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Executives

Thomas C. Shields - Executive Vice President and Chief Financial Officer

Mario Rivas - President and Chief Executive Officer

Analysts

Anthony Stoss - Craig Hallum

Colin Denman - DA Davidson

Harsh Kumar - Morgan Keegan

Ed Snyder - Charter Equity Research

Todd Kaufman - Raymond James

John Pitzer - Credit Suisse

Cameron M. Wright - Jay A. Fishman, LTD

Steve Ferranti - Stephens & Company

ANADIGICS, Inc. (ANAD) Q2 2009 Earnings Call July 28, 2009 7:00 PM ET

Operator

Good afternoon. My name is Anglia and I will be your conference operator today. At this time, I will like to welcome everyone to the ANADIGICS Second Quarter Earnings Conference Call. All lines have been placed on mute, to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Shields, you may begin your conference.

Thomas C. Shields

Thank you, operator. Good evening, everyone and welcome to the ANADIGICS second quarter 2009 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 your 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 Mario for his remarks.

Mario Rivas

Thank you, Tom and good evening, everyone. First, a quick note on some of the financial numbers, and then I'll speak to our ongoing business initiatives.

I am pleased to report that revenue increased sequentially 3.2% to $3.5 million, versus our previous revenue guidance of being down by 8 to 10% from Q1. This increase was driven by increased turns business during the quarter in our 3G product line, as LG purchase continued to be steady, and both Samsung and ZTE came in much stronger than anticipated.

In fact, LG remained our top customer at greater than 10%. And we're also pleased to report that Samsung returned as a greater than 10% customer as well, while ZTE was a high single-digit customer.

You may recall in our prior earnings call that we anticipated Samsung to be a 10% customer later in the year. We are still experiencing market weakness directly related to the cable TV, set-top box product line, which we believe is tied directly to the economy. It was down roughly 1.8 million.

We are maintaining our share in this market. And we expect the resumption of growth when the market recovers. CATV infrastructure was flat to last quarter. We saw resumption growth in our WiFi product line and WiMAX also, grew slightly over Q1.

Visibility has improved, but we remain cautious as short lead time from customers will likely continue into the third quarter.

However, we continue to be in a strong position to respond quickly. Further, with the support from our company employees, management delivered a non-GAAP EPS loss of $0.18, compared with an anticipated $0.24 loss per share. This improvements came from better than expected gross margins and lower operating costs.

I will now like to update you on the progress of our ongoing strategic business initiatives I'll outline to you during our last conference call. This initiatives are operational excellence, rebuilding customer relationships, driving new design win opportunities and leveraging our technology.

Manufacturing operational excellence is the foundation of our success and critical to rebuilding customer relationships. Our team was put to the test during the second quarter with short lead times and responded very well with on-time deliveries. Our fab cycle times and yields continued to meet expectations.

As previously reported, we added new leadership in our operations group, with the promotion Russ Wagner as Vice President of Operations. Moreover, we are making positive strides along our strategy of creating high grade manufacturing organization.

Turning to rebuilding customer relationships, I am pleased to say that our efforts to reengage our key customers are evident in our second quarter revenue results. Despite inventory corrections by certain customers, we increased revenue sequentially, with LG Electronics, Samsung, ZTE, Cisco and Intel.

Our efforts to maintain share at LG and increase share at Samsung, have been fruitful as can be seen by our recent press release on the LG Arena and Samsung Omnia HD and many more other handsets. We continue to be actively engaged with all of our customers, such as REM and ZTE and look forward to their new product launches in the second half of this year.

Our focus has been to put the customer at the center of all we do, ensuring manufacturing support to meet demand requirements even on shorter lead times. This coupled with our customers' preference for our products based on our outstanding technological performance is reestablishing our position at the most innovative, credible supplier of PA modules.

Low visibility in this market continues to be noted by many of our customers. But we remain confident in our opportunities. In the pursuit of new design wins, we continue to see positive indicators in wireless, based on customer activity, backlog and engagements. There has also been the recent industry news from the wideband CDMA development group that noted an increase in subscriber adds in late June.

Our priority remains focused on increasing our design wins, so that we are well-positioned to benefit from a market recovery and increasing global demand.

Speaking of new opportunities and leveraging our technology, I would also like to talk about the new 3G spectrum presently open up at a lower frequencies between 800 and 900 megahertz from two sources. Spectrum clear by converting UHF broadcast TV to digital, the visual dividend, and relief from European regulations, which prevented GSM operators from deploying another wireless technology in their 900 megahertz spectrums.

