TriQuint Semiconductor (TQNT) Q3 2011 Earnings Call October 26, 2011 5:00 pm ET Executives 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 Analysts 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 Presentation Operator
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. Read the rest of this transcript for free on seekingalpha.com