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ANADIGICS, Inc. (NASDAQ:ANAD)

Q3 2012 Results Earnings Call

October 29, 2012 8:30 AM ET

Executives

Terry Gallagher - Chief Financial Officer

Ron Michels - President and CEO

Analysts

Blaine Carroll - Avian Securities

Harsh Kumar - Stephens Incorporated

Dale Pfau - Cantor Fitzgerald

Aalok Shah - DA Davidson

Anthony Stoss - Craig-Hallum Capital

Quinn Bolton - Needham & Company

Edward Snyder - Charter Equity

Krishna Shankar - Roth Capital

Paul McWilliams - Next Inning Technology

Operator

Good morning. And welcome to today’s Teleconference. I will now turn the call over to Terry Gallagher, CFO of ANADIGICS. Please go ahead, sir.

Terry Gallagher

Thank you, Stephanie, and good morning, everyone. Thank you for joining us as we broadcast live from Warren, New Jersey, during Hurricane Sandy, and welcome to ANADIGICS Third Quarter 2012 Conference Call. With me today is Ron Michels, our President and Chief Executive Officer.

During the call, we will make forward-looking statements about our business. I must remind you that actual results could differ materially from our projections based on various risk factors, including those described in the press release issued earlier this morning 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 and other specifically identified non-routine items. These non-GAAP measures are provided to enhance the understanding of our core operating performance. A full reconciliation of these non-GAAP measures to our GAAP results was presented in our press release.

With all that said, I will begin with our financial discussion. For the third quarter, revenue was $28.6 million comprised of $21.1 in wireless and $7.5 million in infrastructure. Sequentially, this represents an increase of $3.5 million from the second quarter or 14.1%.

Infrastructure rose 5.8% sequentially, primarily driven by growth in CATV infrastructure. Wireless increased a healthy 17.3%, largely through greater 3G content per device at our top customers, fueled by increased Dual-band shipments. Additionally, I should highlight that revenue commenced in the quarter for both our ProEficient and MMPA products.

For the quarter, we again had three greater than 10% customers, Samsung, ZTE and Huawei. We also had four customers in the 5% to 10% range, including Cisco and Sierra Wireless, as well as two of our distributors Richardson and World Peace Group.

Infrastructure revenues by category were $3.8 million in CATV infrastructure. $1.1 million for CATV subscriber, WiMAX had a $1 million, WiFi with $1.3 million and the balance categorized as other.

Gross profit was favorably impacted by the incremental contribution of the increase in revenue and improved absorption of manufacturing costs. Our non-GAAP gross profit improved by $1.9 million to just above break-even from a negative 7.5% in the prior quarter.

In the third quarter, we continued to experience ramp costs as we scale new technologies and processes and delivered many new products. This margin headwind will ease in future as revenues increase and we complete the transaction from legacy products.

We have continued to accelerate new product introductions and at the same time, we are effective in managing research and development expenses to a 3% sequential reduction. I should emphasize that although there was a reduction in R&D, it was not at the expense of future growth, as new products introduction and investments in R&D remain critical to our growth strategy.

Selling and administrative expenses also decreased by approximately 8% to $5 million as we eliminated non-critical expenses through past restructurings and remain tough on costs going forward.

Combining our gross profit improvement with lower operating expenses, we reduced our non-GAAP loss by $2.6 million sequentially or almost 15% to $15.3 million or $0.21 per share. Our EBITDA loss improved by a similar, $2.5 million to $11.3 million for the quarter, more than 18% sequential improvement.

We ended Q3 with a strong balance sheet including a solid $62.2 million in cash and marketable securities. Working capital was well-controlled, with only a small increase in accounts receivable to $13.6 million representing 43 days.

Inventory was reduced marginally to a level that approximates six turns per year. Capital spending in the quarter was $0.25 million and depreciation expense was $4.1 million.

Capacity utilization was approximately 45% during the quarter and similar in the past, we will not be providing specific guidance. However, as indicated in our press release, we expect sequential growth in wireless with new products continuing to more than offset the decline in legacy business.

