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Anadigics, Inc. (NASDAQ:ANAD)

Q4 2010 Earnings Call

February 17, 2011 8:30 a.m. ET

Executives

Tom Shields - Executive Vice President and CFO

Mario Rivas - President and CEO

Analysts

Anthony Stoss - Craig-Hallum

Edward Snyder - Charter Equity Research

Todd Koffman - Raymond James

Patrick Newton - Stifel Nicolaus

Unidentified Analyst - Needham & Company

Operator

Good morning. My name is Lori and I will be your conference operator. At this time I would like to welcome everyone to the Anadigics fourth quarter/year end 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.

If you would like to ask a question during this time simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you. I will now turn the call over to Tom Shields, Chief Financial Officer. Please go ahead sir.

Tom Shields

Thank you operator. Good morning everyone and welcome to the Anadigics fourth quarter and full year 2010 earnings conference call. Before we get started please remember any comments made on 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 an uncertainties as described in this morning’s press release and in the company’s various filing with the SEC. I would like now to turn the call over to Mario for his opening remarks.

Mario Rivas

Thank you Tom and good afternoon everyone from Barcelona at the Mobile World Congress where I have the opportunity to meet directly with many of our existing customers and potential key prospects including tier one OEMs and strategic chip providers. This engagement not only provided a forum to further strengthen our business relationships and share company market strategies.

It also enables us to discuss and review 2011 and future possibilities. I believe these deliberations will bring tangible benefits for our company over both the short, medium and long term. Anadigics truly had a great 2010. We increased revenue by greater than 54% over 2009 and delivered a 41 million or 65 cents improvement in earnings per share.

We further strengthened our balance sheet as we ended the year with 106 million in cash and cash equivalents. Our wireless business grew 72% and our broadband business increased 20% year over year. Our strong 2010 results directly reflect our successful execution on our strategic initiatives that were outlined at the beginning of the year including expanding our customer base and increasing our market share.

For the December quarter our reported revenue of $60.2 million was stronger than expected from the 57 million provided in our previous revenue guidance. Increased demand for wireless, LAN and our cable products provided for a much lower sequential decline in broadband to 12.5% compared to our anticipated 25% decrease. And wireless showed stronger (turns) business, coming in 2% higher than expected.

As a result, we were able to achieve one penny better in earnings per share than our previous guidance. Now I’d like to discuss our 2010 achievements in more detail and then provide an overview of our 2011 growth drivers and initiatives. As you may recall, we entered the year 2010 with three key initiatives including leveraging our operational excellence, introduce peer products to capitalize on the growth of both 3-G and 4-G markets and achieve profitability.

I am proud to say we were successful in all three during this past year. Beginning with operational excellence, I’m very pleased with the performance metrics achieved at our Warren facility. We have achieved and maintained the best five cycle punch in the industry of less than 30 days and yields in the mid to high 90s while we continue to simultaneously scale our business. Over the past year we not only improved yields and delivery rates but also reduced our cycle times and production costs, which collectively contributed to higher gross margins as well as increasing our available capacity with existing equipment.

We also continue to make great progress in achieving our (unintelligible) strategy with our partner Wynn Semiconductors. As we have completed several successful product (mappings). This is a significant advantage for Anadigics as some of our competitors have become capacity constrained and we are finding that many of our customers are emphasizing available capacity over pricing. Turning to our new product introductions during the year, our commitment to technology innovation and superior products allowed us to win business over competition while capitalizing on the growth in 3-G and 4-G.

New products represented approximately 40% of our business at year end, which was a significant improvement over 2009. Our robust research and development efforts fed customer demand for our superior 3-G and 4-G products. Demand for instantaneous connectivity anytime, anywhere driven in large part by social networking and mobile video, is increasing the need for greater bandwidth across the growing 3-G market.

According to Gardner Research, the compounded annual growth for 3-G is expected to be 35% through 2014. Speaking of dynamic growth, I want to quickly discuss tablets because I get a lot of questions about whatever Anadigics targets the tablet market and whatever we plan to introduce new products for that market. The reality is that there is little difference between providing a power amplifier for a smart phone or a power amplifier for a tablet. So the answer is yes, we are well positioned to benefit from the growth in this market as well.

