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ANADIGICS, Inc. (NASDAQ:ANAD)

Q4 2013 Earnings Conference Call

February 20, 2014 5:00 PM ET

Executives

Terry Gallagher – VP and CFO

Ron Michels – CEO

Analysts

Anthony Stoss – Craig Hallum Capital

Edward Snyder – Charter Equity

Paul McWilliams – Next Inning Technology Research

Operator

Good afternoon my name is Jeremy and I’ll be your conference operator today. At this time I would like to welcome everyone to the ANADIGICS’ fourth 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. I would now like to turn the call over to Mr. Terry Gallagher, Vice President and CFO, ANADIGICS. You may begin your conference.

Terry Gallagher

Thank you, Jeremy. Good afternoon, everyone. Welcome to ANADIGICS’ fourth quarter and full year 2013 conference call. With me today is Ron Michels, our Chairman and CEO. First I will take you through our adjusted financial results and then Ron will review the business performance of our products, as well as our growth strategy.

Before I begin I would like to remind you that in light of the SECs fair disclosure rule we are limited in responding to enquiries in a non-public forum. Therefore we encourage you to ask all questions of a material nature on this call.

Some of the information we present today maybe forward-looking in nature. I must remind you that the forward-looking statements are subject to a number of important factors that may cause the actual results to differ materially from our projections based on various risk factors, including those described in the press release issued earlier today and our reports on Forms 10-K, 10-Q and other filings with the Securities and Exchange Commission.

All numbers during the call will be presented on a non-GAAP basis. Non-GAAP financial measures exclude equity compensation charges, marketable option rate securities movements, restructuring charges and other specifically identified non-routine items including the $0.7 million cost of sales charge from product standardization referenced in our release. The non-GAAP measures are provided to enhance the understanding of our core operating performance and a full reconciliation of these non-GAAP measures to our GAAP results is presented in our press release.

I will now begin with our financial discussion, the changes in revenue mix during the quarter helps continue our growth profit and EBITDA improvement. I will principally focus on sequential changes while also referencing some year-on-year changes.

For the fourth quarter our revenue totaled $36.3 million, a 2% or $0.7 million sequential decrease, slightly above the midpoint of our guidance, while up 19.1% on a year ago quarter. Q4 included $16.7 million in cellular representing a 27.6% sequential decline following the 27.8% sequential increase in the immediately prior quarter. Wi-Fi and infrastructure revenues in Q4 were $14.4 million and $5.2 million representing 44.5% and 30.8% sequential growth respectively. We are pleased to have substantial growth in both Wi-Fi and infrastructure revenue strengthening our overall product mix in support of higher gross margin.

For the full year our revenues increased 19.2% to a $134.2 million. This was driven by Wi-Fi which grew roughly seven fold to $40.5 million from $5.1 million in 2012. Cellular contracted 11.5% to $74.2 million on reductions in CDMA while infrastructure finished the year at $19.5 million down 17.5% from 2012 as CATV, MSO capital spending was deferred. In the quarter we had one greater than 10% customer in Samsung and for the year include Samsung, Huawei and Murata.

For the fourth quarter gross profit was $5.4 million, a sequential improvement of $1 million despite the reduction in revenue. Gross margin was 15%, a solid $310 sequential improvement. Q4’s margin improvement was a result of improved sales mix between and within product groups which more than offset sequentially lower production. Versus the year ago quarter Q4’s gross margin improved by 1,250 basis points.

Fifth, we are also pleased with our manufacturing progress in the fourth quarter. We continue to expand the use of our lower cost ILD process, which represented roughly two-thirds of all our wafer demand in Q4. In conjunction with the continued ramp up of the ILD process we executed solidly on both yield enhancement and ongoing product cost reduction.

Exiting Q4 ILD stands as our dominant process and is rising in the mix. We are pleased with the progress we made in the year and look further to further operating leverage in 2014. Sequentially fourth quarter research and development and selling and administrative expenses decreased modestly, each by 1% to $8.8 million and $4.9 million respectively. Year-over-year we manage a decrease in R&D and SG&A of 10.3% as we delivered a leveraged return on our revenue.

