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Chip maker Triquint Semiconductor (Nasdaq: TQNT ) dropped 6% in extended trading despite beating Street estimates, as its outlook missed analyst expectations. The company tried to hide its shrinking margins by highlighting the record revenue it earned during the year.
Time to put Triquint through the wringer to see what didn't work, and whether the company can still make it in the long run.
A problematic quarter …
Revenue in the quarter fell 10% to $227 million from last year as Triquint's Networks business, along with its Defense and Aerospace division, took a hit. The global economic weakness and budget cuts by the Department of Defense forced end users to cut down on infrastructure spending, which led to tepid demand for Triquint's products.
All the above factors along with capacity underutilization and a 50% jump in inventories hurt the company's gross margin, which fell to 30% in the quarter from 40% a year ago.
… with some rays of hope
The year has begun on a not-so-bright note for Triquint, but the plans it has in store to stage a fight back are worth a look.
The company supplies RF chips for mobile devices, and as more consumers purchase smartphones, it's expected that Triquint's revenue will gain some upward momentum. Management tells us that the company's 2G wireless business did experience some weakness, as consumers are moving towards more advanced bandwidths such as 3G and 4G which are now prevalent in smartphones. But Triquint is changing with the times, growing its 3G and 4G business 20% from last year, and the company believes these will be major revenue drivers in the future.
The defense budget is down but Triquint expects that couple of programs, such as the Joint Strike Fighter and EQ-36 ground-based radar system, will help to restore this section's growth in the future. Apart from these contracts, the company has already started shipping its products for a $25 million radar program, and it's investing in new technologies for such programs in future.
The Foolish takeaway
Triquint's future rests largely on how its deals will play out as well as the adoption of its latest wireless technology by the consumers. I will wait for the company to return to its respectable margins and show some top-line growth before taking a call on it. You can also do the same by adding the company to your Watchlist.