believe that the adjustments to margin related to the acquisition of Sirenza (amortization of acquisition-related inventory step-up and an adjustment for manufacturing facility relocation and related costs), do not constitute part of RFMD’s ongoing operations and therefore, the exclusion of these costs provides management and investors with better visibility into the actual costs required to generate revenues over time and gives management and investors a more effective means of evaluating our historical and projected performance.

We believe disclosure of non-GAAP gross margin has economic substance because the excluded expenses do not represent continuing cash expenditures and, as described above, we have little control over the timing and amount of the expenses in question.

Non-GAAP operating (loss) income. Non-GAAP operating (loss) income excludes share-based compensation expense, amortization of intangible assets, restructuring charges, gain on sale of substantially all Bluetooth(R) assets, acquired in process research and development, amortization of acquisition-related inventory step-up, impairment of intangible license, costs associated with the relocation of a manufacturing facility, manufacturing start-up costs, and adjustments associated with the discontinuation of our WLAN chipset development efforts. We believe that presentation of a measure of operating (loss) income that excludes amortization of intangible assets and share-based compensation expense is useful to both management and investors for the same reasons as described above with respect to our use of non-GAAP gross margin. We believe that restructuring charges, as well as the expenses and adjustments associated with the discontinuation of our WLAN chipset development efforts, manufacturing start-up costs, gain on sale of substantially all Bluetooth(R) assets, acquired in process research and development, amortization of acquisition-related inventory step-up, impairment of intangible license, and costs associated with the relocation of a manufacturing facility, do not constitute part of RFMD’s ongoing operations and therefore, the exclusion of these costs provides management and investors with better visibility into the actual costs required to generate revenues over time and gives management and investors a more effective means of evaluating our historical and projected performance. We believe disclosure of non-GAAP operating (loss) income has economic substance because the excluded expenses are either non-recurring in nature or do not represent current cash expenditures.

Non-GAAP net income and non-GAAP net income per diluted share. Non-GAAP net income and non-GAAP net income per diluted share exclude the effects of share-based compensation expense, amortization of intangible assets, restructuring charges, manufacturing start-up costs, gain on sale of substantially all Bluetooth(R) assets, acquired in process research and development, amortization of acquisition-related inventory step-up, impairment of intangible license, costs associated with the relocation of a manufacturing facility, adjustments associated with the discontinuation of our WLAN chipset development efforts, loss on investment, and also reflect an adjustment of income tax expense associated with the exclusion of certain of these non-GAAP adjustments. We believe that presentation of measures of net income and net income per diluted share that exclude these items is useful to both management and investors for the reasons described above with respect to non-GAAP gross margin and non-GAAP operating income. We believe disclosure of non-GAAP net income and non-GAAP net income per diluted share has economic substance because the excluded expenses are either non-recurring in nature, do not represent current cash expenditures, or are variable in nature and thus unlikely to become recurring expenses.

Limitations of non-GAAP financial measures. The primary material limitations associated with the use of non-GAAP gross margin, non-GAAP operating (loss) income, non-GAAP net income and non-GAAP net income per diluted share as compared to the most directly comparable GAAP financial measures of gross margin, operating (loss) income, net (loss) income and net (loss) income per diluted share are (i) they may not be comparable to similarly titled measures used by other companies in RFMD’s industry, and (ii) they exclude financial information that some may consider important in evaluating our performance. We compensate for these limitations by providing full disclosure of the differences between these non-GAAP financial measures and the corresponding GAAP financial measures, including a reconciliation of the non-GAAP financial measures to the corresponding GAAP financial measures, to enable investors to perform their own analysis of our gross margin, operating (loss) income, net (loss) income and net (loss) income per diluted share.