RF Micro: Weaker Sales Are Motorola's Fault

Wednesday night, RF Micro Devices (RFMD) confirmed its previous guidance for its fiscal fourth quarter ended March 31. The company sees revenue for the quarter of $250 million to $260 million, and pro forma EPS of 10-11 cents a share.

The trouble is, the company issued a disappointing outlook for the June quarter: it sees a sequential decline in sales, earnings and margins. Why? “We currently anticipate a slowdown in demand from a top-tier customer that will impact our operating results,” the company said. I would point out that in 2006, according to the company’s last 10-K filing, 38% of sales came from Nokia (NOK), and 20% from Motorola (MOT) (analysts think the current total is higher, with MOT accounting for 25%-30% of sales).

Seems pretty obvious which one gets the blame.

Also Wednesday, the company announced plans to sell $300 million of debt: $150 million of convertible notes due 2014, and another $150 million due 2012. The company said it would use the proceeds for working capital, potential acquisitions and future stock repurchases.

That RF Micro has big exposure to Motorola is not exactly new information; the stock sold off after Motorola’s recent warning. Nonetheless, the Street yesterday turned incrementally more negative on the stock.

John Lau, an analyst at Jefferies & Co., dropped his rating on the stock to Hold from Buy, and his price target to $7 from $11. “The incremental weakness in MOT has shaken our confidence in the near-term numbers,” he writes. “We believe it would be more prudent for us to remain on the sidelines until this volatility and limited visibility situation passes.” Lau cut his fiscal 2008 estimate to 43 cents a share, from 55 cents.

Jeff Loff, an analyst at Credit Suisse, trimmed his price target on the stock yesterday to $8.50 from $9. He maintains an Outperform rating on the stock, but notes that it faces near-term headwinds in the form of seasonal weakness, continued softness at Motorola and “the growing threat of single chip solutions which incorporate transceiver functionality and thus steal some market opportunity from RFMD.” He cut his FY 2008 estimate to 28 cents, from 48 cents.

Christopher Danely, an analyst at J.P. Morgan, maintains a Neutral rating on the stock; he cut his 2008 EPS estimate to 33 cents from 42 cents. Danely thinks the cash raised in the convertible offerings will be used “to fund diversification efforts outside RF Micro’s handset component business,” which was 94% of sales in the latest quarter.

RF Micro yesterday was down 71 cents at $6.36.

Earlier: Multi-Fineline Electronix Trims Guidance On Weak Demand From Motorola

RFMD 1-yr chart