In fact, our power amplifiers can be found in versions of tablet being introduced by Samsung and REM. In general demand for our integrated HELP3 power amplifiers, HELP3 plus couplers and HELP4 wideband CDMA single band amplifiers remained strong with consistently higher patch rates across many global customers. Let’s now discuss LTE. Deployment of LTE networks is starting to gain momentum. Manufacturers are under pressure to design new mobile devices with unprecedented multimedia capabilities that allow network operators to improve broadband connectivity with less capital investment.

According to the Global Mobile Supplier Association there are 128 operator commitments to deploy commercial LTE systems in 52 countries. We recently announced the expansion of our most efficient 4-G LTE power amplifier family to encompass 15 LTE bands worldwide. Switching over to femtocells, we continued to make solid progress and are working with every major platform in this space. The leading wireless market analysts are projecting significant expansion for the femtocell market.

All these reports predict femtocell shipments over the next three years to reach nearly 50 million units. In addition, the market for femtocell services, which include mobile voice and data applications triggered when a device comes within range of a femtocell, is expected to reach nearly 2 billion in revenue by 2015. We are addressing this problem market through a family of femtocell products including our recently announced AWB7227 power amplifier that has exceptional linear output power and high efficiency supporting the wireless CDMA, HSPA and LTE air interfaces.

Looking at our customers and identifying partners, our relationships are stronger than ever. During 2010 we experienced the largest year over year increases by Research In Motion, Samsung, VTE and WorldPeace. We also forged and strengthened relationships with our reference design partners QUALCOMM, Infineon, ST-Ericsson, Marvel and MediaTech. In fact, we are seeing significant interest from all of them for our LTE products.

Now I would like to outline our 2011 initiatives which include furthering our hybrid manufacturing capabilities, introducing superior new products, expanding our customer base and the continued achievement of profitable growth. Hybrid manufacturing will provide us the ability to continue to scale our business. Our Warren facility has demonstrated the achievement of some of the best five cycle times and yields in the industry and we have been working closely with Wynn to qualify products in preparation for future growth.

We have received products and are working with customers on respective qualification with the expectation to begin generating revenue in the second half of 2011. As an important element to established credibility with customers, our company is currently in the best position we have ever been to manufacture superior performing products at high volumes. Anadigics now has the capability to scale the business by delivering excellent performance, high volumes and great quality.

Regarding new product introductions in 2011, I’d like to discuss a new product family that we are working on, which is power amplifier duplexers or pads. A pad is created by using one of our dual band power amplifiers and then adding a duplexer on the same laminate using our ILB process, which enables a smaller footprint and lower cost. Pads have the potential to generate meaningful growth for us as it effectively doubles our serve available market while supporting key requirements of some of our most important customers.

We plan to start sampling this product family in the second half of 2011. One of the biggest focus areas in 2011 will be our multimode, multiband product. These simulated products are for the devices that need more than three power amplifiers and worldwide capabilities. From the phone manufacturer’s perspective the MMMB solution provides high integration capabilities and communication across cellular standards and frequencies deployed by different networks or countries.

For the consumer MMMB is a good solution for subscribers who have come to expect more features and have the need for more geographic coverage. The competitive advantages of Anadigics MMMB include an enhanced device performance, application flexibility and reduced solution size and building materials. We anticipate sampling our MMMB product in the second half of this year. Let us now talk about broadband and the products we see driving growth in 2011.

We continue to expand our offering for the broadband market including the family of new products addressing market drivers in DOCSIS 3.0 enabled devices, cable modems, cable TV subscriber home gateways, hybrid line amplifiers, 75 Ohm gain blocks for cable TV infrastructure and mobile WiMAX enabled devices. Starting with DOCSIS 3.0, industry analysts expect a 24% compound annual growth rate from 2009 through 2014.

Additionally, cable infrastructure is expected to grow at a rate of about 14% and with very good gross margins. And then there is mobile WiMAX, which is more a segment of 4-G than the LTE but still represents an opportunity to apply our design and manufacturing expertise. Before turning the call over to Tom let me provide some insight into our first quarter 2011 financial guidance. As reported, we anticipate revenue to be approximately $42-44 million.