The net loss for the quarter is reduced by $1.1 million to $8.4 million or $0.10 a share a sequential improvement of $0.01 per share in line with consensus. Our EBITDA loss was $4.9 million, a sequential improvement of $1 million which aligns with the gross profit improvement. Q4 sequential improvement in gross profit and EBITDA despite slightly lower revenue speaks to the operating leverage ANADIGICS has and the improvements we are making.

Moving to the balance sheet, we finished the year with cash and marketable securities of $24.4 million, working capital was well controlled with accounts receivable of $15.4 million or 40 days. Inventory stood at $1.1 million or 68 days, enhancing our ability to respond to our customers per turn needs. Depreciation experience was $3.45 million and capacity utilization in the quarter approximated 55% as more production moved to ILD and the efficiencies it offered. Capital investment was $1.3 million in the quarter and $6.5 million for the year and we expect it be largely insignificant in 2014 as our manufacturing investments are effectively completed.

Increasing mix of ILD and continued product efficiencies positions us with ample available capacity to support 2014 and beyond. I am pleased to share this financial progress made during 2013 and in the quarter specifically with Q4’s balanced sales, mix more efficient production and leverage captured on our expense base and we will continue.

ANADIGICS is committed to returning to profitability which demands a cost structure that is better aligned to our business strategy and direction. We continue to see favorable adjustment in our product mix for 2014 by taking an opportunity to substantially reduce annual expenses by more than estimated $10 million and which should deliver continuing benefits to our gross margins and EBITDA.

These savings were the result of two initiatives. First as we entered 2014 we took efforts to further improve efficiencies in R&D and SG&A yielding an expected annual savings of $5.4 million – excuse me, savings of over $5.5 million. We anticipate that this will help to drive a reduction of greater than 10% in total R&D and SG&A in Q1 as compared to Q4. For the second initiative we implemented a workforce reduction which will reduce our annual payroll related expense by roughly $4.5 million. This will result in approximate $1.5 million restructuring charge in the first quarter. In total the anticipated annualized savings of greater than $10 million aligns us to level of operations appropriate to surplus our target revenues and continue toward our goal of reaching targeted EBITDA in the second half of 2015.

In the first quarter we are seeing significant seasonal and inventory related softness in Cellular and Wi-Fi. Overall, we expect revenues in the first quarter to be down 34% to 37% sequentially. Despite the lower revenue in Q1, we expect a substantial reductions in cost structure combined with continued improvements in overall product cost and mix should enable double-digit gross margin for the quarter. As we deeper into 2014, the lower structure should return reduction benefit each quarter and should keep us on track with our EBITDA objective.

In closing I am pleased with the progress we have made in 2013 and look forward to more for this year. I’d now like to turn the call over to Ron to more on our products and strategy.

Ron Michels

Thank you Terry and good afternoon everyone. I am very pleased with our fourth quarter results, which complete a year of consistent gross margin of improvement for ANADIGICS. Throughout 2013, we not only drove operational excellence to strengthen the bottom line we delivered 19.2% revenue growth over the prior year. We achieved this top line performance by developing innovative new products, targeting growth markets and by strengthening our customer relationship.

As we enter 2014, ANADIGICS continues to gain traction as we successfully execute on our business strategy, specifically design wins across the Wi-Fi, Cellular and Infrastructure product groups remain very strong. With a sharp focus on new product introduction, product mix improvements and prudent expense management, we believe ANADIGICS is well positioned on our path to profitability.

In the fourth quarter of 2013 we saw a more profitable balance of products both across and within our three business units. This overall transition into our product mix is a critical component in returning the company to profitability and it continues into 2014. In our Wi-Fi Group we are increasing the balance of revenue generated by high power Wi-Fi power amplifiers for infrastructure applications which bring richer margins than Wi-Fi and modules in mobile devices. In our Cellular Group, we continue to transition the portfolio and legacy to new products manufactured in our ILD process which enriches margins as well.

Lastly, revenue from our Infrastructure Group, which typically has higher gross margin than the other two groups is growing as a percentage of our total revenue. All three of these transitions contributed substantially to our profitability improvement in the fourth quarter and more importantly we anticipate this will continue to do the same looking into our model for 2014. Another benefit of this healthy transition is that we have an opportunity to realign our cost structure and better match the new product mix.