In closing, I’m pleased with -- the revenue, gross profit and expense improvements we are delivering. And I’d now like to turn the call over to our President and CEO, Ron Michels for more on our growth strategy.

Ron Michels

Great. Thank you, Terry, and good morning, everyone. I’m very pleased with our strong third quarter results as we achieved a 14% sequential increase in revenue and greater than a $2.5 million improvement in our bottom line. This performance is a direct result of strong execution and delivering innovative new products to leading customers in high growth markets.

ANADIGICS remains focused on three market drivers that greatly expand our served available market. The first driver is the rapid adoption of 3 and 4G data connectivity in wireless mobile devices, the second driver is expansion of wireless and CATV infrastructure to support increase data use, and the third driver is the proliferation of high performance WiFi connectivity in mobile devices.

We have leveraged our unique technology, innovative design and manufacturing advantages to target these markets, enabling us to capture more RF content per device and expand into new applications.

This strategy was the driving force behind our third quarter increase in revenue and we anticipate that it will serve as the keystone for continued growth. I would like now to review the progress that we’ve made on each of these three business groups which are aligned with these market drivers.

Our wireless mobile products are focused on accelerated transition to high-speed 3G and 4G data services. The segment of the wireless market represents an outstanding growth opportunity by raising the bar and performance requirements, as well as increasing the number of bands per device.

The competitive advantages of our wireless mobile product families are exemplified by the selection of ANADIGICS solutions for flagship devices such as the Galaxy Note 2 and the Galaxy S3.

Our single-band ProEficient amplifiers launched in June are now shipping in production volumes to multiple OEMs including Samsung and Huawei for a wide variety of devices that are expected to launch in the fourth quarter. I’m very pleased with the traction we achieved for these products as our customers seek to take advantage of the world-class efficiency that they offer.

To further expand on the initial success, in September, we launched the ProEficient Plus family, which strengthened our position as a performance leader and customer interest has been phenomenal.

ProEficient Plus power amplifiers not only provide a compelling space saving Dual-band solution, but also deliver the highest -- the industry’s highest efficiency and that across all power levels. This performance provides measurably superior power savings for longer battery life. Working closely with a reference design leader, we are now sampling a key OEM.

Turning to our multimode multiband MMPAs, we’ve begun shipping production volumes to Samsung for the Galaxy Relay 4 and Galaxy Express, and have design wins for a number of smartphones coming up.

Manufacturers continue to select our MMPA products for the integration and performance advantages that they offer, as well as the reduction of RF front-end design requirements and faster time to market.

Another handset powered by our MMPA was recently launched for [King DDA] and we expect additional smartphones to be released during the quarter. To build upon this success, we’ve developed our next generation Penta-band MMPA and are starting to sample key customers.

We expect the market traction we’re gaining for ProEficient, ProEficient Plus and MMPA power amplifiers to continue to add revenue. As we further demonstrate our products ability to solve the performance challenging facing manufacturers.

Furthermore, we have a strong product development pipeline and anticipate expanding our offerings throughout the next few quarters to further take advantage of this growth opportunity.

Now, let’s discuss the second growth driver, the expansion of our wireless and CATV infrastructure to support increased data use.

In the CATV infrastructure market, ANADIGICS continues to lead in reliability and performance. MSOs rapidly expanding content offerings with aggressive promotion of triple-play services that increase the RF system performance requirements.

Our line amplifiers offer outstanding performance in a full loaded spectrum to ensure sharp video, clear audio and high speed connectivity. Moreover, with a proven track record, our line amplifiers have set the industry standard for reliability minimizing field failures and eliminating costly truck rolls.

We continue to work closely with market leaders to develop targeted solutions to solve current and future challenges. One such product is our new gallium nitride surface-mount line amplifier, which delivers high output power and industry leading noise performance for system amplifiers and deep fiber nodes.

