RFMD to focus on ‘front end’

RF Micro Devices Inc. said that based on a fiscal fourth-quarter loss, it would cut $75 million in research-and-development costs and 350 jobs – or about 9% of its workforce – to focus on producing its core components for handsets and base stations.

The Greensboro, N.C., component vendor’s profit outlook for the current quarter also fell below analysts’ estimates.

As a result of the profit shortfall in the quarter just ended, RFMD said it would focus on power amplifiers and other components in the “front end” of cellular handsets, among other products, rather than pursue cellular transceivers and GPS chips in the face of several trends.

RFMD had been making cellular transceivers for other firms to integrate into their own GSM, baseband chip products, according to Mike Thelander, CEO of Signals Research L.L.C., a wireless consultancy. Two major trends led RFMD to restructure itself for the future, Thelander said.

First, many chip vendors are combining the baseband and RF transceiver functions and RFMD does not make basebands. Second, in the transition to 3G, formidable vendors such as Qualcomm Inc. have entered the picture, the analyst said.

“It’s like a game of musical chairs,” Thelander said. “There are two chairs left and five people dancing around them. At some point you have to do something.”

RFMD’s move means that it will remain in the 2G cellular transceiver business in support of its customers for its Polaris 2 and Polaris 3 products, but has signaled those customers and the market that it will not continue to invest in R&D for that business as a future revenue opportunity.

Instead, the company will focus on the handset’s “front end” components such as power amplifiers and filters, for instance, where baseband suppliers typically don’t compete, Thelander said. Technical hurdles to power amplifiers for 3G products remain and, thus, RFMD can continue to innovate, differentiate and profit in that and other areas.

And who will benefit from RFMD’s pullback?

“Any standalone radio-frequency component companies would benefit in the near term,” Thelander said.

RFMD reported May 6 that revenue for the fiscal fourth quarter reached nearly $222 million, down nearly 14% from the year-ago quarter. Net income was a loss of $16.5 million, down nearly 155% from the year-ago quarter.

Revenue for the current quarter is expected in the range of $230 million to $245 million, which the company said would represent 4% to 10% sequential growth.

“In the June quarter, we are positioned for cellular front end market share gains at additional top five OEMs, as new handsets commence production,” said CEO Bob Bruggeworth, “including a popular music phone for EDGE networks and a highly anticipated W-CDMA handset manufactured by a Korea-based OEM.”

“Looking forward, RFMD is eliminating all product development expenses related to wireless systems, including cellular transceivers and GPS solutions, and this is expected to unleash the value of a very profitable core RF components business,” Bruggeworth said.