RF Micro Devices, Inc.

F3Q2011 Results (Qtr End Jan. 1, 2011) Earnings Call Transcript

January 25, 2011 5:00 p.m. ET

Executives

Doug DeLieto - VP of IR

Bob Bruggeworth - President and CEO

Dean Priddy - CFO

Eric Creviston - President of Cellular Products Group

Bob Van Buskirk - President of Multi-Market Products Group

Participants

Edward Snyder - Charter Equity Research

Ittai Kidron - Oppenheimer

Harsh Kumar - Morgan Keegan

Mark McKechnie - Gleecher & Company

Parag Agarwal - UBS

Quinn Bolton - Needham & Company

Aalok Shah - D.A. Davidson & Company

Venk Nathamuni - JPMorgan

Nathan Johnson - Pacific Crest Securities

Tim Luke - Barclays Capital

Scott Searle - Merriman Capital

Jason Schmidt - Craig-Hallum

Sanjay Devgan - Morgan Stanley

Erik Rasmussen - Stifel Nicolaus

Vijay Rakesh - Sterne Agee

Presentation

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the RF Micro Devices Third Quarter 2011 Conference Call.

During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the star followed by the 1 on your touchtone phone. Please limit yourself to one question and one follow-up question and re-queue for any additional questions. If you're using speaker equipment today, please lift the handset before making your selection.

This conference is being recorded today, Tuesday, January 25, 2011.

At this time I'd like to turn the conference over to Doug DeLieto, VP of Investor Relations for RF Micro Devices. Please go ahead, sir.

Doug DeLieto

Thanks very much, Vent [ph].

Hello, everybody and welcome to the conference call. At 4:00 p.m. today, we issued a press release. If anyone listening did not receive the release, please call Samantha Alfonso at the Financial Relations Board at 212-827-3746. Sam will fax a copy to you and verify that you are on our distribution list. In the meantime, the release is also available on our website, rfmd.com, under the heading, Investors.

At this time, I want to remind our audience that this call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release published today as well as our most recent SEC filings for a complete description.

In today’s release and on today’s call, we provide both GAAP and non-GAAP financial measures. We provide the supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses for unusual items that may obscure trends and our underlying performance.

During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our corporate website, rfmd.com, under Investors. Similarly, for an explanation of how RFMD calculates return on invested capital, free cash flow and positive net cash position, please refer to today’s earnings release. In fairness to all listeners, we ask that participants please limit themselves to one question and a follow-up.

With me today on the line are Bob Bruggeworth, President and CEO; Dean Priddy, Chief Financial Officer; Eric Creviston, President of our Cellular Products Group; and Bob Van Buskirk, President of our Multi-Market Products Group, as well as other members of RFMD’s management team.

And with that, I’ll turn the call over to Bob.

Bob Bruggeworth

Thanks, Doug; and welcome, everyone.

During the December quarter, RFMD continued to deliver robust financial performance supported by product and technology leadership and the strength of our new financial model. Gross margin was 38.7% and operating margin was 19.4%. Our core business which excludes the impact of our transceiver business achieved gross margin and operating margin of approximately 41% and 18% respectively. RFMD generated $54 million in free cash flow and we remain on a pace to achieve free cash flow of $180 million to $200 million this fiscal year.

The March quarter represents an inflection point for RFMD as we close out our legacy transceiver business and begin the ramp of new higher-margin component solutions including our PowerSmart power platforms, our industry-leading high-efficiency single-mode PAs, our silicon-based switches, our GaN components and our high-performance WiFi components. These new product ramps support our expectations for broad-based share gains and position RFMD to grow sequentially and expand gross margins throughout fiscal 2012, outpacing our core markets.

To that end, we're very pleased to report today that we've received our first volume production orders for PowerSmart in support of a highly-anticipated flagship 3G/4G smartphone and tablet product family that will feature not only PowerSmart but also RFMD WiFi components. These orders validate the numerous customer benefits PowerSmart delivers in cost, size, performance and platform flexibility. We expect PowerSmart will proliferate across our lead customer's 3G/4G portfolio with the first tablet and smartphone to be unveiled at the Mobile World Congress in Barcelona in just a few weeks.

To give you an idea of the opportunities we're capturing for incremental growth, we expect additional PowerSmart orders later this quarter from our second customer, and we're confident we'll ramp 3G/4G smartphones featuring PowerSmart at an additional leading smartphone OEM each quarter this calendar year. We expect significant sequential growth in PowerSmart revenue each quarter in fiscal 2012. Based on existing design wins, we forecast PowerSmart revenue in fiscal 2012 can exceed $75 million.

Our 3G/4G design win momentum extends beyond our multimode PowerSmart power platform to include our high-performance switch-based products and our recently launched industry-leading high efficiency single-mode PAs. The lead customer for our new single-mode PAs is a leading North American smartphone manufacturer. We're supporting a high-volume smartphone beginning in the June quarter and we're forecasting a significant program expansion supporting additional smartphones later this calendar year. As the mix of design wins continues to shift aggressively towards 3G and 4G, we are forecasting significant share gains in fiscal 2012 in both smartphones and in 3G feature phones.

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