Anadigics, Inc. Q3 2008 Earnings Call Transcript

Oct.27.08 | About: ANADIGICS, Inc. (ANAD)

Anadigics, Inc. (NASDAQ:ANAD)

Q3 2008 Earnings Call

October 22, 2008 5:00 pm ET

Executives

Gilles Delfassy- Chairman, CEO

Thomas Shields- Exec. VP and CFO

Analysts

Pierre Maccagno- Needham & Co.

Harsh Kumar- Morgan Keegan

Todd Koffman- Raymond James

George Iwanyc- Oppenheimer

John Lau- Jefferies & Co.

Mike Burton- Think Equity

Edward Snyder- Charter Research

Anthony Stoss- Craig Hallum

Gary Mobley- Piper Jaffrey

Neil Waggoner- Stephens, Inc.

Cameron Wright- Jay Fishman

Thomas Shields

Good evening, everyone and welcome to Anadigics third quarter 2008 earnings conference call. Before we get started please remember any comments made in this call by management as part of prepared remarks or in response to questions may contain forward-looking information. Such information is subject to risks and uncertainties as described in this evening’s press release and in the company’s various filings with the SEC. I would like now to turn the call over to Gilles for his opening remarks.

Gilles Delfassy

This is the first time I am talking to you on behalf of Anadigics, and frankly I would prefer to initiate that relationship with better results. But as much as I am disappointed with our numbers today, I would provide you with my [inaudible] business and what we are doing to get to the other side.

Another thing I would like to tell you that is when things get so hard, when times get so difficult, then transparency, candor, and honesty are not only the best way, they are the only way. So we are going to set that as a standard and work really hard to get as close to possible to 100%.

Following my remarks, Thomas will provide you with the details of the financial reserves for the third quarter and the outlook for the fourth quarter. First, a few words about me.

As most of you may know, I joined Anadigics in the first quarter of this year, 2008. That was following about 29 years in the industry with Texas Instruments where I created and led the wireless business which as you may remember was once the largest business of Texas Instruments.

Then I was thinking I would be just a happy director at Anadigics, but then we had a situation here and on August 18th I was offered, and accepted, and honored to accept the role as Chairman of the Board and the interim CEO of the company. So, since I had a couple of earlier commitments I now have about eight weeks of seniority under my belt which doesn’t quite make me a veteran yet and we can discuss about it later.

In the meantime our search continues to find the [inaudible] of the company which we have said could take a few months. My concern since taking on the role of interim CEO and by the way that is a role to which I am fully committed, I have spent a lot of time talking to customers and meeting with many employees to get the better understanding of the business.

With that my confidence in the company and its long-term potential, which were the reasons that I joined the board in the first place, have not changed. On one hand this company has innovative technology; very differentiated products; a great customer base; and talented employees. Customers have loved our products and we have therefore designed them in their equipment and as a result of that we have seen significant revenue growth over the past thirteen quarters.

On the other hand, during that time of impressive growth, it has become clear unfortunately that we were not able to execute on our manufacturing expansion strategy to keep up with that growth. Our problems began last year when we first announced we were having productivity issues. I guess what happened in that in our efforts to accommodate the unprecedented demand for products we have not done the right thing, and our efforts have been counter-productive because we have created increasing inefficiencies in our manufacturing operations which actually have further limited our output and that was not a nice cycle to enter.

What happened next is we had to put some of our customers in allocation, a bad word, which in turn led us to miss some key [inaudible] in this cycle and that has resulted in a significant loss of market share. That basically is the primary reason for our lower levels of revenue and our degraded profitability.

The bottom line is that we have disappointed our customers and we need to change that. And let me tell you, that is what we are doing here. First of all, we are going for a complete overhaul of our operations to improve our execution and productivity and that is starting with our leadership. We have recently replaced our head of operations with Sunni [inaudible]. We have hired Sunni to assist us after spending more than twenty years at Intel, most of it in the technology and manufacturing organization.

By the way, at the same time we have a new fab manager, and a new processing manager, and a new equipment manager, a lot of changes. We are also working on developing the culture of operational excellence, including building a solid foundation of infrastructure, systems, and business processes which frankly was not where it needed to be.