ANADIGICS has superior products for wideband CDMA, HSPA mobiles at 800 to 900 megahertz band. And we are developing more advanced products today in our HELP3 and HELP4 product families.

As the new spectrum up and solve for mobile communications, operators and mobile device makers will finest prepare and ready to help create mobile devices to take advantage of it.

We continue to expect slower recovery in cable for the remainder of the year. However, new opportunities continues to be driven by the Dutch's 3 point roll out. We remain positive in regard to our expected market share, with key wireless LAN customers for the second half of 2009, and do expect further recovery.

We have just announced a new dual band front-end IC, specifically designed for use in the growing WiFi enabled mobile device market. We are able to benefit from our close working relationships with tier one customers in both the wireless and WiFi markets, to design products that lead the industry in performance.

The market for WiFi-enabled mobile devices is supposed to double in volume by the end of 2010 according to ABI Research, and continued to grow through 2013. In addition, In-Stat reports that cellular WiFi handsets will surpass mobile PCs at the largest category of WiFi-enabled devices by 2011.

Finally, let's talk a little bit about netbooks. The global netbook market for 2009 has been increasing steadily, and is predicted to approximate 30 million units. ANADIGICS has leveraged its March RFP signed expertise to develop PAs capable of delivering the superior levels of linearity and efficiency required to drive high quality mobile connectivity to CDMA DVDO, EDGE and wideband CDMA, HSPA 3G wireless netbooks around the world.

This is where our parts were selected as perfect fit for embedded modules like Goby which has had significant fraction in the market. Thank you. And I will now like to turn the call back to Tom for the financial review.

Thomas C. Shields

Thank you, Mario. The team here at ANADIGICS is quite excited to be reporting a positive reversal in its prior revenue trend by posting a 3.2% sequential increase in the second quarter to 31.5 million in revenue on stronger trends business in 3G and wireless LAN.

As noted earlier by Mario, this compares to our prior revenue guidance of an expected 8 to 10% sequential decline. Our 3G and wireless LAN revenue increased 2 million or 8.4%, and 0.8 million or 87% respectively.

While cable infrastructure revenue was flat to Q1, better then expected, we did experience a steeper decline in our cable set-top box revenue in the amount of 1.8 million.

Overall, the combined factors of stronger quarterly revenue, improved factory utilization and reduction in our cost structure in both cost of goods sold and operating expenses resulted in a better than expected improvement in our non-GAAP loss.

We reported an $0.18 loss per share, $0.06 better than our prior guidance, and $0.03 better than last quarter.

Gross margins were 3.4 million and flat to last quarter, but higher than anticipated. And operating expenses were 14.4 million, lower by 1.2 million or 11%. Net cash used for operations in the second quarter was 3.7 million, sharply down from the 10.1 million used last quarter on reductions and working capital.

Our combined cash and cash equivalents totaled 128.4 million, a reduction of 4.1 million from last quarter, as our CapEx was 0.4 million in the second quarter and depreciation was 4.7 million.

Turning to the business outlook for the third quarter of 2009, we, like others, in this market remained cautious on the macro economy. However, while we expect to see continued softness and a possible decline sequentially in cable, our 3G revenue is expected to further increase at a rate of double-digit.

As such, we expect overall net sales for the third quarter to grow 5 to 10% sequentially, as current bookings are currently at the low end of revenue guidance. Leverage from increased factory utilization in the third quarter is expected to expand gross margins and while we expect some investments in R&D for new designs, a non-GAAP loss is estimated to further improve by 2 to $0.03 per share in the third quarter to a range of 15 to $0.16 per share.

Now, I'd like to turn the call over to the operator for opening a Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from the line of Anthony Stoss from Craig Hallum.

Anthony Stoss - Craig Hallum

Hi guys. A couple of quick questions. Tom, did you say you're fully booked to the bottom-end of your guidance?

Thomas Shields

That's correct, Tony.

Anthony Stoss - Craig Hallum

Okay. Mario, last quarter you talked about WiFi design activity in the handset. And you said you had something cooking for second half of '09. Could you give us a bit more detail, perhaps what expect timing wise on that?

Mario Rivas

Yes. No, its we're still working with our partners. No, it's a -- we have to match it up with the chipsets that get supply to the different OEMs. And it will be a matter of product introduction and who gains the design win.

What we have observed in OEMs is a slightly push on the introduction of new designs. So at this point, I'm not able to give you any firm guidance of timing.

