RF Micro to Restructure, Cut 350 Jobs - TheStreet

SAN FRANCISCO --

RF Micro Devices

(RFMD)

is dumping its cell phone transceiver chip business as it seeks to shore up its sagging profitability.

The company said Tuesday it will reduce investments in wireless systems, including cellular transceivers and GPS products, effective immediately. The move will save RF Micro roughly $75 million in product development costs in its new fiscal year.

Shares of RF Micro were off more than 4%, or 14 cents, to $3.31 in extended trading Tuesday.

"These strategic actions will enable RMFD to deliver more predictable financial results and substantially higher profitability," said CEO Bog Bruggerworth in a statement.

The move signals the end of the line for RF Micro's Polaris line of cell phone transceiver chips, which had been considered one of the company's main growth engines.

In a post-earnings conference call Tuesday, though, Bruggeworth said RF Micro was never able to earn a sufficient return from the Polaris business.

And with competitors like

Qualcomm

(QCOM) - Get Report

,

Broadcom

(BRCM)

and

ST Microelectronics

(STM) - Get Report

poised to suck more functions like the transceiver into upcoming all-in-one, integrated chips, RF Micro's standalone chip was facing increasingly tough odds.

"These are some very large competitors with scale, and a lot of them are bringing a lot to the table," says Michael Burton, an analyst at Think Equity Partners, which makes a market in RF Micro shares.

RF Micro will continue selling its new Polaris 3 chip for the next few quarters, but will no longer invest R&D resources into developing future version of the Polaris chip for next-generation phones based on the WCDMA standard or on 4G technology.

Instead, RF Micro will focus on making chips for communications infrastructure equipment, a business that boasts the company's highest profit margins, as well as so-called front-end components that control a cell phone's radio chip.

With the moves, RF Micro expects to achieve an adjusted operating margin of at least 10% and double-digit return on invested capital by the end of the 2008 calendar year.

The Greensboro, N.C.-based chipmaker announced the restructuring plan after Tuesday's market close, along with results for its fiscal fourth quarter in which RF Micro posted a loss of $16.4 million, or 6 cents a share.

At this time last year, RF Micro had a profit of $30.1 million or 14 cents a share.

Excluding stock compensation expenses and restructuring and amortization charges, RF Micro earned EPS of a penny, in line with Wall Street expectations.

Of course, analysts were expecting a much higher EPS three months ago, when the chipmaker delivered a weak financial outlook due to slowing demand in the cell phone handset business and product launch delays among certain customers.

The fact that

Motorola

( MOT), RF Micro's second-largest customer, is exploring spinning off its handset division has not helped.

Sales for the three months ended March 29 totaled $221.9 million, in line with analysts' expectations and down roughly 14% year-over-year.

In the current quarter, RF Micro projected sales between $230 million and $245 million, vs. the average analyst expectation of $238.3 million. The company forecast adjusted EPS of one penny to 2 cents, compared with the 2 cents EPS expected by analysts.

RF Micro will take a restructuring charge of $40 million to $50 million over the next two quarters as it reduces its headcount by some 350 employees.

The company said Tuesday that it is currently in negotiations with various parties about the sale of its GPS business, which RF Micro is also exiting as part of the restructuring plan.