We believe that all that will lead to performance across the board, including outputs, cycle time, yields and quality. To prepare for our future goals we are also putting a greater focus on diversifying our sources of supply; by securing key foundry engagements to add capacity when needed. And so that we have that growth we are also making new product developments our top priority so that we can compete aggressively for customer designing.

Of course at the same time we are financially responsible, fiscally responsible, so we are also taking action to adjust the base of the company given our business outlook and the microeconomic climate. And lastly we are continuing to maintain a strong balance sheet to allow us to invest in our future. Again, we have issues. We are focused on fixing the issues of today, we believe we have understood them without taking our eyes off of tomorrow. What we want to do is to get stronger on the other side. I will get back to it in a minute. I would like now to turn the call over to Tom.

Thomas Shields

Third quarter 2008m net sales were $58.1 million, short of the $62 million low-end of our previous revenue guidance. This shortfall occurred in broadband whereby approximately $3 million of the shortfall directly resulted from orders being rescheduled by broadband customers late in the third quarter; and approximately $1 million resulted from not successfully producing the required product mix.

For the ninth month 2008 net sales were $212 million, which was up 30.6% over the same period last year. The net sales breakdown for the third quarter was: wireless of $29.3 million and broadband of $28.8 million. Wireless net sales were down 41% sequentially and 14% from the year-ago quarter. Broadband net sales were down 7.6% sequentially, but up 12.6% over the year-ago quarter.

The net sales breakdown for the nine months 2008 were: wireless of $129.8 million and broadband of $83.1 million. Wireless net sales year-to-date are up 49.7% and broadband is also up by 9%. Our top customers consisted of Intel, Samsung, Motorola, and LG Electronics in the third quarter 2008.

We incurred a GAAP net-loss in the third quarter of $.26 compared with GAAP net income of $.11 last quarter and $.04 in the year-ago quarter. During the third quarter 2008 we recorded non-GAAP charges totaling approximately $.26 per share. Excluding these charges pro-forma earnings was break-even. The non-GAAP adjustments include stock-based compensation, impairment on auction rate securities, charges for management separations, cancellations and retirement of equipment and reserves on inventory associated with reduced demand. Pro-forma gross profit in the third quarter was $18.3 million, or 31.5% on net sales compared with $30.9 million or 38.4% on net sales last quarter, and $20.9 million, or 35.1% on net sales in the year-ago quarter.

Operating expenses in the third quarter were $18.7 million which declined $1 million or 7.8% from last quarter from last quarter primarily due to lower R&G costs. We continue to maintain a very strong balance sheet as our cash balance inclusive both short and long term marketable securities as of September 27th, 2008 was $152.2 million compared with $161.4 million at June 28th.

Our Cap-Ex spending in the third quarter was $12.4 million and depreciation expense was $4.4 million. Turning now to the business outlook for the fourth quarter 2008 we see continue continued softness in net sales in the fourth quarters, with net sales estimated in the range of $44-$46 million. We estimate a GAAP net loss per share of between $.19-$.21; Pro-forma loss excluding non-cash stock based compensation expense is expected in the range of between $.12-$.14. The average share count is estimated at $61 million. As Gilles pointed out in light of the change in quarterly revenue along with the uncertain macro-economic environment we are taking immediate measures to realign our cost structure across the company. We believe that the results of these actions will have a significant impact on our operating performance in the near term without compromising our new product design and development.

Thank you and I would like to now open the lines for your questions.

Question-and-Answer Session

(Operator Instructions)

The first question comes from Pierre Maccagno of Needham.

Pierre Maccagno- Needham & Company

Could you give some clarity as to next quarters’ decline in sales? Is that going to be Wireless?

Thomas Shields

We see a split of revenue guidance 50/50 between Wireless and Broadband.

Pierre Maccagno- Needham & Company

And when you say Broadband can you be more specific? Is it Wireless LAN, is it infrastructure?

Thomas Shields

Not at this time, but we believe that cable infrastructure will be pretty reasonable. The majority probably is coming out of Wireless LAN.

Pierre Maccagno- Needham & Company

And is that because of share loss in Wireless LAN?