First of all, let me be specific that we have not lost any significant customer socket. So let’s remove that from our discussion. Therefore, if we factor in the typical first quarter seasonality of roughly 10-15% I believe we probably should have been in the guidance range of 51-54 million. However, in the first quarter what we experience is a combination of cable and WiMAX market that is currently very soft and has placed considerable strain on the inventories of our customers including our distributors.

We were somewhat surprised how strong cable and WiMAX revenue was during the fourth quarter of roughly 2 million versus our revenue guidance. You heard just a week ago from one of our key customers and what they were experiencing and this has certainly trickled over to our current business. At the same time there was optimism coming from our customers and our distributors relative to a rebound in 2011.

Now whatever comes in Q2 or the second half, we just need to monitor this situation. We are driving our products, both new and existing products, very hard. We are expecting some contribution from new customers as well so I ask for some patience as we rebound from the first quarter softness in cable products. In wireless most of the additional weakness arising in our revenue guidance is coming out of Asia including our distributors with mainly normal seasonality in Korea and North America.

This too is believed to be a short term inventory correction and further growth will come from our new product designs taking hold, commencing during the June quarter. I remain optimistic about our subsequent quarters and our future growth in 2011. This includes cable and especially the 3-G and 4-G markets. With that I will turn this over to Tom for our financial update. Tom.

Tom Shields

Thank you Mario. The highlights of the fourth quarter of 2010 consisted of the following. Total reported revenue of 60.2 million came in better than anticipated by roughly $3 million. Wireless revenue of 46.1 million was 1 million better than expected on higher 3-G CDMA sales and broadband revenue of 14.1 million, was 2 million ahead of anticipated revenue on higher wireless, LAN and cable sales.

The combination of slightly better gross margin of 37.7% of revenue and lower operating expenses of 18.3 million than previously expected provided for a non-GAAP earnings of 4.9 million or 7 cents per share. EBITDA was 9.2 million for the fourth quarter and as Mario mentioned, our year end balance in cash, cash equivalents and short and long term marketable securities totaled 106.1 million, well ahead of the $100 million target that we previously had suggested.

Cash flow from operations generated during the fourth quarter was 8.6 million. Depreciation was 4.7 million and we used 1.5 million to fund CapEx. For the full year 2010 reported revenue was 216.7 million, up 76.2 million or 54.3% over 2009. Wireless revenue was approximately 160 million, up 67 million or 72% over 2009. Broadband revenue was 56.7 million, up approximately 20% over 2009. Non-GAAP earnings for 2010 were 7.7 million or 11 cents per diluted share, reflecting an improvement of 41.4 million or 65 cents per diluted share over 2009.

For the full year 2010 the company generated 13 million in cash flow from operations, which was primarily provided through operating results during the second half of 2010. For the full year 2010 depreciation was 19.1 million and we used 5.6 million to fund CapEx. Mario highlighted our first quarter 2011 outlook, which includes revenue estimates of 42-44 million. We are currently booked to slightly above 95% of the midpoint.

At this revenue range we anticipate a non-GAAP net loss per share of approximately 7-8 cents with operating expenses expected to be flat to the fourth quarter of 2010. I would now like to open the call to questions, operator.

Question and Answer Session

Operator

At this time I’d like to remind everyone if you would like to ask a question please press star then the number 1 on your telephone keypad. Your first question comes from the line of Anthony Stoss of Craig-Hallum.

Anthony Stoss

Hi guys. Tom, if you could give us a sense of what you expect broadband to be down in Q1. Also would love to hear either you or Mario talk about kind of Q2 visibility. Mario, you talked about LTE design wins. I’d love to hear a little bit more on design traction. Thanks.

Tom Shields

Sure. Well, broadband could be down up to $8 million from - I apologize, $6 million from the fourth quarter. And as Mario mentioned, mainly because of the excess inventories that are currently in the channels and it’s just a question of how fast they burn off. But as we’ve seen historically, we know that Q2 typically rebounds very favorably and also as Mario mentioned, that we’re hand in hand to some of the comments made by some of our customers during their earnings calls as well.

