You don't even have to read beyond the headline of wireless chipmaker RF Micro Devices' (Nasdaq: RFMD) fiscal fourth-quarter earnings report to see that things haven't been getting better lately. Last quarter, my investing antennae snapped to attention when the report opened with the announcement of a stock buyback. This time, news of a significant restructuring at the company sent my warning sensors into overdrive.
The top and bottom line both suggest that RF Micro is still taking a beating in the markets for wireless components and solutions. Revenue for the quarter came in at $221.9 million, a 13.7% drop year over year, and 17.2% sequentially. Operating losses accelerated to $31.6 million in the quarter, more than 29% higher than last quarter, and in stark contrast to last year's $21.4 million in operating income. All told, RF Micro surpassed even last quarter's ugliness.
After RF Micro's earnings implosion last quarter, I wrote: "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."
With RF Micro simultaneously announcing its intent to offload its wireless systems division, its problems are obviously anything but short term. What little hope I had only a few weeks ago for significant margin improvements at RF Micro has been dashed.
On the bright side, the company appears proactive in focusing its business toward its more profitable segments. This move also may help reduce its revenue concentration in top-tier handset suppliers like Nokia (NYSE: NOK) and Motorola (NYSE: MOT), which provide substantial revenue at the cost of thin margins.
In the larger picture, giants like Texas Instruments (NYSE: TXN) and Qualcomm (Nasdaq: QCOM) already command most of the component value in cellular handsets, leaving less dollar opportunity per device for other chipmakers like RF Micro. With several companies fighting fiercely for new designs, I'm guessing that competitors such as Broadcom (Nasdaq: BRCM) are eating RF Micro's lunch by pressuring margins or offering superior solutions.
It's much clearer to me now that RF Micro has lots of work ahead of it. Until this Fool sees what the new company looks like post-restructuring, these sidelines are looking mighty comfortable.
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Fool contributor Dave Mock could chuck as much wood as a woodchuck could. He owns shares of Motorola and Qualcomm and is the author of The Qualcomm Equation. The Fool's disclosure policy knows who's naughty and nice.
