TriQuint Semiconductor (TQNT)

Q3 2011 Earnings Call

October 26, 2011 5:00 pm ET


Ralph Quinsey - Chief Executive Officer, President and Executive Director

Steven J. Buhaly - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance & Administration and Secretary


Edward F. Snyder - Charter Equity Research

Quinn Bolton - Needham & Company, LLC, Research Division

William Dezellem - Tieton Capital Management

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Aalok K. Shah - D.A. Davidson & Co., Research Division

Nathan Johnsen - Pacific Crest Securities, Inc., Research Division

Parag Agarwal - UBS Investment Bank, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Blayne Curtis - Barclays Capital, Research Division

Todd K. Koffman - Raymond James & Associates, Inc., Research Division



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Good afternoon, my name is Latosha, and I will be your conference operator today. At this time, I would like to welcome everyone to the TriQuint Semiconductor Third Quarter Earnings Conference Call. [Operator Instructions] Mr. Steven Buhaly, you may begin, sir.

Steven J. Buhaly

Thank you, Latosha, and good afternoon, everyone, and welcome to our third quarter 2011 conference call. With me today is Ralph Quinsey, our President and Chief Executive Officer. During the call, we will make forward-looking statements about our business and projected financial results. I want to remind you that actual results could differ materially from our projections based on various risk factors, including those described in the press release we issued earlier today and in our reports on Forms 10-K and 10-Q, and other filings with the Securities and Exchange Commission.

All numbers during the call will be presented on a non-GAAP basis. Non-GAAP financial measures report tax on a cash basis and exclude equity compensation charges, entries associated with acquisitions and other specifically identified nonroutine items. These non-GAAP measures are provided to enhance understanding of our core operating performance. A full reconciliation of these non-GAAP measures to our GAAP results is in our press release and is in the investor's section of our website.

I will now turn the call over to Ralph to provide an overview of the quarter.

Ralph Quinsey

Thanks, Steve, and good afternoon, everyone. I will start today by providing an overview of Q3 financial results, and summarizing progress in each of our major markets. Steve will follow with a detailed look at our Q3 financial performance and Q4 guidance. I will then make a few closing comments and open the call for questions.

Our financial results for Q3 were slightly better than our updated guidance issued on September 22. TriQuint's revenue for Q3 was $216 million and EPS was $0.11. Gross margins were at 36.3% and operating expenses were $58.7 million, including $4.1 million of legal expenses related to our antitrust and IP claims against Avago. Compared to Q2, total revenue was down 6% with reduced connectivity revenues in Mobile Devices, weakness in our infrastructure market and softening demand in China. Gross margins declined 5 percentage points from Q2, primarily due to product mix shift into lower margin products and increased cost associated with new product ramps.

With lower-than-expected revenue, we put spending controls in place and we're able to reduce our core operating expenses, excluding litigation cost, by 6% sequentially. Now, I will discuss results and progress for each of our major markets. I will start with a review of our Mobile Devices market where revenue for Q3 was approximately $152 million, down 5% sequentially. This was below our original expectations, primarily as a result of reduced demand from our largest customer and weakness from our Chinese-based customers, including our distribution partner, Avnet Asia. As expected, we saw a reduction in our connectivity revenues during the quarter as we transition from commercial foundry to standard product in support of a wire LAN reference design partner.

Year-to-date, Mobile Devices revenue was up 14% compared to 2010. Year-to-date revenue from 3G/4G applications was up nearly 30% as compared to 2010. These gains were offset by a 58% reduction in revenue from our 2G products, primarily as a result of declines in our legacy CDMA and GSM revenue streams. These declines were driven by our decisions in 2010 to shift capacity and focus from 2G products to 3G, due to supply constraints at that time. We have recently introduced our 4068 device to reengage in the GSM segment. This product provides attractive battery life and very competitive pricing. We have multiple design wins at tier 1 customers and good customer reach through our Chinese distribution partners. Samsung is among our tier 1 customers for this product.

The longer-term story for our content expansion remains intact with increased demand expected for our industry. We continue to believe the overall market will grow at a rate of about 15% annually over the next several years as 3G penetration levels grow and multiple bands of 4G drive a new wave of revenue opportunities for both power amplifiers and high-performance Duplexers.

Our technology and manufacturing capabilities in each of these areas creates a unique opportunity for TriQuint to be at the leading edge of our integration. We are committed to helping our customers balance size, flexibility and cost for 3G and 4G applications. We believe our breath of capability, including both active and passive devices, nearly doubled the size of our global market and gives us a leg up in defining value-added solutions as compared to competitors who sell only power amplifiers or filters.

We see a variety of architectures deployed today as customers and chipset partners digest the increasing RF content in new devices. Solution size, flexibility and battery life are the critical customer requirements in this [indiscernible] Market. Consumers demand for longer battery life and increased features places pressure on phone designers to reduce circuit board size and create more space for batteries. This growing RF complexity in a phone and the board space it requires is a major challenge for our customers. Our customers are asking for reduced size and increased layout flexibility. One approach is referred to as an MMPA or Multi-Mode Power Amplifier.

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