Additionally, we are introducing new hybrid amplifiers that raise the bar and ruggedness and are optimized for CATV networks in Asia. Customer demand for these new products is strong and we expect to start shipping production volumes in the second half of 2013.

In the wireless infrastructure market, we continue to gain additional traction. Carriers are facing a significant challenge as demand for mobile broadband data continues to dramatically increase. Small cell networks represent an economical and pragmatic solution to this challenge by allowing carriers to quickly target specific areas of dense wireless broadband demand.

We continue to work very closely with top tier OEMs, ODMs and reference design leaders to develop our small cell power amplifier family, which provides the industry’s best combination of integration, upward power, linearity and efficiency.

The level of performance, this enables small cell base stations with this level of performance to have greater range, high throughput and more thermally efficient designs. Customer reception has been extremely positive.

As I mentioned last quarter, our solutions are specified on leading reference designs, including QUALCOMM and Mindspeed, and during the third quarter, we started production shipments to a new OEM and secured additional design wins. We anticipate that several enterprise class small cell solutions will enter the market in the upcoming months as carrier demands accelerate.

Lastly, our WiFi group is successfully commercializing new solutions for the rapidly expanding use of WiFi for high data rate connectivity in mobile devices. Within this segment there are two growth trends. The first trend is the inclusion of 2 and 5 gig bands in mobile devices, which increases RF content but places pressure to reduce footprint.

The second trend is the adoption of 802.11ac, which requires exceptional performance to achieve ultra high data throughput. To target these trends, we’ve combined our proprietary technologies and patented design techniques to develop a new family of front-end solutions, by including a power amplifier, a low noise amplifier and RF switch all in an ultra compact IC and we are able to solve space and reduce design complexity with these products.

Our new WiFi products deliver the industry’s best combination of linearity and efficiency to enable stable high data rates for 802.11 and an 11ac connectivity. This is all done while maximizing battery life.

The performance and integration advantages of our front-end ICs are being substantiated through sampling, design and applications activities at leading OEMs and ODMs. We believe that our new WiFi solutions enable us to target new application areas and this will drive growth in 2013.

In summary, our strong performance in the quarter validates our growth strategy as we position the company to further benefit from these market trends. First, the continue growth of 3 and 4G devices, second, the expansion of infrastructure networks, and third, the increased attachment of multiband 802.11 and an 11ac WiFi in mobile devices.

ANADIGICS has the right technology, the right products and the customers to tap into all three of these powerful growth drivers. With solid sales momentum and strong backlog, we expect to continue our positive revenue and gross margin trajectory.

I’d like now to open up the line for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question is from the line of Blaine Carroll with Avian Securities.

Blaine Carroll - Avian Securities

Hi, guys. It’s Blaine.

Terry Gallagher

Hi, Blaine. Good morning.

Blaine Carroll - Avian Securities

How are you doing?

Terry Gallagher

All right, and you?

Blaine Carroll - Avian Securities

Good, sir. Wet Warren?

Terry Gallagher

Yes, sir.

Blaine Carroll - Avian Securities

Same here. Congratulations on the improvement that definitely looks good. A couple of questions, first of all, if I read the commentary right, the sequential growth in wireless will overtake the softness in the other and the legacy businesses, this is -- should we read that to mean that fourth quarter ‘12 overall revenue will be up sequentially?

Terry Gallagher

Oh! Sure.

Blaine Carroll - Avian Securities

Okay.

Terry Gallagher

Yeah.

Blaine Carroll - Avian Securities

And then secondly, does -- typically Samsung winds down in the fourth quarter. They try to reduce all their inventory and start the New Year clean. Is that anticipated in this or is there anything that’s changing with Samsung?

Terry Gallagher

No. We’ve got a very good relationship with Samsung, if anything, Blaine, and growth will continue with them.

Blaine Carroll - Avian Securities

Okay. Terry, what was the utilization?

Terry Gallagher

Utilization was 45% in Q3.

Blaine Carroll - Avian Securities

So that was up, right, from 40%?