As Terry described we have already initiated these efforts and we expect annualized savings of greater than $10 million as a result. Achieving these expense reduction in combination with our improved product mix should allow ANADIGICS to reach EBITDA break even at a revenue per quarter of $33 million to $34 million. This breakeven revenue level is significantly lower than it was modeled previously. This is a powerful combination which we expect should bring greater value to shareholders on incremental revenue and future business growth. With this new model of product mix in mind I’d like to share with you some recent product win, activities and highlights.

Turning our attention first to Wi-Fi, high performance Wi-Fi connectivity is rapidly incorporating itself into an expanding array of mobile and infrastructure applications. Leveraging our deep industry relationships and strong product portfolio, we increased our Wi-Fi revenue by 44% sequentially in the fourth quarter and more than 700% year-over-year in 2013. The same product performance advantages that made this substantial year-over-year growth possible have enabled our latest 11N and 11Ac design wins in the mobile Wi-Fi space. These include Huawei Ascend P6 S, Samsung GALAXY Tab Pro and Note 10.1.

In addition, it helped drive gross margin improvements within our Wi-Fi products group, we have created a family of high powered discrete power amplifiers that uniquely address challenges in Wi-Fi infrastructure product applications. These applications include access points, routers, home gateways and modem that demand a level of Wi-Fi performance perfectly suited to our current amplifier technology.

In the fourth quarter, we ramped production of the first product in this family in support of two high key volume sockets. We have since expanded to four high volume sockets and are shipping production quantities in all four. In addition to this lead product, we initiated sampling of three new high power products that are also part of this family and response to those has also been outstanding. We are in the process now of securing e-sockets now and expect this new family of power amplifiers to play a major role in our success in Wi-Fi for this year.

We are also working with several key Wi-Fi reference design partners across a diverse array of applications, including access point, routers, set-top boxes, smartphone and tablets. These relationships and our solid execution in launching innovative products position the Wi-Fi business for continued success.

Moving to Cellular, the transition from 3D to 4D data services especially in China and emerging markets continues to accelerate. By utilizing our unique technology and innovative design techniques we have successfully refreshed our product portfolio to leverage this trend and position the company for long-term profitable growth. In fact, we have already doubled our WCDMA market share since the first quarter and continue to make inroads in LTE.

I would now like to highlight some of the products that are serving as a catalyst to our growth. Our ProEfficient and ProVantage solutions helped manufacturers to reduce design complexity and cost while expanding battery life. These two product families allows us to segment the market by offering differentiated blends of performance integration and value, and customer response has been very good.

Additionally, we have a versatile multi-band power amplifier family that is gaining a broad design win footprint in a variety of applications including multiple programs in the automotive segment. Out high performance single and dual-band power amplifiers have achieved greater than 10 new design wins in China and Korea including new flag models that will soon hit the market.

Moving forward, we will continue to focus on expanding our share at top tier OEMs. We have introduced new dual-band products optimized for both WCDMA and PD LTE application for emerging markets such as China and we are reestablishing our leadership in CDMA with the industry’s highest performing dual-band solution. By collaborating with leading chipset manufacturers such as Qualcomm, MediaTek, Broadcom and Marvel we believe that our segmented product portfolio will enable us to tap high growth opportunity.

While cellular seasonality typically occurs in the first quarter key OEMs are managing inventory and portfolio transmissions that have caused softness to start in the fourth quarter and continues into Q1. However we are encouraged by our strong traction and design win activity and believe that our cellular products have a very great future in 2014.

Turning our attention to Infrastructure wireline broadband, wireless networks are expanding and infrastructure networks are also expanding to support the growing demand for data. We have developed a portfolio of high performance wireline broadband infrastructure and small-cell solutions to harness this growth driver evidenced by greater than 30% sequential growth that we saw in the fourth quarter.

Our wireline broadband infrastructure products lead the industry in performance and reliability. These are critical characteristics for MSO’s which all greatly value quality of service operating life and uptime. We leverage this heritage and know how in developing our new gallium arsenide MESFET and GaN portfolio with forward-path, return path and path-end solutions. Customer reception of these new amplifiers has been fantastic and we continue to secure sockets by displacing competitor. In fact we have four new design wins with our GaN line of amplifier. We expect manufacturers to ramp production later this year in support of continued MSO build out and infrastructure upgrades.