Anthony Stoss - Craig Hallum

It's nice to see Samsung coming back as a 10% customer already. Could you help us understand, I guess, a little bit more detail on design activity with them? I mean, kind of the ramp in Q3 and whatever information you might provide for Q4 et cetera. What gives you the confidence that the returning to the normal Samsung of old?

Mario Rivas

Well, it's up. I've said it before, and I'll say it again. This is the matter of execution in our part, right? So, we were able to serve them well in the second quarter.

Frankly, when you analyze the revenue with our design wins are starting to pay dividends even in the second quarter, with half of the revenue coming from new designs and half coming from established design. So in some cases, we replace some of our competitors and short order lead times that they ask us to support. And we were more than happy to do it.

So my guidance continues to be the same. That by the end of the year we should have between one-third and one-half of the peak, because I believe we have reengaged and we have there confidence and we need to climb this mount, by showing execution and delivering on time quality.

Anthony Stoss - Craig Hallum

Okay. Anything new to report on your business with Intel, perhaps any thoughts you might have on share or any upcoming platforms in Intel, how you think you might fare share wise on the wireless LAN side?

Mario Rivas

Yes. We have our next platform has excellent performance according to the feedback that we get from the customer. Now it becomes the business transaction side. I have stated several times that I want a win on our performance and I don't want to win on price. So this is a business that remains open and that's all I can tell you on the call.

Anthony Stoss - Craig Hallum

Okay. Tom, one quickie, actually two for you, utilization rate in the quarter was it and also remind us what your quarterly revenue run rate is for breakeven or what your expectations are?

Thomas Shields

Sure. First question relative to capacity utilization in the second quarter was just slightly above Q1 at 30, 32%. We indicated the last call that going through summer months here, we have increased utilization to 50% plus. So that is on schedule. Relative to breakeven, we still are holding very firm relative to our EBITDA our cash neutral at below 40 million in revenue and midpoint, to solely about midpoint through EPS.

Anthony Stoss - Craig Hallum

One last question, then I'll sign it off. Mario, help us, just I'd love to hear your thoughts on contemporary 3G phone, what you're seeing in here from customers in terms of increase in contents?

Mario Rivas

Yeah. There is not a one model fits everything. However, every 3G phone must have a 2G power amplifier as well. So at the minimum, you're going to see phones that have one 3G PA and one 2G PA, for those areas that don't have full coverage.

More likely, our dual-band in both situations. So you're going to see that the 3G phones have a least four. My favorite all times, and I have a poster of that at the entrance of the building when you come and visit us, it has five PAs. All of them are ours, in one of their major platform designs. And that is because they cover global. A global footprint requires five PAs, three on 3G and two on 2G.

So the content on the average, I will say, is going to be between three and four. Closer to four than to three. But that's because of the coverage on the infrastructure.

Anthony Stoss - Craig Hallum

Okay, great. Thanks guys.

Operator

Thank you. Our next question comes from the line of Aalok Shah from DA Davidson.

Colin Denman - DA Davidson

Hi guys. This is Colin Denman in for Aalok Shah. I was just wondering, if you guys could give me, just kind of following up on the Intel question. I know, on the last call, you mentioned that you were the first source and there was a second source as well. But it sounds like another of your larger competitors, different than the second source, has actually got some initial design wins at Intel for Wi-LAN. And I was wondering, how you guys used that. And if you could provide any more color on how you think that's going to progress going forward?

Mario Rivas

Yeah. The comment was for the present platform. So obviously, there is no possibility of having a third source, right? For the next platform that will start ramping up late this year and will cover 2010, I really cannot give you anymore color than the one you gave, now you will have to ask Intel what their plans are.

In my case, I will reiterate my position. I think we have good performance in our platform, and we are in business negotiations with our customer.

Colin Denman - DA Davidson

Okay. Thank you very much. I just have one more question I would like to get a little more idea of how big you think the netbook opportunity could be. I know that you guys have a design with Goby, and you mentioned that you've been seeing some more traction in the quarter for that. And I was wondering if you could kind of give a little more idea of what the magnitude of that opportunity might be for you guys going forward?

Mario Rivas

Sure. I believe that it is possible down the road that the penetration rate on netbooks, I believe the target that people are setting themselves for is 20% of all those devices right.

So I can give you an accumulated number of six million units and they are growing. So that number will grow. And frankly, we're pleasantly surprised by the demand on the devices and quite comfortable, because the difference between a 3G platform like Goby and a standard WiFi is performance. So that where we shine. And that's where we get value for our technology. So pretty exciting. It's going to be in the millions. If not at 10 million.