Terry Gallagher

That was up about 10% from kind of 40% last quarter.

Blaine Carroll - Avian Securities

Okay.

Terry Gallagher

There is still room and but we’re good with them out there.

Blaine Carroll - Avian Securities

Yeah. And gross margin will stay positive going forward then?

Terry Gallagher

Yeah, sir.

Blaine Carroll - Avian Securities

Okay. Terry, I didn’t hear the breakdown. I got 21.1 in wireless and then I kind of lost you from there?

Terry Gallagher

Okay. So, it was $7.5 million in infrastructure. And infrastructure, which we always get the questions I even included it in the commentary, $3.8 million in CATV infrastructure.

Blaine Carroll - Avian Securities

Okay.

Terry Gallagher

$1.1 million for CATV subscriber, WiMAX had $1 million, WiFi had $1.3 and the rest is other.

Blaine Carroll - Avian Securities

Okay. Great. I think I just missed one of those bucket. Let me see. RIM has historically been a good customer for you. We don’t have to rehash on why that’s been down and so forth. But as we look out towards 2013 and their BB10 starting to ramp, how would you think you’re positioned with RIM right now? Are there discussions going on there?

Terry Gallagher

Yeah. RIM, we’re working with them and we’d like to register revenues go forward. There’s not a whole lot dialed in going forward.

Blaine Carroll - Avian Securities

Okay.

Terry Gallagher

That we need from them to complete the turn and get back to where we expect to be.

Blaine Carroll - Avian Securities

Okay. Fair enough. Last two and I’ll pass on cash flow and CapEx?

Terry Gallagher

Sure. So, EBITDA was $11.3 million and CapEx was roughly $250,000, Blaine.

Blaine Carroll - Avian Securities

Okay. And then it will stay at that level, Terry, $250,000?

Terry Gallagher

It could bounce a little bit up, Blaine. If you wanted to model, maybe it’s a $0.5 million or something like that. And then if we see an opportunity go forward, we really had the ability then to raise capacity and this is tool capacity for a small sum. We can open up that capacity which you guys will like the numbers when we’re in a need to raise capacity.

Blaine Carroll - Avian Securities

Okay. Is it going to be a plan toward the Analyst Day?

Terry Gallagher

Yeah, sir there is.

Blaine Carroll - Avian Securities

Okay. We’ll see there.

Terry Gallagher

We will get you something near the front, Blaine.

Blaine Carroll - Avian Securities

Okay. We’ll see you there.

Terry Gallagher

Be safe.

Blaine Carroll - Avian Securities

All right.

Terry Gallagher

Thanks.

Operator

Your next question is from Harsh Kumar with Stephens Incorporated.

Harsh Kumar - Stephens Incorporated

Great. Great job in the quarter.

Terry Gallagher

Thanks, Harsh.

Harsh Kumar - Stephens Incorporated

No. Thanks. Good job. Just had a couple questions. You had a pretty nice commentary in your infrastructure business. And I’m curious if it is you guys taking share, Ron or are you seeing maybe the market start to come back a little bit?

Ron Michels

I think it may be a combination of both, the market did come back a little bit. We are starting to do some business with China and that’s definitely have increase the share because we’ve had nothing there prior to that. And the beginnings of revenue from gallium nitride products, so I’d say it was a combination of both.

Harsh Kumar - Stephens Incorporated

And then, you know fantastic job on cost control bringing them down. And Terry, should I expect that you will clamp down on costs going forward and how should we think about your operating expenses in the fourth quarter, flat, up or slightly down?

Terry Gallagher

I want to make the point, Harsh that we are not clamping indiscriminately. It just, we’re controlling the costs. But yeah, we would expect a little bit of a decline maybe in a couple of hundred thousand range and that’s again some of the past restructurings just playing through a little more firmly.

So we’ve got a target out there ultimately of around $15 million below the line expenses. But we’re not going to be shy about spending in R& D to keep triggering and to give fuel to the revenue increases.