Additionally these solutions provide a high performance path with DOCSIS 3.1 which we expect will further drive infrastructure upgrade spending. We will continue to aggressively expand our DOCSIS 3.1 product portfolio to increase our content share in next generation equipment. While we launch new products for this important industry transition, we continue to achieve strong traction with our current generate one gigahertz line amplifiers. Our infrastructure group is also starting to see additional traction with small-cell Power and Amplifiers.

While the wireless infrastructure market ramp has been delayed carrier interest is increasing. We are working closely with leading small-cell OEMs and chipset developers and expected our high performance product will capture our leadership position in this small-cell industry as it expands.

In summary we are entering 2014 with a sharp focus on design wins and new products and bottom line growth. For the design win focus each product group is leveraging industry growth factors. In Wi-Fi we are expanding further in to higher margin infrastructure applications preparing to introduce new solutions and strengthening relationships with manufacturers in all the major chipset suppliers.

In cellular we are segmenting the market to capture of share and high volume platforms at leading OEM low and mid-tier WCDMA and PD LTE devices in emerging markets and reestablishing leadership in CDMA. We are also collaborating closely with leading chipset suppliers such as MediaTek to expand our 3G and 4G footprint in markets such as China. In infrastructure we are securing wireline broadband sockets with the newest gallium arsenide MESFET and GaN solutions and support of continuing MSO build outs. We are also poise to lay a critical role in DOCSIS 3.1 transition and also in the small-cell wireless infrastructure market.

With a bottom line growth focus we have implemented substantial expense reductions which are delivering annualized savings of $10 million and create a significantly lower operating cost structure going forward. Furthermore we are utilizing our existing capital investments to continue ramping the ILD process.

Lastly we are enriching our profitability with an improved overall product mix. I am very proud of our accomplishments in 2013 and the progress we are already making for this year. With new product introductions building on top of the solid foundation of operational excellence and greater efficiency we believe ANADIGICS is well positioned on our path to profitability.

Thank you very much and we open up floor for question.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Quinn Bolton from Needham & Company. Your line is open.

Unidentified Analyst

Hey guys this is actually Joe [Zachary] on for Quinn. Why don’t you give a little clarity into your first quarter guidance? I know you had said that there are some inventories and seasonal softness and when I do a back of the envelope calculation, looks like cellular’s totally down pretty significantly in the quarter, just wondering if you could comment a little bit on the dynamics there.

Ron Michels

Sure Joe and thanks for your question. Yeah so quarter one you always have that seasonality on handsets and Cellular has that, it’s fairly traditional and hurt us 20% or so. With Wi-Fi where you’ve kind of got a mobile element as well we had a very large uptick in Q4 where we were feeding a bit of a ramp that ramp we – it’s make a bit premature on our customers part or just a little steeper than it would be and that’s kind of just balancing itself out then in Q1 so that Wi-Fi has probably more seasonality than would be normal let’s say for handset.

Unidentified Analyst

Yeah perfect. And then given the lower anticipated revenue run rate here, what do you anticipate cash be in the first quarter?

Ron Michels

Okay so and what we were trying to walk folks through was done now how the P&L is evolving, and so yes revenues will be down in terms of cash specifically with lower revenues that might even give us the chance or should give us the chance to working capital throw off a little bit of cash and we do use that I’ll say to fund the restructuring cost out that we’ve got. And then so we are looking at kind of our press release indicated double digit gross margin and then this 10% reduction in the OpEx. So we are not very far from where I think the consensus had us, it might be a half a penny or something.

Unidentified Analyst

Okay, thanks a lot guys.

Ron Michels

Great thanks Joe.

Operator

Your next question comes from the line of Anthony Stoss from Craig Hallum Capital. Your line is open.

Anthony Stoss – Craig Hallum Capital

Hey guys on so Terry and Ron you are talking about the better gross margins ILD process being about two-thirds only complete. Terry if you were already there its own ILD what would gross margins have look like say in a similar quarter on the revenue you put up? And then secondly also on your breakeven 33% to 34% gross margins what do you – when you look at that what do you think gross margins would be at that point then I have a couple of follow ups?

Terry Gallagher

Okay Tony so with the supposition that ILD could be a 100%, it will because of the mix of business in particular on the infrastructure side will never be a 100% ILD. And but to the point no we don’t have all the products that could be on ILD over a crossed ILD. ILD commonly gives you may be a 10% kind of cost advantage or thereabout could contribute that. It’s not necessarily a number that I worked with often but yes it would enrich margins.