Colin Denman - DA Davidson

Okay. And just my last question, just wanted to see if you guys had any update on how things are going with Palm. I know you guys were excited last quarter to be included on there flagship device and I was wondering how that has gone in terms of what your expectations for that device were, and if that was yielding any future opportunities within Palm?

Mario Rivas

Yeah. And I heard that question a lot after the conversation I needed a good time to clarify it. Palm Treo has two models. Has an EVDO model and a wideband CDMA model.

Our designs in the wideband CDMA model, which is just launching. And we are still excited about their possibilities and eventually, the 3G device will move into more networks. And in conversation with Palm, they are very excited by the acceptance. And we are very excited to have them on the line up.

Now, am I ready to predict them as a 10% customer this year? Not at this moment, no. But we're definitely there, and for the people that will ask me the follow-up question, the EVDO is the one who is shipping in the United States under Sprint and that's not our design and wideband CDMA is our design.

Colin Denman - DA Davidson

Okay. That's great to clarify that. Thank you very much guys.

Operator

Our next question comes from the line of Harsh Kumar from Morgan Keegan.

Harsh Kumar - Morgan Keegan

Guys, a couple of questions actually. Trying to understand, maybe this is simplistic on my part, why margins didn't go up despite of the revenue increase. And then, I have got a couple more.

Thomas Shields

Hey Harsh, Tom. We had guided 8 to 10% down last quarter and we mentioned that Q1 was certainly supported by lower cost inventory and we anticipated that we would turn that high cost inventory in Q2. It wasn't the case.

So Tony has also asked that we essentially were flat relative to utilization. So, there was much expansion coming to that. Clearly, with the cable set-top box down sequentially, we didn't get the lift in our gross margins and also mentioned that cable infrastructure was flat.

So as you look into the second half, we still see cable being soft. But we're going to see increasing utilization in our fab, because 3G has become very, very strong for the company.

Harsh Kumar - Morgan Keegan

Got it. But fair to say that your product lower, forgetting about the fab for a second, and product level margins are somewhere in the 30s to 40s, right Tom?

Thomas Shields

That is absolutely correct.

Harsh Kumar - Morgan Keegan

Okay. And then, so if we get the breakdown between wireless WiFi to the extent that you want to give us?

Thomas Shields

Sure. I had, but I'll repeat that. Certainly, for wireless it's simply all of 3G, which is 23.2 million in total for the quarter, second quarter. And the detail I provided for essentially broadband is combined relative for set-top box, which is 2.9 million infrastructure at 3 million. And then, we have wireless LAN at 1.8.

Harsh Kumar - Morgan Keegan

I do remember that. Thanks for clarifying that. Tom, another question for you on your convert situation. Could you just maybe remind us and the investors where it stands and maybe, if you have inkling to the extent that you can talk about on a public call like this, what you intend to do about it, at the current stock price?

Thomas Shields

Sure. The 30 million on the convert is due October 15. And it does come with $5 conversion price. So outside of that, there is no knowledge of the present time relative to should we assume conversion?

Clearly, stock price is not there yet. So hopefully, with our results and momentum, we can see it surpass that $5. But with the -- when we report our cash balance clearly, we always report gross and net cash with the assumption that potentially, we meant to pay it back.

Harsh Kumar - Morgan Keegan

Fair enough. Thanks guys.

Operator

Your next question is from the line of Steve Ferranti from Stephens Incorporated.

Unidentified Analyst

Hey guys, this Neo for Steve. Can you guys talk a little about some of the factors that you think will lead to an initial revenue rebound in the cable business in the coming quarters?

Mario Rivas

What we stated is, this is totally driven by prior consumer conference and ability to spend. The numbers that came out yesterday, do not back up the rebound. So I think the difference on the wireless base is that the wireless phone has become an essential element rather than a optional one. And it also benefits from a worldwide rebound specifically, in China, where the incentive program is really is helping consumers in spend more money.

So I think eventually it will come. It's a matter of when the economy will rebound and that's the macroeconomic factor that we do not control. But If I see the tale of the two businesses, we see wireless very strong, our 3G position continued to increase. And if we were reporting as an independent wireless company, then the guidance will be different right, on a side where consumers confidence is still it needs a little bit of help. And eventually, we will rebound. But for now the investments on cable infrastructure and set-top boxes is minimum.

Unidentified Analyst

Understood, thank guys.

Operator

Our next question is from the line of Ed Snyder from Charter Equity.