Harsh Kumar - Stephens Incorporated

All right. Got it. And Ron, you mentioned a couple of times that we can expect, I think if I read it correctly, wireless to be up in the December quarter. Is that coming from -- predominantly coming from your top three or four customers or is that coming the fourth quarter wireless update is kind of broader-based outside of even the top three or four? And should we therefore going back to your previous question also expect infrastructure to grow in the fourth quarter?

Ron Michels

I guess to answer the infrastructure question. I would say it’s pretty much probably flat.

Harsh Kumar - Stephens Incorporated

Okay.

Ron Michels

The answer to your first question is, it is those top wireless customers that continue to increase.

Harsh Kumar - Stephens Incorporated

Great. And therefore -- that’s it’s -- that’s good enough I will come back in the line. Thank you.

Ron Michels

Thank you, Harsh.

Operator

The next question is from Dale Pfau with Cantor Fitzgerald.

Dale Pfau - Cantor Fitzgerald

Good morning, gentlemen. And my congratulations on your improvements, you quite see that gross margin getting in the right direction.

Ron Michels

Thanks, Dale.

Dale Pfau - Cantor Fitzgerald

On your wireless business, I can’t say that there is anything that’s seasonal anymore but are you expecting your wireless business to be a little bit better than what I would call seasonal normal up toward maybe sequential growth in the 10% range?

Ron Michels

We can see that happening, Blaine, sorry, Dale. After the 17%, that we just put up in the third quarter, there is some limits on the wireless gains. But yeah, we do see those in the double-digits.

Dale Pfau - Cantor Fitzgerald

Okay. That’s fabulous. And then is that coming from a combination of both market share gains and you continue to mention some new products ramping those probably are really in their ramp cycle. How would you describe that, if you had to give it a split between market share gains and new product ramps?

Terry Gallagher

Yeah. I would say that the ratio of old products to new products are improving with each quarter maybe more than -- probably more than we expected and that’s resulting in market share gains. So the answer is both.

Dale Pfau - Cantor Fitzgerald

And how much of the growth in third quarter and even in fourth quarter has been China?

Terry Gallagher

I would say the …

Ron Michels

When we’ll look at China it’s where we are shipping into as opposed to where the phones ultimately end up. And you’ve got a lot of building going on in China -- building of phones. So yeah, that’s the primary poll but it’s not that those Chinese phones then go and source the world.

Terry Gallagher

Yeah. I would say our largest growth area for the quarter was Korea based and I would say China would be second.

Dale Pfau - Cantor Fitzgerald

Okay. That’s helpful. And then on small cells, we continue to hear a lot out there on small cell when do you expect the biggest impact to your business? Are you still thinking second half next year or could it come as early as the current quarter?

Terry Gallagher

We’re thinking in incremental increase in revenue starting first quarter of next year. And then we see more of a hockey stick in the Q3, Q4 timeframe. So we’ll see some increases, some moderate increases starting in the beginning of the year but we are modeling a much faster rate in the second half.

Dale Pfau - Cantor Fitzgerald

And is that from multiple customers and is that primarily for North America deployment?

Terry Gallagher

Actually, the least of it is North America -- and the majority of it is, is Asia. And it’s multiple customers and multiple reference designs.

Dale Pfau - Cantor Fitzgerald

Great. And one final question, I’ll pass it on. Are you seeing a big uptick in LTE? Are you still playing your products mainly still going into the 3G and if it is LTE which band are you planning in?

Terry Gallagher

We did see an uptick in LTE. Somebody flagship phones that were in for instance, the Galaxy SIII has a Dual-band LTE power amplifier in it. Also the Galaxy Note, we have a band 25 socket that we won. We have a lot of expansion in front of us, a long way to go but we’ve seen a definite improvement in LTE in the quarter that just ended.

Dale Pfau - Cantor Fitzgerald

Great. Thank you very much, guys.

Terry Gallagher

You bet.

Ron Michels

Thanks, Dale.

Operator

Your next question is from Aalok Shah with DA Davidson.