And I think the other important point that I wanted to try and get across, but we will ever be 100% ILD, and also the blend quarter to quarter and so I think Q3 was less than that so you are going to have a little bit of bobbing around between the two technologies but the future is ILD is our dominant process and I think just as important point to make is that we’re not driving two horses out at the fab quite so much anymore we are much more onto the ILD side. Is that helpful?

Anthony Stoss – Craig Hallum Capital

Yes and then if you could take a guess where gross margins would be at your $33 million breakeven? Then I had two other follow ups.

Ron Michels

Yeah I think kind of 25ish range plus minus few percent.

Anthony Stoss – Craig Hallum Capital

And then if you add 55% capacity utilization in the December quarter any thought process in place right now to start taking offline capacity at some point in 2014? And then lastly I love to hear more on your Wi-Fi design wins Ron if they were more on the infrastructure side or more on the handset side? Thanks.

Ron Michels

Thanks Tony. At this point no plans or ideas to be taking capacity offline. We did a lot of work in terms of getting the line better balanced over to ILD, no plans to be taking capacity offline.

Anthony Stoss – Craig Hallum Capital

Okay.

Ron Michels

And I think you’re asking about Wi-Fi products?

Anthony Stoss – Craig Hallum Capital

Yeah the design wins if it’s more in the infrastructure or mobile.

Terry Gallagher

Yeah so this gives me the opportunity to mention that I have mentioned a mix change not only between the business segments but also inside of the business segments as well. So inside of Wi-Fi we’ll have a greater amount of infrastructure Wi-Fi business in 2014 than we had in 2013. I believe the percentage goes up at least by 10% or 15%. So there will be more of the infrastructure business as far as design wins which I believe gets to your question we have some that we can’t talk about that yet that we already have and that we have some that we’re probably close to getting. And it’s in both of those markets, both on the mobile side and on the infrastructure side.

The mobile wins tend to bigger and lesser of them and the infrastructure wins tend to be smaller and a lot of hem but we’re getting them both. So basically inside of Wi-Fi itself last year 20% of what we did was infrastructure and the other 80% was mobile that will shift to 40% infrastructure in 2014 and 60% mobile.

Anthony Stoss – Craig Hallum Capital

Perfect, thank you.

Terry Gallagher

You’re welcome.

Ron Michels

Thanks Tony.

Operator

Your next question comes from the line of Edward Snyder from Charter Equity Research. Your line is open.

Edward Snyder – Charter Equity

Thanks a lot can you just Terry can you give us some idea breakdown of Wi-Fi between AC and then similarly on wireless 2G, 3G you said you are getting some tractions on 4G and when I am talking 2G and 3G and I am talking about the end market forms they go into, I am talking about the products you are actually selling, GSM versus broadband, CDMA versus LTE?

And then you mentioned EBIT breakeven at $33 million, $34 million any idea when you would target that do you think you would back to that in 2014 at some point and I have a few follow-ups for Ron.

Ron Michels

So let me get pass the EBITDA, so we’ll be EBITDA positive in the second half. We’re running hard at getting there as soon as possible in terms of cross over point I still expect to see that in Q3 and I think the other points out of my league in terms of A and IC and N and what have you.

Terry Gallagher

Yeah so we had pretty much an equal percentage between N & IC in 2013.

Edward Snyder – Charter Equity

Excellent and then 2G, 3G, 4G on the cellular side and by that I am talking about the products you are actually selling GSM versus broadband, CDMA, eVideo versus LTE?

Ron Michels

2G is there Ed.

Terry Gallagher

So your question is in 2013 what was the percentage of each one of those categories?

Edward Snyder – Charter Equity

Yes if you don’t mind.

Terry Gallagher

Sure. LTE ran around 20% or 25% because it went up certain parts of the year. 3G at 75% and of course no 2G.

Edward Snyder – Charter Equity

Okay. And then the seasonal decline in March how do you – it sounds like most of it is Wi-Fi which had a lot obviously in the greater than seasonal climb and somewhat in cellular, how much of that is inventory versus just soft demand or can you even tell?