Gilles Delfassy

I guess that is mostly because of share loss in Wireless LAN.

Pierre Maccagno- Needham & Company

I thought that the issue was mostly with handsets, correct? The issue of putting customers on a location and Wireless LAN, could you be more specific with what is basically happening there?

Gilles Delfassy

Well again, I think that has been heard, it is very public now. There is a larger customer on which we were sole source and that customer has brought up a second supplier which is going to of course when you start with 100% market share is going to turn back our share in Wireless LAN. That is a fact which is pretty well-known.

Pierre Maccagno- Needham & Company

So going forward I guess we should expect that business not to ramp up as fast as we were expecting, I guess?

Gilles Delfassy

If you are talking about the C Wireless LAN that is correct; however, you know that Wireless LAN is a feature which is more and more in demand for equipment such as portable devices, MIDs or even high-end Smart phones and Feature phones and that is domain where we believe we have room for a lot of growth in the future.

Pierre Maccagno- Needham & Company

Last question. What is the CapEx that you are expecting now for this year?

Thomas Shields

For the fourth quarter we are expecting another $15 million of previously committed capital.

Operator

The next question comes from Harsh Kumar of Morgan Keegan.

Harsh Kumar- Morgan Keegan

As I look at your press releases there is talk of cost-control. Let me start there and ask you specifically what steps are you taking to bring down the cost to try and get back to profitability again?

Thomas Shields

Obviously as you know during the discussions we have held many times we were building and have built an organization for much larger revenue. In light of much lower revenue demand we are looking across the whole organization which is inclusive of operations to realign the expenses relative to the demand. It is not limited to one particular area, but will be impacting across the whole organization.

Harsh Kumar- Morgan Keegan

So, people and infrastructure?

Thomas Shields

We can’t dismiss the fact that given the head-count that head-count certainly would be part of the decision making as we consider options.

Harsh Kumar- Morgan Keegan

And not to harp on the same thing again, but you are building a plant in China, I am not sure what your commitments are, whether you are tied to it or not, but it doesn’t seem there is a need for it at this revenue level. Can you comment as to whether you are tied to it or if you could get out of it.

Gilles Delfassy

Actually as we have mentioned earlier we do not have an immediate need, but anyway as you know we are just to the end of completion of the building. That building will be completed very early next year and as I guess we have mentioned already we do not plan to move to the next phase which would be to equip it with machines and equipment until demand demands it, which is not the case immediately. So we will basically leave it, freeze it and not invest any further.

Harsh Kumar- Morgan Keegan

That is actually very helpful, because I was curious about the $15 million CapEx, but I suppose that is where it is going. When I look at your guidance Tom, should we assume that gross margins will be below the 30% range? Is that the rough cut I should look at?

Thomas Shields

Absolutely, and certainly we talked about the cost-cutting. The cost-cutting measures that we anticipate are not factored into the guidance at this time, however we believe that the margin could range anywhere from 24.5%-26% of net sales.

Harsh Kumar- Morgan Keegan

That is helpful too. Last question and I will jump back in the queue. Since you have started the process Gilles, since coming on, could you talk about maybe if you are having success in designments or you feel that the customer has had such a bad experience that they are going to take a little while to get back. Any kind of color or comment would be helpful.

Gilles Delfassy

Actually, as I think I have mentioned and I will mention again, the key strength of Anadigics is that we are designing superior products. If we could only deliver them without glitches and more easily and more of them, our lives would be so much better. Now we have to be very candid with you. We are in a situation where a lot of customers actually love the performance level of our products. They know that if they have our products they would have a longer battery life because of better power consumption, better power efficiency and all of these good things. But of course some of them have been burned and had a bad experience when they ordered a lot of volume from us so what we are going to do, and that’s the charter of the team and everyone is aligned, and of course I would be a full contributor as much as I can to that effort, is to stabilize our production. We need to become again a reliable, predictable, good supplier to our clients. And that is exactly what is taking most of our energy today because that is where we have started to see and that is where we need to start very early. At the same time we are visiting the customer, all of us, to explain to them that we have not behaved, we have done a lot of bad things to them and we are certainly appreciate that, we understand, we believe we understand what went wrong and what we need to correct, and basically we are telling them to give us a chance to prove that we have become a more solid and reliable supplier. It is the case already, I am going to mention a little bit later but actually we already have some good news in terms of design wins on new products that happened very recently. But again, to be candid, some customers will take a longer time than others to trust us to deliver fully their volume orders. In some cases it will be fast, in some it will take more time, but it doesn’t matter. We are fully committed to one, putting our house in order, and two, bringing certain dividends to our customer, and three, resume growth.