Ed Snyder - Charter Equity Research

Hi, thank you. I kind of wanted to move back to the convert if I could. Assuming that it doesn't convert, given the details of it, it looks like you're going to be talking about somewhere in the range of 30 to 40 million in cash, which is about 40% of which you have on hand now.

What you need to do on the business? Is this going to put you in a crimp, especially given demand snapping back, working capital requirements going up. Can you give us a little color on that?

Thomas Shields

Sure, Tony, I am sorry, Ed. Regarding the convert, its 38 million that comes due. Exiting the second quarter here, on a net cash basis, assuming we had to pay it off today, we had 90.4 million.

What we demonstrated in the second quarter was clearly that we were helped by a reduction to working capital and we only utilized, especially 3.7 million from -- for operations.

And in the third quarter, we anticipated as results of inventories builds, to service the demand of a customers, when to use cash to pay up working capital. However, as you know, as you return the inventory and then cut your receivables, you going to get it back.

So Tony, started the question relative to breakeven. So, we clearly feel very confident relative to the low 40s breaking even on cash basis. So when we look revenue at the guidance we gave for the third quarter, we're not too far away. So our position really remains the same that we stated, I believe during the first quarter that we do intend and like to achieve no less than $80 million of net cash exiting Q4.

Ed Snyder - Charter Equity Research

This is your plan. And then, price pressure. There's a lot more competition. We've heard nothing, but share gains from all the top RF guys. In fact, it almost stunning everybody, said they were gaining share. And the numbers they put up suggested some pretty big growth in the quarter.

I know that you guys were improving your position at both LG and Samsung. Is that coming at a cost of margins or ASPs or anything different than. And do you see yourself gaining enough share over the next year or so to get back to levels that you'd seen maybe a year or two years ago at say Samsung?

Mario Rivas

No. On LG, we really never lost share. And I feel very comfortable in saying that we think the target there is to maintain our share in 3G. We feel comfortable with that number. They feel comfortable with that number. And the partnership continuous to flourish. So, it's very nice to have a stable customer. But it's actually gaining share in the markets. So, if they gain share we gain share, right?

On Samsung as I said, it comes down to our own execution. So I believe we have from a technical perspective, there is no obstacle for us to make it to that point. In the 3G space, definitely, we have a good product, the customers want to buy and they just want to have the confidence that when they commit their products to us, we'll deliver on time and with quality. And that's when you see the ramp up. And I'm saying, there will be no instantaneous switch. But I am pleasantly surprised with getting Samsung to a 10% number earlier than I anticipated.

And I maintain my forecast that by the end of the year, we'll be one-third to one-half and grow strong into 2010. And it's good to have the two Korean companies that actually are gaining market share in the market to continue to grow.

On the second part of your question, the price pressure, we don't see anything abnormal on the price pressure conversations. We model 8 to 10% a year. And so far, I will tell you, I don't see anything different in the cellular space, in the space that we participate.

Now, there might other areas where the margin fights are more difficult to sustain, but I'm not referring to that information.

Ed Snyder - Charter Equity Research

And finally, REM, you talked about gaining some share there. I know that Vego (ph) picked up some. Is your position there kind of similar to what we've seen with the Koreans, when you going to comeback from, or do you thing you're holding your own?

Mario Rivas

Well, REM is a new customers for us, right? And I will say in Q3 there will be a key customer for ANADIGICS. We have said, we have four companies that we will like to write this year into wireless space.

LG, Samsung, REM and ZTE. And there is no reason for me to believe otherwise. I mean Ball Storm and the different models that derived from it, how our device is in no case I believe anybody can say they have exclusive sockets. But I feel quite comfortable with it.

Ed Snyder - Charter Equity Research

I am sorry, Tom, you have mentioned this before. The utilization in the last quarter or during the quarter.

Thomas Shields

It's slightly up over Q1, and is just above 30%. And I mentioned that during the summer months here, we're actually gearing towards 50% plus.

Ed Snyder - Charter Equity Research

All right, thanks guys.

Thomas Shields

You bet.

Operator

Our next question is from the line of Todd Kaufman from Raymond James.

Todd Kaufman - Raymond James

Thank you very much. I wanted to ask you about within your wireless segment, when you talk about market share, you are so much smaller now than the handful of bigger players. Arguably, they are all four, five, six times bigger than you.

And so, the market share numbers for you now are almost meaningless, because even when they loose share, their incremental dollar revenue are bigger than what you are capturing.

