Semiconductor manufacturer Anadigics, Inc. ANAD continued to be in the red and reported a loss yet again in the second quarter of 2015. The company recorded second-quarter 2015 non-GAAP net loss of $4.5 million or loss of 5 cents per share, narrower than the loss of $7.8 million or loss of 9 cents per share in the year-ago quarter. The adjusted loss (with employee stock option adjustments) of 6 cents per share matched exactly with the Zacks Consensus Estimate.
GAAP net loss for the reported quarter came in at 7 cents per share versus a loss of 18 cents a share in the year-earlier quarter. Despite lower revenues year over year, the improved performance was primarily due to significantly lesser operating expenses.
Revenues
Total revenue for the reported quarter was $15.8 million, down 32.2% year over year from $23.3 million in the prior-year period. Revenues missed the Zacks Consensus Estimate of $16.0 million by a whisker. 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 $11.4 million and accounted for 72.1% of the total revenue. The Mobile segment, comprising WiFi and Cellular products that primarily address the smartphone, handset and tablet markets, generated $4.4 million or 27.8% of the 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 expects revenue from the Infrastructure segment to be 75% of the aggregate revenue by 2015.
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.
The restructuring activities reduced operating expenses by 4.6% in the reported quarter to $7.7 million. This was achieved through workforce reduction to eliminate redundant manufacturing operations and diligent execution of infrastructure-based business model. Moving forward, all these measures are expected to strengthen its presence in key infrastructure markets and continue reducing fixed costs over a period of time.
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. However, gross profit margin for the quarter decreased 270 basis points on a sequential basis to 20.5% due to lower sequential revenues.
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 $15.2 million. Inventories stood at $9.7 million or approximately 77 days of sale. During the quarter, capacity utilization was 25%. Anadigics has a $6 million borrowing capacity available under its $10 million credit facility with Silicon Valley Bank. 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
For the third quarter of 2015, Anadigics expects total revenue to decline by 20% to 24% sequentially to $12.0 million to $12.6 million, driven by a decrease in the mobile business and sequential decline in infrastructure revenues. In addition, non-GAAP gross margin is expected to contract 500-800 basis points sequentially due to lower top-line growth. Operating expenses are expected to be down marginally on a sequential basis with capacity utilization of 25–30%.
Anadigics presently has a Zacks Rank #3 (Hold). Better-ranked players in the industry that are worth mentioning include Applied Optoelectronics, Inc. AAOI, Mellanox Technologies, Ltd. MLNX and Pixelworks, Inc. PXLW, each carrying a Zacks Rank #1 (Strong Buy).
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