RF Micro Devices' CEO Discusses Q3 2012 Results - Earnings Call Transcript

RF Micro Devices (RFMD)

Q3 2012 Earnings Call

January 24, 2012 5:00 pm ET

Executives

Doug DeLieto - Vice President of Investor Relations

Steven E. Creviston - Corporate Vice President and President of Cellular Products Group

Robert A. Bruggeworth - Chief Executive Officer, President, Director and Member of Strategic Development Committee

Norman Hilgendorf - Vice President of Corporate Development

William A. Priddy - Chief Financial Officer, Corporate Vice President of Administration and Secretary

Analysts

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

Harsh N. Kumar - Morgan Keegan & Company, Inc., Research Division

Edward F. Snyder - Charter Equity Research

Quinn Bolton - Needham & Company, LLC, Research Division

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

Ittai Kidron - Oppenheimer & Co. Inc., Research Division

Michael A. Burton - Kaufman Bros., L.P., Research Division

Parag Agarwal - UBS Investment Bank, Research Division

Anne Edelstein

Blayne Curtis - Barclays Capital, Research Division

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

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the RF Micro Devices Third Quarter 2012 Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, January 24, 2012. At this time, I'd like to turn the conference over to Doug DeLieto, Vice President, Investor Relations for RFMD. Please go ahead, sir.

Doug DeLieto

Thanks very much, Ben. Hello, everyone, and welcome to our conference call. At 4 p.m. today, we issued a press release. If anyone listening did not receive a copy of the release, please call Samantha Alphonso 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 statements 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 this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain noncash 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.

In fairness to all listeners, we ask our participants to please limit themselves to one question and a follow-up. Sitting with me today are Bob Bruggeworth, President and CEO; and Dean Priddy, Chief Financial Officer. I'm also joined by Eric Creviston, Norm Hilgendorf, and Bob Van Buskirk, who lead our Cellular Products Group, Multi-Market Products Group and Compound Semiconductor Group, respectively, as well as other members of RFMD's management team. And with that, I'll turn the call over to Bob.

Robert A. Bruggeworth

Thanks, Doug, and welcome, everyone. As we indicated in our press release on January 5, RFMD's December quarterly results reflected market share gains in smartphones, however, these gains were more than offset by less than forecasted demand from manufacturers of handsets in China. Tonight, we will provide additional color on our revenue, gross margin and perhaps more importantly, articulate why we believe the December and March quarters are not indicative of RFMD's growth, margin or earnings potential.

During the December quarter, forecasted demand for 2G products did not materialize as expected for the traditional Lunar New Year ramp. In addition, while 3G demand in China grew at a healthy 50% sequentially, it fell well short of the level of our customers had forecasted at the start of the quarter. The less than forecasted demand resulted in a decrease in fab and assembly utilizations and an increase in inventory reserves driving a significant impact to gross margin.

In the near term, we are maintaining our conservative stance on the China market, and we've built this into our guidance. We believe our visibility into China will improve after the Lunar New Year holiday. Long term, the secular growth trends in both CPG and MPG remain intact, and RFMD's outlook remains unchanged. The China market will transition to 3G and RFMD is very well positioned to capitalize. RFMD's key 3G/4G drivers, PowerSmart, high-efficiency 3G/4G PAs, switch-based products and antenna control solutions grew in the December quarter, continue to gain key design wins and will grow considerably during calendar 2012.

MPG will recover as macro environment improves, and new products and technologies will deliver revenue growth. Our December quarter and near-term outlook should not be interpreted as an indication of a new or revised financial model. Our expectations for target margin performance remain unchanged, and we expect an improvement in gross margin in the March quarter. In the June quarter, we expect to return to revenue growth.

That said, my formal comments tonight will focus primarily on RFMD's growing content in smartphones and our continuing transition to a highly diversified growth-oriented supplier of RF components and compound semiconductors. RFMD's product and technology leadership enables us to achieve continued 3G/4G revenue growth across a broad set of customers. As a broad measure of customer diversification, we were successful during the quarter in supporting year-over-year revenue growth of approximately 100% at Foxconn, HTC, Huawei, Motorola and RIM. Our share is still relatively small at these accounts, giving RFMD significant runway for growth.

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