So my question is, when is the next design cycle, where you could actually do what you did? I guess it was in '07 where you just had a rifle shot through a whole bunch of successful design wins, and you launched your business from, I don't know, 10 million in wireless to 15 million in wireless. When is the timing of that, as opposed to the sort of picking up 3 million on 20 million and making it look like there is a big share gain going on, which is not to me a hollow victory? Thank you.

Mario Rivas

Well, thanks for the vote of confidence Todd. I'll take this as a positive comment. Allowing me to comment, we concentrate on, not the entire market that you are addressing. We concentrate on the 3G market, right, which is a smaller piece of the pie.

Our share with our largest customer in 3G definitely is significant, right. And I can tell you right now, do we have half of the 3G devices? Yes, we do.

So I'm pretty happy with 50%, 55% market share of any particular line that I'm concentrating on doing. And on the design that we had regain creditability and that's what we talk about 50 design wins, translate them into sales the second half of this year. That's the plan. We are pushing for the plan. You will see our improvements come in the next few quarters.

And then, we start the design win battle all over again. Because the cycle doesn't stop. So the next cycle that comes through is obviously for next summer through the following year. But in the mean time, if we deliver to our expectations on and execute with good quality and cycle time then there is no reason why there will not be sequential growth for us.

And so, am I participating in the GSM space? The answer is, no. I'm concentrating on wideband CDMA, EDGE and EVDO. And in those areas, while I agree that we are the smaller of the four public providers of PAs, I think in the areas that we concentrate our market share is negligible.

Todd Kaufman - Raymond James

Thank you. Just follow-up with that. So for the next design cycle, its sounds like it would the middle of 2010, where you would get some indications on your design wins. Clearly, the design wins for this Christmas selling season, you've locked and loaded.

Mario Rivas

You bet.

Todd Kaufman - Raymond James

So that would be the middle of 2010, or will you get some of the indications were down in the next?

Mario Rivas

Three months ago I gave you an indication that we had design wins and those are the local loaded for Christmas right. So Christmas in our business happens in the first quarter of the year.

So we are working on a product road map. We have talked to our customers our product roadmap. We will deliver samples for the new devices. We have delivered sample for the new devices. Are we in the process of securing those design wins. So while before we were just trying to maintain the relationship with customers, now we are working to expand the relationship with customers. When those -- what I meant to say is, when does is it translating to more revenue, that will be starting the cycle or from what next summer.

Todd Kaufman - Raymond James

A quick question on the set-top side. Your set-top business is down pretty dramatically. Has there been any change in set-top design that has precluded you from winning the sockets that you historically had been in or is it just truly an end market that's slow?

Mario Rivas

But I have been reading other companies in the field reports, and it seems to meet an industry issue rather than a market share. I will say that we don't believe we have lost market share on the socket. It's just that there is no pool from the customer end and therefore, companies are cautious in infrastructure as well.

Todd Kaufman - Raymond James

Thank you very much. Good luck.

Operator

Thank you. Our next question is from the line of John Pitzer from Credit Suisse.

John Pitzer - Credit Suisse

Yeah. Good afternoon, guys. Thanks for taking my question. Tom, a quick follow-up. You talked about utilizations in Q2 doing about 30, 32% and then jumping to 50% over the several months. I guess, you guys did a great job on inventory in the June quarter. Because I'm trying to figure out what the utilization jump implies for inventory build in September and/or what your revenue outlook might be for the December quarter, because the jump in utilization seems significantly higher than your revenue guidance. If you could help me understand discrepancy, that'd be great.

Thomas Shields

Correct. One area we've been focused on and Mario mentioned it during his comments, which is the short lead times by our customers. So part of the inventory and the increasing utilization is coming from the fact that we are building safety stock as well. We identified the proper mix, based upon the new designs for the second half. So there is a proportion relative to safety stock due to short lead times from our customers.

John Pitzer - Credit Suisse

And I guess, given the build in inventory, how much visibility do you think you have, going out to December. I'd hate to try to put you on the spot for December revenue guidance, but you probably won't give, but how do we think through that relatively to design wins, seasonal and the like?

Mario Rivas

I think that your last remark was the correct one. We will not give you a guidance. And again, while visibility has improved, it still remains quite a bit limited, because when we speak with our customers, they have limited visibility, right.

So we have projections from all of them. And I don't consider it prudent to be telling you what there projections are. But we are, we have decided to build some inventory on our say, our top five selling parts that we know will not pose a risk to obsolescence. And be ready if there is short cycle demand, like it was on Q2.