Terry Gallagher

Inventory does play into as I was trying to explain on the Wi-Fi side that ramp we were feeding. It’s hard for us, we’ve got, I mean maybe if I had to pick a number I’ll give you 50-50 between seasonality and the rest of the inventory.

Edward Snyder – Charter Equity

Okay. And then in the past you guys were tied closely to Qualcomm’s reference design and I imagine that’s still probably the case, you did mention several other Broadcom and MediaTek have you landed on their designs or phones through the reference design or secondarily have OEMs as Samsung is known to do just design around the reference design and use your product anyway which they have done with other OEMs.

So I am just trying to get a feel for which reference designs you feel far and way you are most exposed to and then how much fraction you got outside of Qualcomm then how many guys are deigning outside of that?

Ron Michels

Okay. So actually the answer is two different answers one for Wi-Fi and one for cellular. So on the cellular side we’ve been very much Qualcomm compatible centric and the work that we’ve done in the last six months is to expand into other markets geographically and that’s primarily through MediaTek and some others. There is High Silicon and some other guys over there too.

Our goal is to be compatible with everybody’s reference design sometime during 2014. And we’re making very good progress in China in getting into and there is a whole bunch of these white pox guys. So we have quite a few design wins they add up to something that’s significant each by itself isn’t that big but there is a lot of them. And that’s not some of it is through Qualcomm and some of it is not. So that’s on the cellular side and what we will do with MediaTek and what we were doing is media effect we will [eventually] be listed on the reference designs but to get started, to get business quickly because we’re not on any yet, we design products that are compatible, we demonstrate that they work through actual manufacturers and then we get MediaTek to sign off and endorse what we were doing.

It’s a method that we actually use quite a bit with Qualcomm as well. So with Qualcomm we win because we are on reference designs but we also win in other ways as well because we’re compatible with reference designs that we’re not on.

Wi-Fi a similar story the focus has been Broadcom and we’re expanding that now to doing work with Qualcomm and Atheros. We’ve already been on reference designs with Marvel and so we’re pretty much we ran some things with Qualcomm, we’ll have everybody. So that’s the only one that we are not listed yet but we’re working on that.

Edward Snyder – Charter Equity

So in cellular you are on the Qualcomm reference design that people are using you outside of that for both MediaTek and Qcomm. And the in Wi- Fi you are on the Broadcom reference design as well as Marvel and then working with others?

Ron Michels

Correct.

Edward Snyder – Charter Equity

Very good, thanks guys.

Ron Michels

Thanks Ed.

Operator

Our next question comes from the line of Paul McWilliams from Next Inning Technology Research. Your line is open.

Paul McWilliams – Next Inning Technology Research

Thank you for taking my question. First off congratulations on 2013, we need to talk about 2014 of course. The operator cut in and interrupted the answer to the first question which was really a critical one about the split among segments for Q1. Could just give me the short answer there what the split is anticipated for Q1?

Terry Gallagher

I am sorry Paul so I think what we were talking about in the question was seasonality and that cellular is going to have kind of normal sort of 20% seasonality whereas in Wi-Fi has that handset seasonality plus then some inventory to work through. And potentially you are asking what’s the split of revenues in terms of the total; so cellular’s 55% to 60% let’s say of it; Infrastructure can be approaching 25%; with Wi-Fi than for the remainder, kind of 20% or so. Is that helpful Paul?

Paul McWilliams – Next Inning Technology Research

Yes. Okay. Now when we look out across the year, let’s kind of go straight to Q3 where we were kind of envisioning this 33, 34 which should be down year-over-year. What would be your bets there?

Terry Gallagher

I think we would be about 50% Cellular; 20% for Infrastructure and Wi-Fi being the last piece sort of 30%.

Paul McWilliams – Next Inning Technology Research

What’s happening to Cellular this year, we have got the [segment] backing from some business obviously. And just as looked like you are not growing the Cellular that much this year?

Ron Michels

So basically, the March review is now the tech business doesn’t have a decent profitability threshold. Some of mobile business, the power apps are becoming a commodity business which some of it we are not going to take and some others aren’t going to take as well. I think that important thing for ANADIGICS and what makes we think is very exciting trend for us is this, the shift of higher percentage of infrastructure which will be occurring in basically at least a 10% increase over last year to this year.

