Anadigics Q2 Loss Narrows, Continues Strategic Restructuring

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Semiconductor manufacturer Anadigics, Inc. (ANAD) reported second-quarter 2014 adjusted net loss of $7.8 million or loss of 9 cents per share, narrower than the loss of $12.0 million or loss of 14 cents per share in the year-ago quarter. The adjusted loss with employee stock option adjustments was in line with the Zacks Consensus Estimate of a loss of 11 cents.

 

 


GAAP net loss for the reported quarter came in at 18 cents per share versus a loss of 17 cents a share in the year-earlier quarter, primarily due to significantly lower revenues that was partially offset by lesser operating expenses.

Revenues

Total revenue for the reported quarter was $23.3 million, down 32.7% year over year from $34.6 million in the prior-year period. Revenues missed the Zacks Consensus Estimate of $26.0 million. The sharp fall in revenues was largely attributable to a decline in demand for its legacy mobile business, partly offset by a stronger-than-expected progress in infrastructure-targeted activities.

Moving forward, Anadigics will report its revenue in two categories: Infrastructure and Mobile. For the infrastructure market, Anadigics manufactures RF and optical products for cable television, cellular wireless small cell, WiFi and machine-to-machine (M2M). The Infrastructure segment contributed $10.2 million to total revenue, up 12.1% year over year. The Mobile segment, comprising WiFi and Cellular products that primarily address the smartphone, handset and tablet markets, generated $13.1 million revenues – down 48.6% year over year.

Corporate Restructuring Initiatives

As the fulcrum shifted towards the infrastructure-based business, Anadigics decided to initiate corporate restructuring activities to reduce operating costs and better align its resources in accordance with the evolving demands of the business. In addition, the infrastructure-targeted products have a higher revenue and profit margin than mobile-targeted products. As such, Anadigics decided to reduce its fixed costs by unwinding production of RF (radio frequency) power amplifier and front-end products for a variety of mobile applications including handsets, tablets and data cards in the cellular 3G/4G and WiFi markets. The company also decided to monetize some of the wafer processing equipment for these products to partially fund this restructuring process.

As global demand for high-data-rate connectivity to the Internet increases exponentially, demand for high-performance infrastructure-based products is set to rise as well. In order to capitalize on this revenue potential, Anadigics has also decided to align its R&D investment focus and in-house manufacturing capacity toward a higher mix of infrastructure products.

Post-completion, the restructuring activities are anticipated to lower manufacturing costs by approximately $5 million and operating costs by approximately $10 million through workforce reduction by 140 positions to eliminate redundant manufacturing operations. Anadigics will record a cash workforce restructuring charge of approximately $2.3 million and a non-cash charge of about $5 million for fixed asset and inventory write downs. All these measures are expected to strengthen its presence in key infrastructure markets, reduce fixed costs and generate EBITDA breakeven revenue level of approximately $26-27 million.

Margins

During the reported quarter, Anadigics continued to improve its cost structure through stringent cost-cutting initiatives, while maintaining a sharp focus on new product developments. Adjusted gross margin for the quarter increased 183 basis points on a sequential basis to 12.8%. Combating headwinds such as sequentially flat revenues and lower factory utilization, an improved product mix drove the increase in gross margin.

Anadigics has expanded its product pipeline by launching differentiated solutions while strengthening its relationships with major OEM (Original Equipment Manufacturers) and chipset partners. The company looks set to exploit the widening range of applications in the WiFi market. Its front-end Integrated Circuits (ICs) enable producers to save board space, extend battery life and expand high throughput connectivity, earning design wins and driving revenue growth for the company.

Financial Position

Anadigics ended the quarter with cash and cash equivalents of $13.7 million. Inventories stood at $18 million, up 6.6% sequentially. During the quarter, Anadigics incurred $350,000 million in capital expenditures while capacity utilization was 35%.

Outlook

Management did not provide any specific guidance for the ongoing quarter. For the third quarter of 2014, Anadigics expects sequential revenue decline of 18% to 20%, driven by lesser demand in the legacy business. However, considerable improvements in the cost structure and improved product mix are expected to enable gross margin expansion of 200 basis points for the coming quarter. Operating expenses are expected to decrease by over 15% sequentially, leading to EBITDA improvement of about 25%.

Anadigics presently has a Zacks Rank #3 (Hold). Better-ranked players in the industry that are worth mentioning include Avago Technologies Limited (AVGO), Advanced Semiconductor Engineering Inc. (ASX) and Amkor Technology, Inc. (AMKR), each carrying a Zacks Rank #2 (Buy).

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