Anthony Stoss

And then Q2 visibility and design traction?

Mario Rivas

Q2, it’s too early to be giving guidance. As we track our quarterly build up of the backlog and at this point there is really no discreet differentials between the last four quarters as expected because customers are not focusing on orders for next quarter. Exception confirms the rule. And you also spoke about the LTE opportunities - we’re doing very well with the 15 products that we have online.

Our product performance both in (ability) and efficiency allows customers to take full advantage of the LTE technology and spectrum. So it’s not like the other guys are not going to be able to work but they will not be able to reach the same levels of download and upload at the same current rates. So in some cases we are seeking customers and their designs to optimize the power consumption and I expect LTE to be one of our drivers.

Do I expect to see a significant number this year? I would be just as cautious as my peers and say we start seeing some ramp toward the holiday season. But the full force of LTE will be here next year.

Anthony Stoss

Okay.

Operator

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

Edward Snyder

Thank you very much. A couple here first off on housekeeping - utilization in the fab on the quarter. And if we could touch on what your fab capacity is in revenue now and then once you bring Wynn on in the second half of the year, just trying to get an idea of what your revenue potential would be with your capacity then. I have some follow ups after that.

Mario Rivas

Let me give you the capacity in dollars depending on mix obviously. So I’m going to give you a rough estimate. From Warren we can ship anywhere from 70-80 million depending on the mix of what we’re going to have. And what we have from Wynn would be an additional 1/3 of that number. So let’s take the midpoint 75, so an additional 25 million is what we could do.

So the combination of the two would be around the 100 million mark, right, which I’m really hoping that I’m going to have that kind of a problem in this year. And what was the other question that you asked?

Edward Snyder

And then you mentioned MMMB products, multimode, multiband products in the second half of the year. I’m just trying to get an idea are you talking multiple dye per package, high band, low band type configurations? And do you have any power configuration or power devices that go with that or are you partnering with somebody else for that? Or is your OEM partner, the one that you’re looking at, to provide that themselves?

Mario Rivas

We are doing the - you’re talking about DC to DC converters I gather?

Edward Snyder

I’m trying to get a sense of your MMMB solution. I mean you probably saw (MWBC off micro now at PowerSmart). It’s going to be shipping in Samsung’s Galaxy and then LGB following on the heels of that. And then so we’re getting a lot more chatter about the entire transition to this new technology and I’m just trying to get an idea of your configuration. I know you guys will be out with it in the second half.

Mario Rivas

Correct. Let me put it in perspective. We have a hybrid solution coming into the market and it will include the amplifying stage, the final amplifiers, they just were high mode in gallium arsenide. The initial stages will be in (femos) and they will include the controlling logic as well as the DC to DC converters and sigma delta modulation that the device requires.

It will be capable of handling a quad band edge and up to five WiMAX CDMA or LTE frequencies. And furthermore, our goal is to make sure that the performance both in RF and battery life is similar to the performance that we offer today on a single band device. So that way you’re going to get the size advantage and the RF performance as well as the battery life. We’ll also include in our solution switches made on SI technologies, our own design.

And we’re using a foundry to get it done but we will have also the switches because now you end up with (9.0 double toggle) type of geometries.

Edward Snyder

So you can switch in a filter (bang) for the different bands. So it sounds like it’s kind of a standalone solution then. Is it mated to a particular transceiver or it sounds like it would work with almost any hybrid solution or hybrid transceiver?

Mario Rivas

The beauty is that it is a platform. So it’s very flexible and it can match to several of the situations. I would pick three but I’m not excluding anybody and each one of them has completely different configuration as far as inputs and outputs. So it will match with the QUALCOMM conversion and it will match with ST-Ericsson and it will match with an Infineon device, which are the three platform developers that we are working with.

And each one of them is slightly different so the guts will be very similar. The outsides will have obviously a different footprint. We will reuse the entire gallium arsenide piece and the (femos) part will be the one that will be slightly - sorry, that will be shared. The gallium arsenide will be different because of the way the output stages will be routing.

Edward Snyder

Sounds fairly (straightforward). And that second half is sampling?

