RF Micro Devices (NASDAQ: RFMD), a leading provider of cellular frequency solutions, blew past its own guidance when it reported its fiscal second-quarter earnings. The first quarter marked a vast improvement in the company's financial performance, with both gross and operating margins improving dramatically, and that trend has continued during the second quarter. The rapid rise in demand for mobile data is fueling RF Micro's business, and the second quarter was the best on record in terms of both revenue and profitability. Here's a deeper look at RF Micro's second-quarter results.
The details
RF Micro handily beat both its own guidance and analyst estimates for revenue and EPS during the second quarter:
| Metric |
Average Analyst Estimate |
Prior Guidance |
Actual Results |
|---|---|---|---|
|
Revenue |
$346.2 million |
$345 million |
$362.7 million |
|
Non-GAAP EPS |
$0.27 |
$0.27 |
$0.30 |
Sources: RF Micro and Yahoo! Finance.
Revenue jumped 17% year over year, far faster than the 10.9% growth the company previously guided for. Gross margin, which rose dramatically to 45% during the first quarter, increased further to 46.2% during the second quarter. The operating margin also improved, rising to 20.8% during the second quarter, up from 3% during the same quarter last year and 14.6% during the previous quarter.
Guidance for the third quarter was strong. Revenue is expected to rise to $385 million, a 6.1% sequential improvement and a 33% year-over-year improvement. The company expects gross margin to remain in the mid-40s, and for operating expenses to remain flat, leading to an expected non-GAAP EPS of $0.33.
Key points
RF Micro is set to merge with TriQuint Semiconductor (TQNT.DL) by the end of this year, and during the second quarter shareholders of both companies officially approved the combination. The merger will give the combined company greater scale, with the hopes of improving both profitability and competitiveness.
TriQuint released its own earnings report one day before RF Micro, also handily beating its previous guidance. Like RF Micro, TriQuint's gross margin has improved dramatically over the past year, and its guidance for next quarter came in well above the consensus. Strong demand for the iPhone is probably helping both companies, with a teardown of the iPhone 6 Plus done last month by iFixit uncovering a TriQuint 3G amplifier module and an RF Micro antenna switch module.
In RF Micro's earnings release, it unveiled that the company had entered into three-way non-disclosure agreements with TriQuint and leading smartphone manufacturers in order to, as management put it, "accelerate highly integrated products to market, as early as next year." What these products are is anyone's guess, but this could be a sign that the impending merger between RF Micro and TriQuint is already starting to pay off, with manufacturers choosing the combination over the competition.
Whether RF Micro can maintain the high margins of the past two quarters is something investors should keep an eye on going forward. RF Micro has had good years in the past with double-digit operating margins, but the company has never been able to sustain profitability for very long. The story is the same for TriQuint, and while the combination should introduce cost savings, combining two companies with erratic earnings results over the past decade may simply lead to a larger company with equally erratic profitability.
RFMD Operating Margin (Annual) data by YCharts
Final thoughts
RF Micro had a fantastic quarter, handily beating its own guidance and calling for continued growth going forward. The merger with TriQuint is on track, and both companies are benefiting from strong demand for the iPhone 6. How long RF Micro can maintain the record margins that it produced this quarter is a question that will only time will answer, but in the short term, management seems extremely optimistic about the company's prospects.
