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TriQuint Beats on Q2 Earnings; Bullish Outlook for 2H14

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TriQuint Semiconductor, Inc. (TQNT) beat the Zacks Consensus Estimate for both earnings and revenues in its second-quarter results, benefiting from its portfolio restructuring efforts towards higher-value solutions. The RF (radio frequency) solutions provider reported adjusted earnings of 13 cents per share compared to a loss of 7 cents in the prior-year quarter and significantly ahead of the Zacks Consensus Estimate of 3 cents.

TriQuint reported adjusted net income of $23.6 million, versus a net loss of $10.9 million in the year-ago quarter. The considerable improvement was primarily attributable to higher revenues, successful cost-reduction strategies and an improved product mix.

Including non-recurring items, GAAP net income came in at $5.2 million or 3 cents per share compared to a net loss of $14.9 million or loss of 9 cents per share in the year-ago quarter.

Revenues & Margins

Revenues were $230.8 million, up 21% year over year, due to robust growth and increased penetration across segments, primarily the mobile devices market. Quarterly revenues beat the Zacks Consensus Estimate of $220 million.

On an end-market basis, quarterly revenues in the Mobile Devices market (accounting for 63% of total revenue) experienced sequential growth of 40% driven by strong demand for BAW filters to support LTE (Long Term Evolution) smartphones in China. The Networks market contributed 26% of total revenue and grew 16.2% sequentially. Infrastructure & Defense sales, representing 11% of total revenue, were up 15.9% sequentially. Infrastructure witnessed robust demand for base station products in China, growing 77% year over year. The book-to-bill ratio for the reported quarter came in at 1.07.

Adjusted gross profit was $96.2 million, up 62% from the prior-year figure of $59.5 million. Adjusted gross margin improved to 41.7% from 31.3% in the year-ago quarter, driven by active portfolio management and growth in high-margin premium filters business. Additionally, manufacturing-cost improvement, better product mix and cost-streamlining efforts also contributed to margin expansion. Adjusted operating expenses were slightly up sequentially to $72.0 million.

During the quarter, TriQuint introduced a record 51 new products and executed key development projects, strengthening its strategic position in the RF industry.

Balance Sheet

At quarter end, cash and investments improved by $60.0 million to $223.5 million, driven by strong operating performance and cash proceeds from employee stock option exercises. Long-term debt stood at $151.5 million.

Proposed Merger with RFMD

TriQuint’s proposed merger with rival RF Micro Devices Inc. (RFMD) is on track, to conclude in the second half of the year. The consolidated company will bring all the critical RF components, essential for fabricating mobile devices, under a common platform to create an undisputed market leader with a diversified product portfolio. This, in turn, would translate into better bargaining power and pricing strength for the combined entity. Also, in the mobile space, these two companies have complementary roadmaps with negligible market overlap.

The merger will offer synergistic benefits and increase the profitability of the new company through economies of scale and mutual sharing of manufacturing expertise, research and development costs, and adjustment of staffing expenses.

The transaction is expected to generate $75 million of cost savings in the first year of its operation, followed by another $75 million in the second year. The merger is expected to be accretive to non-GAAP earnings in the first full fiscal year of its operations.

Going forward, TriQuint expects third-quarter 2014 revenues in the range of $255 million to $265 million, indicating continued sequential improvement. Adjusted net income is expected to be between 23 cents and 25 cents per share.

Non-GAAP gross margin is projected in the range of 43–45%, driven by healthy execution, higher factory utilization and an improved product mix. During the second half of the year, cost-reduction initiatives and better product mix are expected to drive gross margins of about 40% on an average.

The growing adoption of 4G LTE and the continued strength in RF content market are expected to drive strong growth in the major end-markets of the company, generating high demand for RF content, premium filters and discrete filters. Its infrastructure and mobile markets are expected to benefit from growth in LTE and create greater RF value owing to crowded spectrum, carrier aggregation and increasing LTE adoption. The Chinese market represents one of the strongest growth opportunities for the company.

Transition to LTE is driving demand across the board, from infrastructure to handsets. Bracing itself up for LTE expansion, TriQuint has restructured its factories, expanded production capacity and aligned its mobile product strategy around premium filters, high-efficiency amplifiers and densely integrated solutions. The company seems well-positioned in each of its markets to build on the solid growth momentum that it presently enjoys.

TriQuint currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the computer & technology sector slated to report earnings very soon include FUJIFILM Holdings Corporation (FUJIY) and Yelp, Inc. (YELP), both sporting a Zacks Rank #1 (Strong Buy).

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