RF Micro Devices Swings to a Loss

Updated from 4:54 p.m. EST

SAN FRANCISCO -- RF Micro Devices(RFMD Quote - Cramer on RFMD - Stock Picks) swung to a loss in its fiscal third quarter, and said results in the current quarter will be sharply lower than Wall Street expectations as excess inventory of cell phone chips weigh the company down.

The Greensboro, N.C., chipmaker characterized the cell phone slowdown as a temporary hiccup, with a rebound expected in the June quarter. And the company said chips for high-end cell phones continue to see strong demand.

But even as RFMD executives pointed to a brighter horizon during a post-earnings conference call Thursday, a new cloud drifted overhead as the company's second-largest customer, Motorola(MOT Quote - Cramer on MOT - Stock Picks), announced that it was considering spinning off its handset business.

Shares of RFMD were down 3.4%, or 11 cents, at $3.12 in extended trading Thursday.

As word of the Motorola news surfaced during RFMD's conference call, the chipmaker's managers said the company would not necessarily suffer from any change at Motorola.

RFMD's No.1 customer, Nokia(NOK Quote - Cramer on NOK - Stock Picks), might pick up some of Motorola's market share during any choppy transition period arising from a divestiture, explained CEO Bob Bruggeworth, making the event a net push.

Moreover, by spinning off handsets, Motorola might focus more on wireless infrastructure products, for which RFMD sells chips that carry a much higher profit margin.

In November, RFMD acquired Sirenza Microdevices for $900 million in order to diversity its business by expanding its sales beyond cell phone handsets.

RFMD said Thursday that the new multi-market products group that houses Sirenza is on track to achieve $250 million in revenue in the current fiscal year with 50% gross margin.

That represents a nice step-up from the company's overall gross margin, which fell to 26.2% in the recently ended quarter, vs. 35.8% at this time last year.

In the three months ended Dec. 29, RFMD posted a loss of $15.1 million, or 6 cents a share, vs. net income of $59.3 million, or 26 cents a share, at this time last year.

Excluding various charges, RFMD said it had EPS of 6 cents a share, at the low end of the revised guidance it provided earlier this month, and a penny short of analysts expectations.

The company's sales of $268.2 million were in line with its revised guidance and the average analyst expectation.

The weakness in the cellular business that pinched RFMD in its fiscal third quarter was the result of excess inventory of cell phone chips based on the GSM/GPRS standard in China, as well as the timing of its customers' new product launches, the company said.

The chipmaker projected another quarter of red ink, with a loss of 5 cents to 7 cents a share in the quarter. Excluding charges, RFMD said EPS will range between a penny and 2 cents, vs. the average analyst expectation of 5 cents.

Sales in the current quarter will range between $215 million and $230 million, short of the $262.9 million expected by analysts.

RFMD said the cell phone group will return to growth in the June quarter, as the inventory is burned off and a major customer platform ramp is expected to commence in March.

"We're confident that the dynamic we experienced in GSM/GPRS will reverse itself later in the March quarter and set up a sequential rebound in June," said Bruggeworth.

RMFD also announced the first stock buyback in the company's history, with plans to repurchase up to $150 million shares of common stock over the next 24 months.

Shares of RFMD are down about 64% from their 52-week high of $8.60.