Aalok Shah - DA Davidson

Good morning, Terry and Ron. How are you?

Ron Michels

Great.

Aalok Shah - DA Davidson

Just a couple quick questions. Terry, is this seasonality in the infrastructure business that we should make note of or is it kind of just more lumpy as it comes?

Terry Gallagher

I would call it lumpy. Aalok, then calling out any seasonal trend.

Aalok Shah - DA Davidson

Okay. And is there a big margin profile difference still between wireless and infrastructure?

Terry Gallagher

Yeah. Yeah. No doubt.

Aalok Shah - DA Davidson

Okay. And on the prospects of infrastructure are we seeing trends improving in North America? Would you say that we’re starting to see some real kind of growth drivers in North America or is there something else that might have led to the growth this quarter?

Ron Michels

We definitely saw increases for North America, however, to model that it’s going to continue consecutively, it very well may. But I would be careful about modeling that until the economy starts to recover which at that point, I think there will be a lot of pent-up business that we had. I’m not sure if we’re there yet.

Aalok Shah - DA Davidson

Okay. And Ron, from a competitive front on the wireless side, you guys have a pretty decent MMPA note. It seems like it’s starting to get some pretty good traction. How would you compare -- I know you’re sharing some of the slides on what the Galaxy SIII and maybe even the note with a competitor like RFMD. How do you guys compare yourselves to the Powersmart solutions at this point?

Ron Michels

The MMPA that we currently have down on the market is a Dual-band MMPA. And I think it’s the best on the market. If you measure it as far as efficiency and gain flatness and some of the other important parameters that customers look for. The one that we have that we’re just beginning to sample was a Penta-band MMPA, maybe that’s more applicable to comparing it to our competitors’ products such as the Powersmart.

We’ll see how that does. We are getting customer feedback now. But we think it’s -- we actually think it’s quite unique.

Aalok Shah - DA Davidson

And is this qualified on the Intel-Infineon baseband or are you just trying to move beyond just Intel-Infineon baseband for that MMPA?

Ron Michels

We’re actually moving beyond that. It is not qualified with Infineon.

Aalok Shah - DA Davidson

Okay. Okay. And any traction on the QUALCOMM front with -- something like that?

Ron Michels

We can’t talk about QUALCOMM.

Aalok Shah - DA Davidson

Okay. And then lastly, Terry, just in terms of the balance sheet itself, cash wise, how do you guys feel and is there something that you guys will have to do in the near future to raise some more cash?

Terry Gallagher

Okay. Fair question, Aalok. So we are pleased with the upturn in the business better than our prior view. Our plan continues to show adequate cash to execute and complete the term to address concerns, we did speak with a number of financial institutions about a working capital line and several offers on the table.

We’ll continue to work that potentially solidify an arrangement by year-end and that I hope addresses what I’m kind of terming the fear that is weighed on the share price. And then everyone can better focus on the improving fundamentals for the company and how we continue to execute on our plan.

Aalok Shah - DA Davidson

Okay. Great. Thank you so much.

Terry Gallagher

You bet. Thanks.

Operator

Your next question is from Anthony Stoss with Craig-Hallum Capital.

Ron Michels

Hi, Tony.

Anthony Stoss - Craig-Hallum Capital

Hi. You didn’t talk too much on the WiFi side, with the move to AC as you did referenced there’s a lot more content available, I’d love to hear your view on content?

And then second part was in reference to your design activity, is there one area of focus that you think you have a substantial edge? I’d love to hear what that is. Thanks.

Ron Michels

Yeah. So first of all, our area of focus is where the market is huge and that’s mobility. And mobility has been for the last few years a sizable market, however it’s about to become an even more sizable market. Basically everything -- most phones will be Dual-bands instead of just having a two gigahertz power amplifier in them.

And then of course, as we move to AC, it is not only Dual-band but it’s Dual-band at a much higher level of performance, which requires specifically the kind of linearity and efficiency that ANADIGICS is basically have been working towards.

