Anadigics down after 2Q beats but outlook misses

Shares of Anadigics Inc. sank Wednesday after the company reported better-than-expected earnings in the second quarter, but a disappointing third-quarter outlook, and an analyst downgraded the stock.

Its shares dropped $2.75, or 31 percent, to $6.11 in afternoon trading Wednesday. Over the past year, the stock has traded between $5.85 and $19.53, and is down 23 percent year-to-date.

After the closing bell Tuesday, Anadigics _ which makes chips for cable television and wireless communication _ reported net income of $6 million, or 10 cents per share, more than triple the $1.9 million, or 3 cents per share, reported in the year-ago period.

Excluding stock-option costs and other charges, its adjusted profit totaled $11.6 million, or 18 cents per share. Analysts were expecting adjusted earnings of 16 cents per share, according to a poll by Thomson Financial.

Sales increased 49 percent to $80.5 million from $53.9 million a year ago, and topped analyst estimates of $78.2 million.

The company attributed revenue growth to broadband products for cable television and Wi-Fi wireless networks, including the initial shipments related to a new digital tuner, DOCSIS 3.0 cable modems and Verizon Communications Inc.'s ultra-high-speed FiOS service.

Bami Bastani, president and chief executive of Anadigics, said the growth in broadband products should "partially offset an expected decline in wireless as certain of our customers have lowered their demand expectations and are reducing inventory levels."

However, Anadigics projected third-quarter sales of $75 million to $81 million _ below Wall Street's target of $83.1 million, with earnings of 1 cent to 5 cents per share. Excluding stock-options costs, it expects an adjusted profit of 10 cents to 14 cents per share.

Analysts expect higher adjusted earnings of 18 cents per share.

The company said the low end of the sales guidance "reflects softness in industry demand and inventory re-balancing" from wireless customers such as handset makers.

The company also plans to accelerate expansion of wafer production in China. That includes doubling the investment in a Kunshan, China, plant to $100 million. Costs in the third quarter are estimated at $1 million.

Analyst John Lau of Jefferies & Co. Inc. downgraded Anadigics stock to "Hold," from "Buy," citing the company's "soft outlook on wireless and its lack of visibility in a key WiFi customer merits concern."

The analyst applauded its second-quarter results, calling them "solid," but said softness in the handset market coupled with channel inventory corrections compels him to take a cautious stance on the stock. He slashed his price target by 40 percent to $9 from $15. That price target implies upside of 1.5 percent over its closing price Tuesday of $8.87.

However, Roth Capital Partners LLC analyst Jay Srivatsa kept a "Buy" recommendation and $12 price target on the stock, noting the company "has not lost any market share in any of its key growth markets," and remains "a sound investment."

In a research note, Harsh Kumar of Morgan Keegan & Co. reiterated an "Outperform" rating, saying the wireless weakness appeared temporary "and we continue to find shares (in Anadigics) compelling." The analyst reduced his 2008 and 2009 estimates.