Skip to main content


RF Micro Devices


will build a new chip manufacturing facility to meet what it says is rising demand for wireless products.

The Greensboro, N.C., company said Friday that favorable trends in its primary markets, including the transition to advanced cell-phone standards, mean that it needs to expand its in-house manufacturing capacity.

Shares were up 4% at $6.74 in midday trading Friday.

"It's an indication of their confidence in the market and of their position in that market over the long term," says Stifel Nicolaus analyst Cody Acree, who rates RFMD a hold.

Jerry Neal, head of RFMD's marketing and strategic development, said construction of the new fab -- which will be its fourth manufacturing facility -- will begin within days, with the facility expected to be up and running within the next 10 to 12 months.

Neal put the cost of the new fab at roughly $100 million. He said RFMD was not providing details on how much additional manufacturing capacity this would give the company, but he said the facility would be built in a modular manner, so that capacity can be added to meet demand on an ongoing basis.

RFMD has struggled in recent months, as problems at



-- its second-largest customer -- have affected its own business. Last quarter, RFMD reported

revenue that was down 11% year over year.

In a note to investors Friday, JPMorgan analyst Christopher Danely said that Motorola was beginning to ramp up chip orders once again, as the company prepares for the seasonal increase in handset demand. As a result, Danely raised his annual sales and EPS estimates for RFMD.

JPMorgan makes a market in RFMD shares.

In the longer term, Stifle's Acree noted that RFMD is well-positioned to benefit as an increasing assortment of electronic devices add support for wireless communications.

RFMD's power-amplifier chips -- a key component in cell-phone handsets -- are benefiting from the growth in the cell-phone market, as well as new standards such as 3G. Advanced handsets that use a power amplifier for the 3G standard, also typically incorporate power amplifier chips to support the existing standards such as 2G and 2.5G.

That translates to more dollars per phone for companies like RFMD and


(SWKS) - Get Free Report

, says Acree.

Stifel Nicolaus makes a market in RFMD shares and intends to seek compensation from RFMD for investment-banking services in the next three months.

RFMD said Friday that it foresees a compound annual growth rate of more than 20% in the market for the so-called front-end chips used in cell phones between now and 2012.

Meanwhile, cell-phone handsets and other devices are increasingly integrating wireless capabilities such as Bluetooth and WiFi. RFMD said the latest flavor of WiFi, known as 802.11n, as well as the forthcoming WiMax technology backed by


(INTC) - Get Free Report


Sprint Nextel

(S) - Get Free Report

, will be among the primary growth drivers for the market.

While building a state-of-the-art manufacturing facility for digital chips like microprocessors can cost $2 billion to $3 billion, producing the analog chips that RF Micro builds in-house is a significantly cheaper proposition.

The manufacturing equipment can be as much as four generations old, notes Joanne Itow, who covers semiconductor manufacturing for the research firm Semiconductor Partners.

"The specialty is more in the materials that they're using," says Itow, referring to the gallium arsenide that's the basis of many of RFMD's main chips.

Building a new fab of course, adds a fair amount of risk, since any unused capacity can drag down profit margins. But Neal said the company's position in the market gives it a fair amount of confidence that the factory will not go unfilled.

"We wouldn't build this if we were not assured of the demand," says Neal.