Mario Rivas

We plan to sample at the end of the summer. We will have some first pass of all the different devices and be able to demonstrate it some time late March/early April. And the longest design cycle is the (femos) part interestingly enough. A lot of the technology that we are using in the (femos) portion of the MMMB is a derivative from technology that we developed for the broadband space. XP license for example - a DC-DC converter, we are taking the IP from a third party.

Edward Snyder

Okay. And then pads, you mentioned that you’d be sampling pads in the second half of the year. The duplexer for the pads, are you partnering with (Moratta) on that or who is your filter partner for the pads?

Mario Rivas

Both (Moratta) and (Edcos) are our partners and in both duplexers as well as filters. There is a third party in Japan that I cannot be precise of what it is. But excellent performance on things like band 2, which is the most challenging of them all.

Edward Snyder

So you will have a band 2 pad then also obviously, right?

Mario Rivas

Right.

Edward Snyder

Okay. And then Tom, your OpEx is guided for flat through the March period, revenue is down. It looks like it’s just a transition on the top line with the inventory. Can we - I’m not looking for guidance but what’s your philosophy on that? Are you going to scale it if we don’t get the snap back in June as we expected? Can we expect to see OpEx cuts modest or are you going to target a certain percentage of revenue?

Mario Rivas

Allow me to jump in Tom because I guess that’s really more my decision. It obviously when we have a seasonality of this magnitude, I cannot make it up by operational cuts, right? If I did not consider this to be seasonality but a more permanent situation, we have proven before that we know how to scale to profitability and to a right cost base.

I am definitely counting on not having to do that and I see a little bit of a snap in our demand. In the meantime I am willing to use at least part of the cash that we have generated to maintain our R&D pace because we are in a very good momentum, very good track. Customers like what we’re doing and the opportunities require that we invest. But of course we will be prudent and we will be good managers of the overall corporate well being and the well being of our stakeholders.

Edward Snyder

And then a last final one then, I mean we’ve heard from a number of folks at the Barcelona show in the RF space about wins. Microsoft is obviously crowing most with the PowerSmart stuff. But the Phenon seems to be gaining too. Franklin has gotten some big gains recently in their bow line and they’re expanding a lot of the product line there too.

Are you seeing any additional pressure at say Samsung or REM, which seem to be the big battlegrounds right now in terms of the pricing or performance on what are historically slots that would go to you or the CDMA guys, the QUALCOMM reference design partners?

Mario Rivas

No. I would have to say that the answer is no. Even the Galaxy tablet we were entrusted with the CDMA version that they used in South Korea, in Verizon, in Sprint. And that is definitely not the target of an MMMB type of platform, right? I was very thankful for the design because it takes a renewed level of confidence for a customer to put such a visible program in our hands.

Now on the other hand I really would like to sink my teeth into something bigger. And I’m envious of some of the successes of my peers. But we don’t see that pressure in the Korean space as an example. I believe we will expand our market share in Korea mostly with dual band devices as well as dual band pads. Now band 1, 1A, 215 and 1 and 4 and on REM our relationship is very strong with them and there are several platforms going forward where we still have a permanent position.

Edward Snyder

Okay. And then just one more as a follow up to what you just said - so you’re saying dual band pad you’re looking at a hybrid pad? Or your MMMB is basically a gas product and then all the filtering will be done off chip right, by a filter bank? I just want to be correct and make sure I’m correct in how I’m thinking about that.

Mario Rivas

Allow me to repeat it separate. Sorry if I confused the subject. We will have three lines of products, the present discreet power amplifier product that has been the preferred solution for QUALCOMM platforms for quite a while, right? We will complement that with pads both single band and dual band.

But the most demand from customers is for dual band type of pad devices because it helps them to enlarge their footprint. And that will consist of the present dual band power amplifier and the respective duplexers on the same laminate. And lastly, the multimode, multiband will have the output stages. The high output stages will be on gallium arsenide and it will also contain switches that are done in SOI as well as a good piece of (femos) logic on board.

Edward Snyder

Great. Thanks a lot Mario.

Operator

Your next question comes from the line of Todd Koffman of Raymond James.