Operator

The next questions are from Todd Koffman of Raymond James.

Todd Koffman- Raymond James

Could you give the split within the Broadband segment of the Wireless LAN revenue, the Set top revenue, and the infrastructure revenue?

Thomas Shields

As we have in the past, certainly for the third quarter Wireless LAN was $14.8 million. Set top box and cable infrastructure combined was $14 million.

Todd Koffman- Raymond James

Two quick follow-ups to that. Was the split between set top and infrastructure sort of similar to what it has been in the past? And then in the fourth quarter I thought you said you thought you would have a similar trend in the cable set top going forward essentially flat and that the decline was going to be almost entirely Broadband within the Wireless LAN and I just wanted to get confirmation on that, unless I misheard you.

Thomas Shields

On the last comment you are correct. And in terms of the distribution between set top box and infrastructure for the third quarter set top box, which comprised tuners and splitters, were actually up $1 million versus the infrastructure component.

Operator

The next question comes from the line of George Iwanyc- Oppenheimer Iwanyc of Oppenheimer.

George Iwanyc- Oppenheimer

Tom, when you look at the OpEx levels, and the cost-cutting efforts that you have put in place, how quickly do you expect to see the benefits from that, and can you give us an idea of what numbers that target exiting 2009? Or what are your long-term targets at this point?

Thomas Shields

The goal is to maintain free cash flow, to actually break even on an EBIDTA basis. So we are right now underway and undertaking the various measures to identify the magnitude of the costs of reductions that we need. Obviously this has a lot to do with the demand, this also has a lot to do with the design activity that we have had which is very strong, so certainly you want to protect your research and development efforts. We have not identified particularly a dollar at this time, however we would expect that it would be fully incorporated in the Q1 results, so between now and maybe the next couple of weeks we will finalize identifying all the actions and the measures we have to take and therefore you would expect that during the course of November all actions would be taken, and some actions that would be phased in over time.

Gilles Delfassy

And again, of course Tom didn’t give you a number, but I am sure he has more data than what he told you which is that we want to be cash neutral or positive and the fact that [inaudible]. I am sure that you have a pretty precise idea of what that means.

George Iwanyc- Oppenheimer

When you look at the overall market and normal seasonality in the first quarter do you anticipate another sequential decline in revenue when we get to the first quarter of next year?

Thomas Shields

At this stage there has been so much information that has hit the press, Ellergy announced yesterday, and everyone is very concerned about the slow-down on a global basis. Right now it is too premature to comment on Q1. We are not immune to the situation, as you know from the results that we are guiding to, however at the present time we can’t comment on Q1.

George Iwanyc- Oppenheimer

Can you give us the rough list by technology and wireless side how much CDMA, WCDMA and if you had any other technologies?

Thomas Shields

As you know since a few quarters ago everything is predominantly 3G. That hasn’t changed.

Operator

The next question is from John Lau, Jefferies & Company.

John Lau- Jefferies & Company

First of all I just wanted to clarify the $4 million miss that you had in the Broadband segment. Was it due to the multiple sourcing of your customer? Or was it due to your own inability to manufacture the parts that your customer was demanding? I am not clear about that.

Thomas Shields

When we say “rescheduled the orders”, the orders have not gone away. Basically they have been rescheduled and as far as we can tell it seems to be as a result of the demand that they did not see from their own customers.

John Lau- Jefferies & Company

My second question is on your wireless business. Wireless business was responsible for your earlier P&Ls when you made the announcement for the third quarter. And still it looks like your inventory has gone up a lot around $7-$8 million in this quarter. And next quarter guidance is also weak. So do you think your inventory level now reflects the market dynamic, or do you still need to deplete your inventory a lot?