Now, I don't expect that the same ratio of short orders, but we need to be prepared and the fact that the inventory went down as much as it did in the second quarter, its because we were pushing every possible part to customers whey they demanded it. And in some cases, the order was for the following weeks.

So unless you have it on stock, you can not supply it. And in some cases, we actually said no, because we couldn't do it.

John Pitzer - Credit Suisse

And guys, any guidance on what you think the appropriate level of inventory is?

Thomas Shields

Well, the target we have is essentially 75 days of inventory. So, what I could do is you can fare four weeks in die bank and two or three weeks in finished goods. So, that is typically the norm.

Now, what you want to avoid is Mario pointed out, is not going to be excessive in the inventory builds. You are working very close to the customers based upon there visibility and their forecast, and their forecast given to us an update every week. So.

John Pitzer - Credit Suisse

And that's helpful. I guess more just getting back to the netbook opportunity. Right now, it's I'm assuming just a Goby chipset. I wonder, if you can help me understand what you think the think the attach rates might look like for Goby chipsets with the netbook. And I guess, more importantly, whether or not there is a standalone WiFi opportunity within netbooks for you, and where you stand on that?

Mario Rivas

Yeah, the question on what's the attachment rate. I'm quoting the statements from Qualcomm. So I think that I will refer you to the Qualcomm statement slide.

So their initial target is 10% penetration of all. But they are also very aggressive, saying that they would like to extend it. You have seen the commercials on TV by different operators on always on always connected. And that is on the broadband kind of performance where our PA works.

So far the netbook platform that is sold by the major IC manufacturers does not contain a WiFi component like you will do in netbooks. Is that going to change? Again, I will have to refer you to the suppliers of the microprocessors in this case. And as for, we are the same people that provide the WiFi performance for smartphones are also looking into the netbooks, and we are working with them. But I have nothing concrete to report today.

John Pitzer - Credit Suisse

Well. Thanks Mario.

Operator

Our next question is from Torres Stemberg (ph) from Thomas Weisel Partners.

Unidentified Analyst

Thank you. Just a follow-up to the last question. Can you talk about some potential reference designs you have on the smartphone, not just Goby and netbook, but specific for the smartphone?

Mario Rivas

Not at the moment. That's what's I said. I couldn't give you more guidance than what I had given so far. We are working with several partners to collectively approach OEMs. And in fact, to capture the business. But as of today, I cannot give you anything concrete than that.

Unidentified Analyst

Fair enough. And your wireless LAN business was up dramatically in the quarter. Was that primarily because the end market came back, or was that also now the beginnings of some of the design wins going into production?

Mario Rivas

I think that what you had in the quarter was that the first quarter was an incredible correction of the inventory that caught everybody by a little bit of a surprise, including our colleagues in the industry.

So in the second quarter, we started to get for more natural numbers of market pool and a complete inventory correction is over. The design wins will start coming up in the later part of the year, really in fourth quarter and first quarter, when generations transition. So I believe that what you see here is the end of the inventory correction.

Unidentified Analyst

Great. And if you look at the Q2 guidance and the 5 to 10% growth. Should we assume that that's primarily driven by your wireless business or 3G business or WiFi be up again in Q3?

Mario Rivas

The Q3 guidance you mean 5 to 10%?

Unidentified Analyst

Correct.

Mario Rivas

Yeah. We said overall, wireless will grow. And it will be, if I was just giving you guidance of wireless, I would give you two different numbers than the one I'm giving you here. And we also guiding down in our broadband side for the most part, on the set-top box area, right. The top of my head, I don't remember WiFi-specific Tom.

Thomas Shields

Yeah. We're anticipating that similar to Q2 that we would see some turns business and it could be up sequentially in Q3.

Mario Rivas

Yeah.

Thomas Shields

For wireless LAN.

Unidentified Analyst

Great. And last question for Tom. Tom, you mentioned you pick was in July session in Q3. Why wouldn't the EPS guidance be higher than, because I assume that would mean a pretty significant list in gross margin. Or are you just being conservative, just based on the short lead times there?

Thomas Shields

No. I think if you look at the model, I believe you could extend roughly 70% on incremental revenue growth. But the broadband and the cable business certainly has a much higher margin. When does the -- when there is a revenue lift, when there's a retraction.

So -- but there's a significant expansion, a far better than the average that we have been able to report historically. But also, there be, also being cautious on factoring in some R&D investments that we need to make. Where we're kind of special programs for some key reference designed players that maybe necessary here in the coming month.

Unidentified Analyst

Understood. Thank you very much.

Thomas Shields

You're welcome.

