ANADIGICS Outsources to WIN

ANADIGICS, Inc. (ANAD - Analyst Report) recently announced a strategic agreement with WIN Semiconductors Corp., for the design and manufacture of Gallium Arsenide microwave monolithic integrated circuits (MMIC). Gallium Arsenide (GaAs) ICs are used in wireless handsets and data devices that allow people to connect and communicate everywhere.

ANADIGICS is headquartered in Warren, NJ. The company designs and manufactures semiconductor solutions for the broadband wireless and wireline communications markets.  WIN Semiconductors Corp. is one of the world's largest pure-play GaAs foundries.

WIN has agreed to provide ANADIGICS with GaAs foundry processing services to meet customer demand for its high-performance, radio frequency integrated circuits (ICs). This foundry relationship is a key component of ANADIGICS' new hybrid manufacturing strategy. Together with its in-house manufacturing facility, the company can continue to deliver best-in-class RF devices to the wireless and broadband marketplaces.

In 2008, ANADIGICS lost significant market share (primarily at Samsung) as it was not able to meet increased demand from customers, which caused them to look for other sources of supply. This was mainly due to inefficiencies in manufacturing operations.

The problem grew out of proportion due to the recent economic slowdown, leading to delay in orders by customers to reduce exposure in this economic slowdown. All of this led to losses and management expects the company to continue incurring losses in 2009 as well.

ANADIGICS has several issues to be addressed in order to become competitive, which include a) Wireless customers need to be convinced that they can rely on getting a consistent supply of ANADIGICS products, which are considered to be superior; b) Win back the lost market share at its key customer – Samsung; c) Iron out inefficiencies in manufacturing operations; d) Diversify source of supply and key foundry partners; and e) decrease the cost base of the company’s Warren, NJ plant.

However, it remains to be seen how the management addresses these issues. We maintain our Neutral rating on the stock.