- Current forecasts for the June 2007 quarter indicate a sequential decline in RFMD's POLARIS(TM) solution sales, partially offset by increased sales of EDGE and WCDMA power amplifiers and transmit modules, wireless LAN front ends and GaN devices - Revenue in the June 2007 quarter is currently expected to be in the range of $215 million to $230 million - Quarterly GAAP net income in the June 2007 quarter is currently expected to be in the range of $0.00 to $0.02 per diluted share, including estimated non-cash share-based compensation expense and non-cash amortization of intangibles of approximately $3.6 million in the aggregate - Quarterly non-GAAP net income is currently expected to be in the range of $0.02 to $0.04 per diluted share, excluding non-cash share-based compensation expense and non-cash amortization of intangibles - RFMD currently expects modest sequential quarterly revenue growth to resume in the September 2007 quarter and continue through the balance of calendar 2007, followed by an acceleration of growth in calendar 2008 as existing design wins ramp in multiple markets
The methodology used by RFMD to estimate non-cash share-based compensation expense does not factor in items such as new grants, terminations or amounts that may be capitalized in inventory, and the methodology used to estimate intangible amortization assumes no additional intangible assets are recorded. As a result, RFMD does not estimate the impact of non-cash share-based compensation expense on gross margin or operating expenses and will provide this information with its June 2007 quarterly results. Accordingly, actual quarterly results may differ from these estimates, and such differences may be material.
Comments From Management
Bob Bruggeworth, president and CEO of RF Micro Devices, said, "RF Micro Devices is winning opportunities to grow its dollar content in mobile devices as they increase in complexity and require additional high-performance RF content. Our investments in transceivers, pHEMT switches, filters, DC-to-DC converters, integrated shielding, MEMS switches, module assembly, wafer manufacturing and systems-level expertise have positioned our Company to help our customers -- and our channel partners alike -- to eliminate complexity, improve performance, reduce costs and speed time to market.
"We are winning follow-on business with our lead POLARIS(TM) RF solution customer, and we expect our revenue with this customer will return to growth in the September quarter. Additionally, our POLARIS(TM) 3 RF solution is on track to ramp in the second half of calendar 2007, which will expand our POLARIS(TM) RF solution customer base to include an additional top-tier handset manufacturer. Beyond our core cellular market, we expect high margin, diversified revenue growth in fiscal 2008, driven by sales of our GaN devices, wireless LAN front ends, GPS solutions and multi-market products.
"RFMD is aggressively investing in opportunities for diversified growth and evaluating strategic options to bolster revenue and earnings contribution. We expect modest growth through calendar year 2007 and an acceleration of growth beginning in calendar year 2008, as our world-class RF solutions ramp at cellular and non-cellular customers."
Dean Priddy, CFO and vice president, finance and administration of RF Micro Devices, said, "In the June quarter, we expect that a significant volume reduction at our lead POLARIS(TM) RF solution customer will impact our financial results. We expect the impact to be temporary, however, and our investment plans remain unchanged. New multi-year platform opportunities have been won at our lead POLARIS(TM) RF solution customer, and we remain on track to transition another top-tier customer into a higher dollar content status in the second half of calendar 2007.
"RFMD's balance sheet was enhanced by the Company's strong performance in fiscal 2007 and by our recently completed $375 million convertible note offering. We believe our healthy balance sheet gives RFMD a strategic edge to both streamline the supply chain in our cellular business and jumpstart our diversification efforts. Both of these opportunities are sharply focused on long term margin and earnings accretion."
Non-GAAP Financial Measures
In addition to disclosing financial results calculated in accordance with United States (U.S.) generally accepted accounting principles (GAAP), the Company's earnings release contains the following non-GAAP financial measures: (i) non-GAAP gross margin, (ii) non-GAAP operating income, (iii) non-GAAP net income, and (iv) non-GAAP net income per diluted share. Each of these non- GAAP financial measures are adjusted from GAAP results to exclude certain expenses that are outlined in the "Reconciliation of GAAP to Non-GAAP Financial Measures" table on page 10.
In managing the Company's business on a consolidated basis, management develops an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures. In developing and monitoring performance against this plan, management considers the actual or potential impacts on these non-GAAP financial measures from actions taken to reduce unit costs with the goal of increasing gross margin. In addition, management relies upon these non-GAAP financial measures to assess whether research and development efforts are at an appropriate level, and when making decisions about product spending, administrative budgets, and marketing programs. In addition, the Company believes that non-GAAP financial measures provide useful supplemental information to investors and enable investors to analyze the results of operations in the same way as management. The Company has chosen to provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance excluding the effect of certain non-cash expenses, unusual items and share-based compensation expense, which may obscure trends in the Company's underlying performance.
We believe that these non-GAAP financial measures offer an additional view of the Company's operations that, when coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of the Company's results of operations and the factors and trends affecting the Company's business. However, these non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.
The Company's rationale for using these non-GAAP financial measures, as well as their impact on the presentation of the Company's operations, are outlined below:
Non-GAAP gross margin. Non-GAAP gross margin excludes share-based compensation expense and amortization of intangible assets. The Company believes that exclusion of these costs in presenting non-GAAP gross margin gives management and investors a more effective means of evaluating its historical performance and projected costs and the potential for realizing cost efficiencies. The Company believes that the majority of its purchased intangibles are not relevant to analyzing current operations because they generally represent costs incurred by the acquired company to build value prior to acquisition, and thus are effectively part of transaction costs rather than ongoing costs of operating the Company's business. In this regard, the Company notes that (i) once the intangibles are fully amortized, the intangibles will not be replaced with cash costs and therefore, the exclusion of these costs provide management and investors with better visibility into the actual costs required to generate revenues over time, and (ii) although the Company sets the amortization expense based on useful life of the various assets at the time of the transaction, the Company cannot influence the timing and amount of the future amortization expense recognition once the lives are established. Similarly, the Company believes that presentation of non-GAAP gross margin and other non-GAAP financial measures that exclude the impact of share-based compensation expense assists management and investors in evaluating the period-over-period performance of the Company's ongoing operations because (i) the expenses are non-cash in nature, and (ii) although the size of the grants is within the Company's control, the amount of expense varies depending on factors such as short-term fluctuations in stock price volatility and prevailing interest rates, which can be unrelated to the operational performance of the Company during the period in which the expense is incurred and generally is outside the control of management. Moreover, the Company believes that the exclusion of share-based compensation expense in presenting non-GAAP gross margin and other non-GAAP financial measures is useful to investors to understand the impact of the expensing of share-based compensation to the Company's gross margins and other financial measures in comparison to both prior periods as well as to its competitors.