Thomas Shields

Certainly we had higher expectations relative to what was going to be sold in the channels during the course of Q3. And as a result the numbers reflect that they didn’t so therefore it is in inventory. A majority of which is in [inaudible]. So as you look in Q4 a lot of the revenue and shipments will be coming out of inventory.

John Lau- Jefferies & Company

So maybe in the next quarter you deplete your inventory further so does it have any negative consequence for your gross margin next quarter? Do you think this is the bottom of gross margin?

Thomas Shields

I see you point. Without knowing and having greater visibility into Q1 certainly as a result of the lack of inventory builds that you would expect in a growing environment it is going to have an impact. If you are not covering the fixed overhead, if you are not getting the absorption that you otherwise would. As a result the 24%-26% gross margin of net sales is reflected as part of that. In Q1 we are hoping that as a result of all the measures we take we can hit Q4 at the rock bottom and then we obviously grow from there.

Gilles Delfassy

The last thing we want to do is built inventory, to show you an artificial gross margin number, we won’t do that. We are going to keep our inventory in terms of days constant even though our business outlook is as usual negative for fourth quarter. That is a strong commitment that we are giving you and Tom is the first one to do that.

Operator

The next question comes from Mike Burton of Think Equity.

Mike Burton- Think Equity

Most of them have been asked, but just to clarify on the CapEx side, did I understand correctly that the $15 million in Q4 would be to finish out the build in China and if so, then how should we think about CapEx in 2009 for the year, and maybe on a quarter basis if you could help us there.

Thomas Shields

The $15 million predominantly pertains to China, that is correct. And then there is equipment that we have to have installed in Warren. So if you look out to 2009 obviously we put a lot of money into our own fab and as a result we are looking at a range anywhere from $5-$10 million for the full year in 2009 which could be evenly spread during the course of the year.

Gilles Delfassy

First of all, the $15 million will quickly be committed; I assure you we have not made any decisions recently to spend any CapEx especially on the Chinese fab so this is just a completion of an earlier commitment. Clearly, I think it is pretty obvious that the last think we want to do now is continue to spend CapEx. We think we have spent enough, we think that now the time is to turn this CapEx that we have already spent into additional capacity and additional revenue. That will be our focus.

Operator

The next question comes from Edward Snyder of Charter Research.

Edward Snyder- Charter Research

Tom, the design segment for phones is typically several quarters. I am wondering given how some of the share shifts at the big handset oriented have gone at some of your competitors. What could reasonably be expected, even if you tried to get it with cost, to be designed back in again? You are not second source on some of these new models out here, so doesn’t that limit what can be done on the revenue line for some of the handset products?

Gilles Delfassy

You should know me; I just spend fifteen years designing chips into cell phones so will try to give a shot at your question. You are exactly correct, by the way, even if we were given our products for free we missed a couple of key product cycles for photo 8, and there is no way we would recover it in 08’ and even in the first half of 09’ so clearly we are putting all of our efforts now into intercept as soon as possible when the next product cycle is which of course is not products for the holiday season of 2009. Even that as you know it would be very soon time to confirm designing for these platforms, because they are basically frozen in the first quarter, at the latest. Basically yes, we are trying to orient all our efforts to new platforms for the next cycle. So we are not trying to get to where we have already lost our circuit.

Edward Snyder- Charter Research

Some of the new products you can have in 09’, but where you are second source as you cut your cost and become more competitive on a cost basis we could see maybe modest upside where they start pulling more from the second bomb of suppliers than from the first, correct?

Gilles Delfassy

In cell phones it is very rare that you are really plug in and pin-to-pin to the turnover supplier because even if, you are still on handsets, right? On handsets even when the manufacturers and second sources have to associate it is quite unusual that they associate for the same phone. They typically have when there are two associates one associates for one family of product and the other associates for another one. Typically it is pretty small. There might be in all that, but it is pretty small. Honestly that is our focus today to try and do what you just said, we really are now trying to standardize our share with these new platforms today for growth in the second half of 09’. That is what we have put in the plan that we are discussing here.

Edward Snyder- Charter Research

The second question was on China. On your K previously it looks like you bought a purchase obligation in China that you are probably on the hook for maybe $10 million more? In respect to whether the factory is used or not, is that an accurate reading?