So assuming that we hit $33 million to $34 million, the profitability of that $33 million or $34 million will be higher than what we ever envisioned a year ago and of course we are doing with lower transit. So, that’s what I think is critical and I think that there is a huge market out there. This Wi-Fi infrastructure market is very, very big. It complements ANADIGICS technology very well and it will reflect a kind of resources over the last six months because we kind of seen where some of this mobile business is going.

The mobile business in China actually tends to have better markets in some of the mobile business we have experienced from our Korean customer. So the business we had in China, a lot of it is good business and will have good margins but the real thrust in the company is with the infrastructure business and that’s long-term, high profitability and that’s with both the infrastructure business unit which is cable TV and small cell and also all the work we are doing in Wi-Fi.

Paul McWilliams – Next Inning Technology Research

Okay. And I understand that and appreciate and I think it’s a good strategy for you. Now, in cable, how do you see cable shaping up this year with the DOCSIS 3.1 rollout?

Ron Michels

Well, our customers are telling us that they see rollout starting in either late Q3 or in Q4. We are winning a lot of sockets with our existing one gigahertz amplifiers and new amplifiers that operate at 1.2 gigahertz and are DOCSIS 3.1 compatible. So we will see we believe an increase in that cable that business even if DOCSIS splits into 2015 and that’s how we’re modeling it. We have a lot of design wins, we have new GaN that get us in part of the market that we never been before. So we will see an increase. If the DOCSIS kicks in Q3 or Q4, it will be on top of that and it will even larger. But we are being conservative with our remodeling but our customers are telling that it will happen in 2014.

Paul McWilliams – Next Inning Technology Research

Okay. So are depended upon the two wave CCAP business, is that the gating item?

Ron Michels

I really don’t know if that’s the gating items or not.

Paul McWilliams – Next Inning Technology Research

Okay. In small cells how does that rollout? Here we kind of said cable like Q3 to Q4.

Ron Michels

Yes. So in small cells we are actually seeing when we look at, being careful not to give too much forward-looking information but I will say that in the case of small cell, which is not a huge amount of our revenue, we’re actually seeing that the backlog and the bookings are growing with each quarter. As we look into the next year, we feel pretty good on being able to model that, that business is going to be getting bigger with each quarter because it’s starting to happen for, some really nice solid growth that you have seen in the last month or two. So I think this is the year where we are going to be able to tell everybody that we have an impact in small cells, a year late but it’s going to happen.

Paul McWilliams – Next Inning Technology Research

Well, that’s fairly consistent with we heard through the earnings season. Now the Wi-Fi infrastructure, you mentioned very specifically that PA business that you are focusing on. Are you going to be pushing a complete front-end module in that market?

Ron Michels

Yes, we are. That’s amongst several different products that we’re rolling out and that is one of them.

Paul McWilliams – Next Inning Technology Research

Okay. How does that shape up relative to small cell and the cable which you helped me on? Are you starting to see good booking now or is it a continuous build through the year like small cell?

Ron Michels

Yes. So, that’s a good question. So we are sampling and I got this some of this in the script we are sampling four different power amplifiers which run higher power level than any of the Wi-Fi products we have ever made in the past. These are the one that command, it’s very, very hard to achieve this type of performance and get them to yield well. We designed this ILD process with this type of product in mind two years ago. So we have been able to role these products out very quickly and we are getting some very good feedback. Do we have bookings on the higher power stuff yet? No. I think we will very shortly through.

Paul McWilliams – Next Inning Technology Research

So it would be reasonable to think about the Wi-Fi infrastructure beginning to ramp say in Q2 and then building upon that sequentially through the balance of the year?

Terry Gallagher

Absolutely.

Paul McWilliams – Next Inning Technology Research

Last question here would be on Q4 2013, can you give us a rough order of magnitude split between Wi-Fi mobile and Wi-Fi infrastructure?

Terry Gallagher

Yes. We have it here just give us one second.

Ron Michels

Yes. I think it’s 70:30.

Paul McWilliams – Next Inning Technology Research

Okay. So, if I just assume just back of the envelope stuff here a real quick and I might be off. In Q1, it might be more along the lines of 50-50 or may be even infrastructure…

Terry Gallagher

Q1 is a little anomalous, but not it wouldn’t be that far to 50-50. I think it’s more what the spread was in 2013 more like kind of 80:20 on the mobile side.