Operator

Thank you. (Operator Instructions). Our next question is from Cameron Wright from Jay A. Fishman, LTD.

Cameron Wright - Jay A. Fishman, LTD

Hi guys. Thanks for taking my call. Just follow-up on maybe some of those new key R&D designs. This for numerous recently from Verizon and surrounding Verizon and Apple regarding, LTE and near the next-generation potential devices.

Can you just talk what how you are positioned for LTE and what chances are you might be some of the first devices there? Thanks.

Mario Rivas

Yeah, we are very happy of our position on LTE. That is fueled by our position in my mind. As a matter of fact, maybe 2.5 megahertz band, we were able to supply LTE PAs in Barcelona in February. Now, so that systems can be debugged. And we are in the process of developing and then sampling and in producing LTE devices.

Now, I will say that for the horizon next quarter and the quarter after that, the rest of the year for sure, we should not expect large amount of revenue left out of LTE, because there is just that there is no systems that do LTE.

So right now, it's a work of working on the reference platforms and then OEMs will adopt for their mobile handsets. And as we have proven on WiMAX with introductions of wideband mobile devices, we have very well-positioned our technology plays very well to LTE.

Cameron Wright - Jay A. Fishman, LTD

Great, thanks.

Operator

Thank you. Our next question is a follow-up from the line if Steven Ferranti from Stephens Incorporation.

Steve Ferranti - Stephens & Company

Hi guys. Just a quick follow-up from our end. Can you give us an update on where we are in terms of bringing online your outside fab partners and then sort of what capacity utilization rate is? Does that make sense to start maybe thinking about in terms of them handling some of the capacity?

Mario Rivas

You bet. We are making progress now I had last promised that we had narrowed down the numbers. We have selected our partner. We have done considerable amount of work together to model their process parameters and we actually have a design return that we were able to analyze and we are quite satisfied with the results of the endeavor.

So now the next step is to select the -- finish the conversation of partnership, which we would like do over the next two quarters for sure. And then, because as you pointed out, our capacity utilization still is relatively low. There is -- there's no great deal of urgency of getting more capacity inline, but as we go into the 2010 cycle and specifically the second half of the year, we expect that we are going to need a second source for wafers and that's our target. And if you want a start shipping large amount of devices in the second half of 2010, the time to do the work is now and that's exactly what we're doing.

Steve Ferranti - Stephens & Company

Okay, great. And then, just last one from me. When the time comes and demand really starts strengthening, can you give us some sense for, I guess, your confidence level will start ramping back up to those, what were once sort of peak revenue levels in the fab and maybe, just give us a sense for some of the structural changes that haven't made there in recent months that give you confidence that that will be a manageable process?

Mario Rivas

Absolutely. The one positive thing of having less demand is that you can clean up your systems. And what we are doing is ramping up in a sequential manner and very carefully. We move up a 100 wafers a week and then, we verify that all the parameters are working yield cycle time. Maintenance of the line.

We have also eliminated all the single-tooled threads that we have in our factory, so that even if the machines has to come offline for maintenance, the line continues to grow, right. And we have upgraded our IT systems, so that we can monitor the process and make adjustment in real times that of having to go back in the bargain.

So, so far, as Tom indicated, we're in the process of ramping up towards the end of the summer to get to the 5 to 50% plus number, and we're doing it, the increases so far have not had tremendous impact on cycle time and produce exactly what we're trying to accomplish.

The problem the company encountered on the peak years or peak quarters like you stated, is that the cycle time really it went out of control going for the 70 days, 80 days. And that's an acceptable performance so that you can satisfy customers, maintain process, control and yields, so that's our goal to stay under 40 days even fully loaded right, and have our yields north of 90%, so that we can serve our customers with good quality, good cycle time and good delivery.

Steve Ferranti - Stephens & Company

Okay, very helpful. Thank you very much and good luck.

Mario Rivas

Thank you.

Operator

Thank you. (Operator Instructions) There are no further questions at this time.

Mario Rivas

Very good, so in summary, I believe the second quarter performance was pivotal in reestablishing our position with customers. This is also evident in our third quarter revenue guidance. Our differentiated products remain the key factor in driving a high level of customer engagement in design activity and positioning the company for a stronger second half of the year.

I feel confident that the action we have taken as a company over the last year have positioned us to regain market share, as evidenced by the continued expansion of our business with Samsung and others. Thank you very much for your time today and your continued support of ANADIGICS. Have a good night.

Operator

This concludes today's conference call. You may now disconnect.

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