Todd Koffman

Thank you very much. Tom, can you give the break out of set up box, infrastructure, wireless LAN and the WiMAX revenue in the December quarter?

Tom Shields

Sure. So set up box revenue came in at 4.9 million compared to 5.6 million last quarter. Infrastructure was 4.6 million compared to 6.3 million last quarter. Wireless LAN came in at 2.1 million versus 600,000 in Q3 and WiMAX was 2.4 million compared to 3.4 million in Q3.

Todd Koffman

And when you made your comment that you thought that aggregated broadband segment would be down about 6 million sequentially in the March quarter was there any particular sub segment in that there that you’ve seen the most decline or the most surprising turndown going into March?

Tom Shields

Yes. As Mario mentioned, it’s a combination of WiMAX and cable infrastructure.

Mario Rivas

Yes. I would say it would be almost half and half Todd. I’m looking at the numbers right in front of me and it is approximately half and half.

Todd Koffman

And then just a general follow up, if you look at your March quarter guidance if you take the kind of 6 million out, as you said I think you’re kind of down to 54 million and then you put some seasonality in and then you called out Asia distribution weakness. I’m wondering is there anything unique about your distribution channel into Asia? It hasn’t been such a large call out at least yet by the other players.

Mario Rivas

Yes. It is unique in that we supply a multiband device for double connectivity. And that was very soft. It’s going to be very soft this quarter.

Todd Koffman

Okay. Thank you very much.

Mario Rivas

That accounts for about almost $1 million.

Todd Koffman

Okay. Thank you.

Operator

Your next question comes from the line of Patrick Newton of Stifel Nicolaus.

Patrick Newton

Thank you gentlemen for taking my questions. Tom, just wanted to touch base on how we should think about gross margin. If I jump back to when you guys were at revenue run rate that you’re guiding for in the March quarter I’ve got to go back to about December of ’09 and you had a gross margin of roughly 29%.

At that time you would have had a better mix of broadband revenue. So I’m trying to figure out how we should think about gross margin heading into Q1 and perhaps are there any things that are different between this time period and the last time you were at this revenue level that could change that bogey?

Tom Shields

The gross margin will be better than Q1 2010 even though the broadband revenue is down to the magnitude. In 2010 Q1 broadband was 13.2 million and based on the discussion today it looks like it could be close to 8 or above 8 for Q1 2011. So you’re talking about close to a 30% (reduction).

Patrick Newton

And what are some of the dynamics that perhaps I guess through your business model that have improved that given the mixes we’re going to get here?

Tom Shields

Well, if you remember from the analyst day we had articulated several programs throughout the organization that were going to give us some very significant cost benefits throughout the year. So we’re capitalizing on very efficient fab, low cost structure relative to some of the material costs as well as the programs for technology that our CTO has employed.

So we’re taking advantage of the key items that we did outline during the analyst day so we’re very pleased to see how it’s coming through the P&L.

Patrick Newton

Okay. And I guess I kind of already asked the prior question. If I look using the baseline, your 60.2 million as a baseline, if I haircut that 12% for seasonality that gets us down to about 53 million. If I haircut that for the 6 million decline in broadband, that gets us to 47 so we have about a 5 or 4 million gap I guess between I guess the seasonality and where the rest of the wireless is playing out.

So we have the (disty) aspect of it but are there any other geographies or OEMs that you’re seeing slightly weaker than normal seasonality or is this solely attributable to China?

Mario Rivas

Well, we didn’t say China. China will have two components, (the usual) as well as OEMs. We do have an inventory correction that is going to happen (to us).

Patrick Newton

Okay. And then I guess to add into that, I mean there was a lot of chatter throughout the quarter that you had seen the tier one OEMs a lot more aggressive in China and perhaps coming at the expense of some baseband partners like a Spreadtrim or a MediaTech. Is that playing a role in this or is that the wrong way to look at it?

Mario Rivas

I’m speculating here so that’s always dangerous and I think that the answer to that will be no on the OEMs and probably yes with the distribution work. But as I said, I really cannot answer that question accurately.

