By
Dave Mock
|
More Articles
February 4, 2008
|
You know a quarterly earnings report is going to be bad when a company opens the press release by announcing a new stock repurchase authorization. RF Micro Devices (Nasdaq: RFMD ) wanted investors to know that, above all, it was going to put up $150 million to buy back its stock over the next 24 months, hoping that would take a little sting off what followed.
What followed wasn't pretty. Though RF Micro already warned that third-quarter results would be painful, the numbers still made me wince. Revenue was actually not that bad -- while much lower than many had hoped, the $268 million in sales is still up 4.8% from the previous quarter. But a brutal drop in gross margins did significant damage and led to a GAAP net loss of $15.1 million, or $0.06 per share.
On a GAAP basis, gross margins fell a full six percentage points from the second quarter, to 26.2%. Even on a non-GAAP basis, margins dropped 2.9 percentage points because of lower production volumes and more reliance on outsourced components. In both its earnings release and on the conference call, management spent a significant amount of time discussing efforts under way to bring margins back up: an improved mix of products, bringing new facilities on line, and its recent acquisitions.
RF Micro sells to several top-tier cellular handset makers, such as Nokia (NYSE: NOK ) and Motorola (NYSE: MOT ) , but it was local Chinese manufactures that affected the numbers this quarter. Excess inventory is also expected to compound seasonal declines in the fourth quarter; management forecast revenue to be $215 million to $230 million.
The cellular market that RF Micro plays in continues to be a tough space -- and management did little to alleviate fears that competitors were taking market share. Companies such as Broadcom (Nasdaq: BRCM ) and Skyworks (Nasdaq: SWKS ) are very aggressive, and price pressure hurts margins, which is why RF Micro is diversifying into different markets for wireless radio components.
The fourth quarter is a pivotal one for RF Micro. Should any more hiccups hit operations, it would be hard for investors to believe that these struggles are short term.
For more Foolish insight:
RSS Headlines
Fool UK