Loss Narrows at ANADIGICS

ANADIGICS Inc. (ANAD - Analyst Report) recently reported revenues of $36.7 in the third quarter of 2009, down 36.8% year over year but up 16.7% sequentially. The reported revenue surpassed management guidance of revenue growth at 5%–10%. 

The revenue growth was driven by a boost in the company’s 3G wireless products as well as an earlier than expected recovery in both cable TV and WLAN revenues. Cable set-top box products increased and wireless LAN products jumped 65% sequentially. 

Gross margin improved significantly to 24.4% from 10.7% in the previous quarter primarily due to the increased revenue, higher factory utilization and improved yields. Operating expenses increased by $600,000 to $15 million from last quarter on higher R&D cost attributable to new products. Net loss per share came in at 10 cents better than the Zacks Consensus Estimate of a loss of 15 cents. 

The company recently announced a foundry agreement with WIN Semiconductors. This foundry relationship is a key component of ANADIGICS' new hybrid manufacturing strategy, providing a mix of internal and external manufacturing capabilities. Management expects this to be fruitful in expanding production capabilities by the fourth quarter of 2010 ensuring fulfillment of future demand and ironing out of supply constraints. 

In 2008, ANADIGICS lost significant market share (primarily at Samsung) as it was not able to meet increased demand from customers, which made them 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 delays in orders by customers to reduce exposure to this economic slowdown. 

Going forward, management expects revenues to grow by 5%–8% sequentially. The company plans a two-week shutdown at year-end and hence estimates factory utilization to be lower than that achieved in the third quarter. This will in turn negatively impact gross margins on a sequential basis. Net loss per share is projected between 8 cents and 10 cents. 

Last week, rival TriQuint Semiconductors Inc. (TQNT - Analyst Report) reported an in-line third quarter but provided a disappointing guidance primarily due to write down of excess inventory at Samsung, which is a key customer for ANADIGICS. Management seems to be working on issues which have been plaguing the company for the past 18 months – removing the inefficiencies in manufacturing operations and diversifying source of supply and key foundry partners. However, management need to convince wireless customers that they can rely on getting a consistent supply of ANADIGICS products, which are considered to be superior, along with regaining the lost market share at its key customer – Samsung. We maintain a Neutral rating on the stock before the picture becomes clearer. 

ANADIGICS is headquartered in Warren, New Jersey. The company designs and manufactures semiconductor solutions for the broadband wireless and wire line communications market.