Paul McWilliams – Next Inning Technology Research

In Q1?

Terry Gallagher

In Q1.

Paul McWilliams – Next Inning Technology Research

So it would be 80% mobile in Q1?

Terry Gallagher

Yes I think Paul, if you recall that was a ramp that we beating in Q4 that got a little bit ahead of itself. So that’s going to softer and will come back in the year.

Paul McWilliams – Next Inning Technology Research

No, maybe I asked the question wrong. Wi-Fi revenue in Q1, would you think that, that would be driven 50% mobile or are you saying 80% mobile is what you are anticipating for Q1 Wi-Fi?

Terry Gallagher

I told you Wi-Fi is going be down significantly.

Paul McWilliams – Next Inning Technology Research

Yes.

Terry Gallagher

Due to seasonality as well as inventory, the ramp that we were feeding, and what I am saying is that inventory was more feeding the infrastructure side in Q4 and that in Q1 the percentage will be about 80% mobile, 20% infrastructure so that will change back over when we get into kind of Q2 and Q3, much richer to the infrastructure side.

Paul McWilliams – Next Inning Technology Research

Got you. Okay. I wasn’t understanding where your inventory digression was?

Terry Gallagher

You are not alone in not understanding me, Paul. My wife has the same problem.

Paul McWilliams – Next Inning Technology Research

Okay. Fair enough guys. I appreciate your time very much.

Operator

(Operator Instructions). You next question comes from the line of Harsh Kumar from Stephens. Your line is open.

Unidentified Analyst

[Tim] for Harsh. Looking at my first question, can you stack rate some of the growth opportunities as we look into 2014? And then also building out further how should we think about seasonality? It seems like you may be walking away from some mobilish business in 2014?

Ron Michels

Sorry your first part of your question was, can you repeat it?

Unidentified Analyst

No can you stock rank the growth opportunities so if you are seeing more Wi-Fi growth opportunities compared to infrastructure cellular?

Ron Michels

I think the opportunities are probably more heavily weighted towards the infrastructure side on Wi-Fi, but not drastically because there is a lot of opportunities we are looking at on the mobile side as well. On the cellular it’s basically all about expanding into China and that is the strategy in a nut shell. And as we are looking at the opportunities in China there are really isn’t too much business that we think we want to walk away from but we think that we have a cost structure on these products that we’ve designed specifically for China that will make some money for us so I don’t think that that will be an issue.

Unidentified Analyst

Hey great and then on your cash position how comfortable are you with your current position? And then with the new levels of OpEx what cash level do you think you need to run the business?

Terry Gallagher

So we are comfortable with the cash as I said earlier with lower revenue that’s going to throw some cash back to us by way of working capital. Now where – be EBITDA burn, it’s well and focused now we did – took great strides in the course of ‘13 to reduce debt and we’ll continue those strive as I said. What I am looking at across over point say in Q3 that existing cash we are adequate as you may well be aware we have the line of credit out there that as yet it’s untouched. That’s fair to fund growth, fund working capital should we feel that necessary.

Unidentified Analyst

Great and then my final question timing that cost reduction seems like quite a bit to be taken out in Q1 how should we think about that as we go throughout the year?

Terry Gallagher

Okay and so there was a decent amount of that benefit got captured in Q1, there should be some more. I think we’ve probably got on a quarterly basis may be another $0.5 million of benefit to come to us by way of operations and cost of good to margin. And I think there is the opportunity for us to further reduction in Q2 on the operating expense side. When I use operating expense R&D and SG&A but as we step out further in 2014 there is some selling related expenses that will take back some of that the incremental OpEx reduction and operating expenses.

So there is we probably saw may be 75% or so of it in the quarter and may be in Q2 we might be able to get to see another million and then as you step out Q3 and Q4, maybe it’s back to half a million because some of that sales related expenses back filling.

Unidentified Analyst

Great thanks for the color and best of luck guys.

Operator

And this concludes our question-and-answer session I would like to turn the call back over to Mr. Michel.

Ron Michels

Thank you very much everyone. Appreciate all the questions and your participations. We’ll talk to you soon.

Operator

And this concludes today’s conference call. You may now disconnect.

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