Thomas Shields

The way it works is you are obligated for the register count, which is $16.7 million. It just so happens that the construction of the building which we apply to the register capital and that we committed to is the $16.7 so that is the only commitment that we have.

Edward Snyder- Charter Research

So once that is done there is no more commitment that you have to spend, you just wait out the rest?

Thomas Shields

That is correct.

Operator

The next question is from Anthony Stoss of Craig Hallum.

Anthony Stoss- Craig Hallum

Maybe you can go into a little more detail on how much it is going to cost on a quarterly basis to keep that clean room active? Also, any thoughts on selling that facility or offering it up to some other entity? And if you could also give us a little more clarity on your cost cuts. Maybe on a percentage basis what amount you expect, or how much you expect to be completed by the end of December versus more to come in Q1.

Gilles Delfassy

Let me just start with a little idea about where we stand in terms of ideas about China and then I will leave it to Tom to give you more numbers. Basically again in the spirit of total candor short term we don’t need more capacity. We have all we need; we just need to make a better realization of what we have here. However, we have built something in China which has license to operate and we don’t plan to invest any more CapEx short term but it has some value. So at the same time we keep an eye open and in case there is somebody who would propose to us a good idea in terms of partnership maybe taking leveraging that earlier investment to realize their own investment, taking it over or maybe even building a new fab that we would not have any capital exposure to but that maybe we could use as a supplier eventually when we need more wafers. But again, just as a customer, not as an owner.

We are open to this kind of idea. We are looking around, not aggressively, but we are looking around if the opportunity presents itself, I assure you, we will follow up and pursue it.

Thomas Shields

So for your question Tony relative to the cost measures we have already undertaken. At a minimum if you do a calculation for those that they worked upon already based on the guidance that we are given, basically we would have to come up with a minimum of $3 million to hit the break-even EBIDTA. So as a start, rest assured, the minimum target has to be $3 million and obviously as we look at other programs that we are involved with, there might be some other opportunities, but a minimum Tony you can bake in $3 million. I do not have anything itemized relative to cost-of-goods sold relative to below the line operating expenses at this time.

Anthony Stoss- Craig-Hallum

One last question for you. Of your $34 million in inventory can you give us a sense of how much of that is finished goods versus wet?

Thomas Shields

So we have 45% is wet.

Operator

The next question is from Gary Mobley of Piper Jaffray.

Gary Mobley- Piper Jaffray

I wanted to start with a question on your fab utilization for Warren. What was it for the quarter?

Thomas Shields

As you know, a couple of remarks. As you know, we successfully delivered $80 million in the second quarter. And during the course of the first half of 2008 we have indicated that the capacity could grow upwards to $90-$100 million of opportunity in the Warren fab. When you look at the revenue that we shipped in the third quarter, of $58 million obviously that gives an indication that you would be at 58% utilized. Obviously it is a step function relative to the equipment that you may have available at any given time but remember the overall capacity or goal is to achieve very close to a run rate of $100 million.

Gilles Delfassy

I would like you to have a deeper understanding of that. You know that $18 million which happened in the second quarter has to be counted here. That is not especially with the situation that the fab is in now, that was not a sustainable solid capability. That was what happened after that fab had been pushed to hard and basically to overheating situation. So the first step of our recovery is by installing the right methodology procedures and habits and total quality system to make it capable of even doing $18 million on a sustainable basis, not just once at the expense of the next quarter and the quarter after.

Gary Mobley- Piper Jaffray

Since you haven’t tooled China there is no depreciation there, right?

Thomas Shields

That is correct.

Gary Mobley- Piper Jaffray

I would like to ask a couple of questions in a slightly different way. What is your best estimate, speaking with customers, etc. as to when your market share might bottom?

Do you think it is the fourth quarter?

Gilles Delfassy

What is our best estimate, is that the question? Again as I mentioned, now we are entirely focused and winning as many as possible of the holiday season 2009 platform and we are making some progress. We are going to talk about it. We are putting all of our efforts to rebound by the end of third quarter or fourth quarter of next year.

Gary Mobley- Piper Jaffray

And Tom, any thoughts on option re-pricing?

