Any comments on why margins weren't better. I think RFMD was forthright with their forecast, but I was expecting better earnings. RFMD needs to make more money in the best quarter of the year. Even if that quarter is weaker than last year's quarter they should be good enough to adjust and deliver a decent earnings quarter for December. In addition, everyone knows they are entering a seasonally weak period and should attempt to control their expenses better. This performance should be largly immune from predictable revenue generation. Run the company like profit is important.
The issue has never been the seasonality of RFMD's business. Everyone knows that the holiday season is big, and the late winter and early Spring season is the hangover. What is hard to understand is why RFMD can't modulate it's expenses to maintain profitability. The seasonality is sooo predictable. RFMD's earnings are not.
The conclusion has to be one of the following 1) RFMD's fixed costs are too high for the amount of revenue it achieves. Yet, they are spending more on buildings and infrastructure. What is this about? 2) RFMD's management is unwilling to shift the mix of variable and fixed assets to be profitable in the leanest quarters. This would likely limit their profitability in the better quarters since variable assets are more expensive to bring on-line than fixed assets. But hey, they aren't making money in the best quarter of the year. 3) There is no way to make a decent profit just on PA amplifiers. Even the industry leader does not have enough scale and scope to make a decent return.
I don't think the RFMD team has recovered from the loss of the TDMA business. They had more content in a TDMA phone and therefore better margin. This business has not been replaced by equally profitable business. Edge is supposed to do that, and maybe it will. Perhaps they have hung on to the model they had when the TDMA business was going strong.
I think it's time for some major restructuring to re-engineer the business to be profitable at the $130M per quarter level. Everybody would be happier with that, including RFMD management. What is holding them back?
In previous conference calls, management maintained that the core power amplifier business has very good profit margins. It is the investement in new business that has been the gross margin drag for RFMD so far, namely their investement in Bluetooth and WLAN. Bluetooth should reach breakeven and profitability this year, but WLAN may continue to be dilutive for another year.
Additionally, RFMD is spending only 50% of their R&D on the core PA business...the other 50% of their R&D is going into their new product lines , the Gallium Nitride, cmosPA, and WLAN....all products that can and will contribute immensly into RFMD's top and bottom line in the future....
I listened to the CC, a couple of positive things are profit margins will be back into the low to mid 40's as these ramps are completed, they are shipping Polaris and Polaris 2 to every large OEM and volume shipments will commence this year. The best thing I heard was the fact that this quarter will be flat with revenues in the low to mid 150's which means margins are definitely improving, after all, the $169 million in revenue was flat this quarter in a profit sense. Company will be profitable this year and they are starting to obtain major business in the USA for a change, so their dependency on China will decrease which cannot hurt. They seemed very confident with this year, but they were very confident in 2004 too. So, best scenerio I see from what they said is the June quarter starts the new RFMD with all of their products finally bringing significant revenues. Until then, well, flat is flat. EDGE and Wideband CDMA is the future of this company. Time will tell. Later, The Truck