MONT (MM)

RF (radio frequency) solutions provider and technology innovator TriQuint Semiconductor (TQNT) reported adjusted net loss of $9.4 million or 6 cents per share in the first quarter of 2014 versus $27.2 million or 17 cents per share in the prior-year quarter. Adjusted quarterly loss was narrower than the Zacks Consensus Estimate of a loss of 17 cents. The narrower loss in the reported quarter was primarily attributable to successful cost reduction strategies and an improved product mix.

Including non-recurring items, reported net loss stood at $19.1 million or a loss of 12 cents per share compared with a net loss of $27.9 million or a loss of 17 cents per share in the year-ago quarter.

Revenues & Margins

Revenues for the reported quarter were $177.6 million, down 4% year over year, due to unfavorable program timing in the defense market. Quarterly revenues were in line with the Zacks Consensus Estimate.

On an end-market basis, quarterly revenues in the Mobile Devices market, accounting for 58% of total revenue, saw a sequential drop of 45% year over year driven by seasonality factors and a temporary inventory correction related to a significant customer. The Networks market made up 29% of total revenue. Infrastructure & Defense revenues, accounting for 13% of total revenue, were up 2.0% year over year and down 4.5% sequentially. Infrastructure continues to witness healthy demand for base station products in China. The book-to-bill ratio for the reported quarter was the highest in two years at 1.22.

Adjusted gross profit was $62.6 million versus $42.0 million in the prior-year period, recording a 49% year-over-year increase. Adjusted gross margin improved to 35.3% up 12.5% from the year-ago quarter. The increase in margin was driven by improved product mix and efficient factory management and cost streamlining efforts. Adjusted operating expenses for the quarter increased to $70.9 million from $68.0 million in the year-ago quarter, driven by higher research and development (R&D) spending.

During the quarter, TriQuint introduced 36 new products and executed key development projects, strengthening its strategic position in the RF industry.

Balance Sheet

At quarter end, cash and cash equivalents aggregated $163.5 million compared with $79.0 million at year-end 2013, driven by a decline in accounts receivable and cash proceeds from employee stock option exercises.

Proposed Merger with RFMD

In February, TriQuint announced its plan to merge with rival, RF Micro Devices Inc. (RFMD). The consolidated company will possibly be the leading RF player in the infrastructure and defense markets taken together. In the mobile space, these two companies have complementary operations with negligible market overlap.

The merger will offer synergistic benefits and increase the profitability of the new company through economies of scale and mutual sharing of manufacturing expertise, research and development costs and adjustment of staffing expenses. The transaction is expected to generate $75 million of cost savings in the first year of its operation, followed by another $75 million in the second year.

The merger is expected to close in the second half of 2014, and will reportedly be accretive to non-GAAP earnings in the first full fiscal year of its operations.
 
Outlook

Going forward, TriQuint expects second-quarter 2014 revenues in the range of $215 million to $225 million, indicating a strong sequential improvement. Revenues are expected to be driven by a healthy recovery in the mobile segment. Adjusted net income is expected to be between 6 cents and 8 cents per share. Non-GAAP gross margin is expected to be 37–38%.

Over the next three quarters, cost reduction initiatives and improved product mix together are expected to drive gross margins above 40% on average. Its infrastructure and mobile markets are expected to witness growth and greater RF value owing to crowded spectrum, carrier aggregation and increasing LTE (Long Term Evolution) adoption. The LTE market is in a nascent stage at present, but its expansion will substantially drive growth for TriQuint, generating demand for RF content, premium filters and discrete filters.

Bracing itself up for the next and larger LTE expansion, TriQuint has restructured its factories and aligned its mobile product strategy around premium filters, high-efficiency amplifiers and densely integrated solutions. The company seems well positioned in each of its markets to build on its momentum.

TriQuint currently has a Zacks Rank #2 (Buy). Notable companies in the sector are Cypress Semiconductor Corporation (CY) and Montage Technology Group Limited (MONT), both carrying a Zacks Rank #1 (Strong Buy).

 
CYPRESS SEMICON (CY): Free Stock Analysis Report
 
MONTAGE TECH GP (MONT): Free Stock Analysis Report
 
RF MICRO DEVICE (RFMD): Free Stock Analysis Report
 
TRIQUINT SEMICO (TQNT): Free Stock Analysis Report
 
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