Semiconductor manufacturer Anadigics, Inc. (ANAD) reported third-quarter 2014 adjusted net loss of $5.7 million or loss of 7 cents per share, narrower than the loss of $9.5 million or loss of 11 cents per share in the year-ago quarter. The adjusted loss (with employee stock option adjustments) of 8 cents per share was narrower than the Zacks Consensus Estimate of a loss of 9 cents.
GAAP net loss for the reported quarter came in at 8 cents per share versus a loss of 13 cents a share in the year-earlier quarter, primarily due to significantly lower revenues that was partially offset by lesser operating expenses.
Revenues
Total revenue for the reported quarter was $18.9 million, down 48.9% year over year from $37.0 million in the prior-year period. Revenues almost matched the Zacks Consensus Estimate of $19.0 million. The sharp year-over-year fall in revenues was largely attributable to a decline in demand for its legacy mobile business, partly offset by a stronger-than-expected progress in infrastructure-targeted activities.
For the infrastructure market, Anadigics manufactures RF and optical products for cable television, cellular wireless small cell, WiFi and machine-to-machine (M2M). The Infrastructure segment contributed $10.0 million and accounted for 53% of total revenue. The Mobile segment, comprising WiFi and Cellular products that primarily address the smartphone, handset and tablet markets, generated $8.9 million or 47% of total revenue.
Corporate Restructuring Initiatives
Anadigics initiated corporate restructuring activities to reduce operating costs and better align its resources in accordance with the evolving demand for infrastructure-based products. In addition, the infrastructure-targeted products have a higher revenue and profit margin than mobile-targeted products. As such, Anadigics has continually reduced its fixed costs by unwinding production of RF (radio frequency) power amplifier and front-end products for a variety of mobile applications including handsets, tablets and data cards in the cellular 3G/4G and WiFi markets. The company also decided to monetize some of the wafer processing equipment for these products to partially fund this restructuring process. During the reported quarter, Anadigics sold non-core assets worth $1.9 million that more than offset its restructuring costs of $1.6 million.
As global demand for high-data-rate connectivity to the Internet increases exponentially, demand for high-performance infrastructure-based products is set to rise as well. In order to capitalize on this revenue potential, Anadigics is aligning its R&D investment focus and in-house manufacturing capacity toward a higher mix of infrastructure products.
Post-completion, the restructuring activities are anticipated to lower manufacturing costs by approximately $5 million and operating costs by approximately $10 million through workforce reduction by 140 positions to eliminate redundant manufacturing operations. All these measures are expected to strengthen its presence in key infrastructure markets, reduce fixed costs and generate EBITDA breakeven revenue level of approximately $26–27 million.
Margins
During the reported quarter, Anadigics continued to improve its cost structure through stringent cost-cutting initiatives, while maintaining a sharp focus on new product developments. Adjusted gross margin for the quarter increased 321 basis points on a sequential basis to 16.0%. Combating headwinds such as sequentially lesser revenues and lower factory utilization, an improved product mix and expense reduction due to restructuring actions drove the increase in gross margin.
Anadigics has expanded its product pipeline by launching differentiated solutions while strengthening its relationship with major OEM (Original Equipment Manufacturers) and chipset partners. The company looks set to exploit the widening range of applications in the WiFi market. Its front-end Integrated Circuits (ICs) enable producers to save board space, extend battery life and expand high throughput connectivity, earning design wins and driving revenue growth for the company.
Financial Position
Anadigics ended the quarter with cash and cash equivalents of $13.5 million. Inventories stood at $15.3 million or approximately 90 days of sale. During the quarter, capacity utilization was 30%. In order to augment its liquidity, Anadigics recently signed a new $10 million credit facility with Silicon Valley Bank, replacing its erstwhile credit facility. The improved cash efficiency of the new operating model combined with existing net cash and an improved credit facility are likely to provide the company with the resources required to realize positive cash flow in the coming quarters.
Outlook
Management did not provide any specific guidance for the ongoing quarter. For the fourth quarter of 2014, Anadigics expects sequential revenue to improve by 8% to 12%, driven by higher demand in the mobile business. In addition, considerable improvements in the cost structure and improved product mix are expected to enable gross margin expansion of 200 basis points sequentially. Operating expenses are expected to be flat sequentially, leading to EBITDA improvement of about 25% to 30%.
Anadigics presently has a Zacks Rank #3 (Hold). Better-ranked players in the industry that are worth mentioning include Ambarella, Inc. (AMBA), Avago Technologies Limited (AVGO) and SunEdison, Inc. (SUNE), each carrying a Zacks Rank #1 (Strong Buy).
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