Patrick Newton

Okay. And then lastly, your 2011 kind of outlook that you laid out at analyst day, how should we think about that prior goal of growing more than 25% year over year with this kind of reset bar in Q1? How would you view the full year as an opportunity right now?

Mario Rivas

Yes. We will have an internal goal to continue to do that. We have not given up on our target of getting to 14% in 2014. Obviously we’re going to have to have a very good performance from the summer to the end of the year, which I think is possible. In my opinion we spent the last two years rebuilding our credibility.

Customers believe we have good performance. The question is not about performance. The question is can you really deliver in the volume and the quality that I require? And we were entrusted with designs but they were very cautious. So the conversations have changed to now say we have proven ourselves over the last two years and let us sink our teeth into a larger design that we would be happy to supply for you.

And in preparation of that we have prepared extra capacity online. I think the demand is there. I believe that we will get the opportunity and it’s going to be up to us to execute it and the next growth that you’re going to see from us probably will be (those functions) that we’re going to have to manage because if we win two large design platforms from two OEMs then we’re going to have our hands full and we’re going to be back very nicely on the path to 14%.

Patrick Newton

Perfect. Thank you.

Operator

Once again, if you’d like to ask a question press star, 1. Your next question comes from the line of Quinn Bolton of Needham & Company.

Unidentified Analyst

Hi guys. This is Jason in for Quinn this morning. Just to follow up on the last question on gross margins, at your analyst day you guys had talked about some mineral replacements in the fab network going to take place throughout the first half of this year. I’m just wondering if we may see some…

Tom Shields

Quinn, I apologize. It appears you’re breaking up.

Unidentified Analyst

Sorry. Hopefully that’s a little bit better. Just wanted to talk a little bit about gross margins and to follow up on the last question and specifically you guys had talked about replacements in the fab that were going to come about over the first part of this year. So just wondering if there is still some upside independent of mix to gross margins as we go through the first half of this year? Thanks.

Tom Shields

Mario, did you hear his question?

Mario Rivas

Yes I did hear it and the statement was on the analyst day we talked about replacement of gold with copper and of platinum with palladium. And he’s asking what effect does it have on our margins. So you can answer it or I can answer it.

Tom Shields

Well, the anticipation is that as we communicated during the analyst day, you can get $70-80 per wafer cost reduction. So when you look at how many wafers we process and clearly we would expect that the second half of the year is going to be much greater than the first half. And as a result, we would expect a material impact coming out of that particular project. To tie it down to a specific gross margin percentage would probably be difficult to do. But I can tell you at least on the $70-80 reduction per wafer it’s pretty significant.

Unidentified Analyst

Thanks. And then just to talk a little bit about lead times, could you maybe compare how your lead times look now as compared with the end of the third quarter? Thanks.

Mario Rivas

Lead times from customer orders or lead times on our ability to deliver?

Unidentified Analyst

From customer orders or for both.

Mario Rivas

Yes. Customers are not uniform on their lead times. So we have a couple of customers that we love and give us very nice lead times that are in the 12-13 week time. We have another group of customers that we also love dearly but they have the tendency to give us four-week lead times. The behavior of the customers has not changed (across the board).

Unidentified Analyst

Thanks guys.

Operator

At this time there are no further questions from participants. Are there any closing remarks?

Mario Rivas

Yes operator. I’ll take it back and say thank you very much everybody. I would like to close today’s call by emphasizing our significant accomplishments in 2010 as evidenced by our financial results, innovative product introductions and world class manufacturing capabilities. We remain well positioned to benefit from the introduction of additional new products in 2011 and the continued growth in the 3-G and 4-G markets.

These trends provide us with a compelling opportunity to increase our market share of new and existing customers. Our long-term goal continues to be capturing 14% market share in wireless gallium arsenide by 2014, which will equate to share gains of approximately 2% per year. I look forward to reporting our future success through 2011. Lastly, I would like to thank once again all of the employees of Anadigics for their hard work in 2010 as well as to thank the participants on this call and our shareholders for their continued support. Thank you again and have a wonderful day.

Operator

Thank you for participating in the Anadigics fourth quarter/year end earnings conference call. You may now disconnect.

Tom Shields

Thanks Lauren.

Operator

Thank you. Have a great day.

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