RF Micro Devices (NASDAQ:RFMD) is an American semiconductor company based in Greensboro, North Carolina, producing radio frequency components that are employed in mobile devices, Wireless LAN, cable modems, GPS devices, Bluetooth devices, and devices for defense markets. RF Micro devices supplies its RF components to OEMs throughout the world, including market leaders in the mobile market such as Samsung (SSNLF.PK) and Apple (AAPL). RF Micro Devices faces competition from larger players such as Qualcomm (QCOM); however it has also been successful in creating its position as a reliable player in the market.
RF Micro Devices in the market today
RF Micro Devices closed at $4.96 on 30th August 2013 after a 2.75% decline in its share price from $5.10 from the previous close. The stock is currently trading at 8.86x of its annual future earnings projected for next year, with a current market capitalization of $1.40 billion. The current stock valuation suggests that the stock is undervalued and could be priced higher in the future.
The previous year saw losses for RF Micro Devices, which resulted in a decline in the share price of the company. However, investors might argue that being in the semiconductor industry, RF Micro Devices faces the same cyclical behaviors like all its other peers in the industry, and that such highs and lows were a part of the deal. Since the beginning of this year, RF Micro Devices has seen a sharp growth in revenues in the first quarter, and thus has restored investor confidence in the company and its stock. In the first quarter this year, FR Micro Devices reported a $1.56 million net income for the quarter, a recovery from a net loss of $15.9 million in the last quarter of the previous fiscal year.
RF Micro Devices had a gross margin of 35% at the end of the first quarter this year and is taking steps to help it improve further, which is evident in the financials of the second quarter. The company also has ample cash on hands despite spending on R&D, and aims at reducing operating costs as well as replacing expensive raw materials for its products with cheaper substitutes, which would help to reduce the per unit cost of its products and thus improve margins. In addition to that, the company plans on moving its manufacturing capabilities to cheaper areas in order to reduce costs.
RF Micro Devices has had a quarterly revenue growth of 45% year-over-year as compared to 6% for Broadcom and 12% for Skyworks, which shows that the future looks promising for the company in comparison to its competitors.
Opportunities in the market
Most of the companies in the technology industry have seen the effects of the growth in the mobile market, whether directly or indirectly. RF components being a vital part of all mobile devices has a major role to play in the industry, and thus takes a direct impact from the mobile industry, whether positive or negative.
The current year has shown results of the mobile market boom in terms of increased sales and thus revenues so far, and the growth estimates for the industry would further enable it to reap greater revenues in the periods to come. What is even better is that with the shift from 3G to 4G and LTE in the developed markets, while a shift from 2G to 3G in the emerging and developing markets has significantly increased the dollar value of RF components per device of RF Micro Devices that it receives from OEMs. RF Micro Devices is a supplier to both the market leaders (Samsung and Apple) in the mobile industry, in addition to other players such as Lenovo (LNVGF.PK), Huawei and Nokia (NOK), and thus it would benefit from the market regardless of which company does better in the highly competitive market. This is evident from the fact that the company remained unscathed even though Nokia lost a significant market share in the industry. Another major buyer of RF Micro Devices' RF components is the Chinese market which makes a hefty contribution to its revenues.
The company also invests heavy amounts in R&D to help it keep ahead of the market, and respond quickly to the changing needs of OEMs and altering trends in the market. Its investment in R&D helps it reduce costs while producing better products and consequently improve margins.
What the company needs to be careful of in the industry are the bigger competitors like Qualcomm which is currently working on integrating all RF components on a single LTE device as well as other solutions with lower costs. This could pose problems for the company, and would thus need to act very prudently in addition to yielding to the growing demands of the markets.
The current trends in the industry look favorable for RF Micro Devices, and the company could greatly benefit from the growing mobile industry if played wisely. The company has also witnessed growing revenues recently in addition to reporting positive net income after a period of declining income followed by losses. Its stock is currently priced well below the 52 day moving average, and the company and market analysis coupled with the low valuation of the stock suggests that there is ample prospect for the stock price to rise in the future. Therefore, it is a good time be a shareholder in RFMD because the company is already on its way back.