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
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
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
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.
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Fool contributor Dave Mock wears many hats and has the matted hair to prove it. He owns shares of Motorola and is the author of The Qualcomm Equation. The Fool's disclosure policy is tempting to all six senses.