Thomas Shields

No, not at this time.

Gilles Delfassy

God no.

Operator

The next question is from Neil Waggoner of Stephens Inc.

Neil Waggoner

Would you talk about the revenue splits that are occurring at Intel on the Wireless LAN side? Also about the 1x2 and the 3x3 platforms and how you expect that to shape up going forward?

Thomas Shields

You are referring to the Montavina platform?

As you know, there is a second source, and the second source in terms of our eyes, we believe that we could still somehow get in between 60%-70% of the share. Therefore the difference is realized in terms of second source. That hasn’t changed. And throughout 2009 our anticipation is still that we can hold the same share that we have been achieving currently.

Operator

The next question is from Cameron Wright of Jay Fishman.

Cameron Wright- Jay Fishman

I want to think long-term here. I am wondering what kind of growth you see in the wireless side in the market that you guys are going after. Do you still expect substantial growth in the next four or five years?

Gilles Delfassy

We believe that we are in growth markets. Again, our products are designed in platforms which are actually growing faster than the general market today. And actually we have, just for example, the promotion for the phones which are 3G today is going to grow. Even with all these blips due to the economic environment with all these rumors that people will slow down, moving to Smart phones or high-end phones the compulsion of the 3G phones will increase. That is clearly being in our favor because the characteristics of the necessary peers, therefore these advanced platforms the 3G HSDPA, HSBT and the following generations of air interfaces, we believe we are going to make more and more complex [inaudible] and that is just what we are playing the end of the market that we are playing in. We believe that actually at some key customers we today have room for growth which is certainly very important. We believe we have at least 20% in our wireless business for the years to come.

Operator

Your final question comes from the line of Harsh Kumar from Morgan Keegan.

Harsh Kumar- Morgan Keegan

Maybe I didn’t understand something in one of the previous questions. Tom, you made a reference to a $3 million number in terms of a base level cost cut. Can you tell me how you arrived at that? Is that the level of cash flow, or how do you get to that number?

Thomas Shields

As I mentioned, f you do the analysis relative to the revenue guidance and the resulting gross margins that I referenced you begin to EBIDTA at close to minus $3 million.

Harsh Kumar- Morgan Keegan

Fair enough. And with respect to the cost cuts, you think you will spend most of November and December time frame putting those in place. Would we expect you to be breaking them when you get into the first quarter cash flow breaking even in the first quarter or is it going to take longer than that?

Thomas Shields

It really depends on the revenue. Right now the visibility is not the greatest, so based upon as we get more information we will know much better, but right now I couldn’t tell you at this point in time.

Operator

I would like to now turn today’s call back over to Mr. Delfassy.

Gilles Delfassy

Let me make a couple of closing comments. In summary, clearly we are quite disappointed with our recent financial performance and our near-term outlook. However I am confident that we can restore revenue growth and profitability. That is for several reasons.

Again, the first one is our productivity and growing markets. I strongly believe as we have discussed earlier that we are in the equipments market which have growth ahead of us. The second one is that when we talked to customers I actually never heard the customer say I don’t want to work with you again because you have disappointed me. Everybody said “we are so sad that you have been a bad supplier because actually your products are so exciting that when I use your product I have a different product, and equipment and a competitive advantage” and that makes me believe that as soon as we regain our creditability we will resume our growth.

Again as I mentioned we were pleased to notice lately that we have won quite significant 3G designs at both LG and Rheem which we are quite happy with. We believe that hopefully we will continue to win more and more the confidence of our customers and that bodes well for the future of Anadigics. Of course over the next several months I plan to visit as many of our customers as possible to share with them what we are doing to turn things around in terms of execution which is their major concern for us and of course I will also discuss our strategy as well as our product and the technology on that. My goal here is to reestablish credibility in our company; regain trust and confidence as well as continued business.

I will also work closely with the leadership team to make sure that we succeed in our journey towards excellence which as you know we have a lot of work to do but I think we are ready to go the right direction. By the way, Tom and I are also scheduled to present this talk over the next couple of months and I am looking forward to meeting many of you face to face I am looking forward to resuming contact with you. With that, thank you and good night.

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