Now, also there is the connectivity side of the market and we are also in that as well. And we will see revenue we believe in both areas next year. But the strong focus and the big bang for the buck is mobility, and that’s where we think we’ve got some very compelling performance characteristics.

Anthony Stoss - Craig-Hallum Capital

Okay. Thank you.

Ron Michels

You’re welcome. Great. Thanks Tony.

Operator

Your next question is from Quinn Bolton with Needham & Company.

Quinn Bolton - Needham & Company

Hi, Ron. Hi, Terry. Congratulations on the better results and what sounds like good -- not officially guys, but good outlook for the fourth quarter. A couple of questions. Sounds like new products relative to sort of older products is still, I would say less than half for the wireless business, but obviously ramping quickly. Is that a good characterization of kind of new versus old?

Rob Michels

I think that’s correct.

Quinn Bolton - Needham & Company

Okay. Second question, just sort of on the MMPA design, you’ve talked about you are starting to sample the Penta-band MMPA. I think original Dual-band MMPAs has now been out of the market for about four to six quarters, what do you see the design activity in 2013? Is there still good interest in Dual-band MMPAs, or you’re seeing a lot of the customers starting to shift designs over to the Penta-band for more converged architectures in 2013?

Ron Michels

Yeah. Very good question. We see very good interest now. I think we’ll see continued good interest in Q1 as far as design wins. I think that revenue will ride us through most of the year. And then later in the year that’s where our new Penta-band, which by the way is ET compatible, is where we think that starts to kick in.

Quinn Bolton - Needham & Company

Ron, just then a follow-up on that. It is ET compatible, are you working with power management, third-party power management guys or some of the other industry players on the ET power management device or you actually looking to design that ET power management device in-house?

Ron Michels

Well, we’re designing it in-house. Well, actually I guess the answer to your question is yeah. We’re working with both, both types of people. So, yeah, working with the power management guy, the answer is, yeah.

Quinn Bolton - Needham & Company

Okay. So power management will be external. You have sort of a partnership reference design where it’s your PA with sort of approved partner, power management devices for the ET solution?

Rob Michels

That’s correct.

Quinn Bolton - Needham & Company

Great. Second question is just on the MMPAs. Have you said and apologize if I just haven’t caught this, is the MMPA officially now on reference design, or is that work being done more directly with OEMs? And it’s certainly compatible with reference designs, but not perhaps specified on any referenced design.

Rob Michels

Are you asking about the Dual-band MMPA or the Penta-band MMPA?

Quinn Bolton - Needham & Company

So, I guess I’ll ask about both. My original question was the Dual-bands. Is that the one that’s short now in volume, but I’ll ask about the Penta-band as well if you’re willing to provide that?

Rob Michels

Yeah. So, I would say in the case of the Dual-band, we are not officially on a reference design. However, I believe we are recommended by some guys which I won’t mention names.

And on the Penta-band, it’s too early for either of those to occur yet. So we’re basically sampling to reference design people and directly to customers at the same time on the Penta-band. Too early to tell you where we will be -- where it will land.

Quinn Bolton - Needham & Company

Okay. Great. Then just two sort of last quick questions. On the infrastructure side of the business deal, can you give us some sense what the outlook for the WiMAX, and the set-top box client businesses.

I think that’s roughly still about $2 million of revenue a quarter and it seems that the market shifting from WiMAX to LTE, and probably to silicon tuners from gas tuners. I mean, is this business that you think declines to zero over, say, a year or two? And if so, is it offset by the ramp of small cell PAs?

Rob Michels

Yeah. So basically, WiMAX is hanging in there. We thought it would drop faster than it is, and it looks like our forecast from customers say that it stays relatively flat for a couple more quarters, maybe for most of next year.

The set-top box business is also declining, actually at a faster rate. Between the two, I’d say, we are talking about $1 million -- $1.5 million per quarter probably runs until the end of next year.

Rob Michels

Okay. Great. And then, Terry, should we still be thinking about cash flow break-even at approximately $45 million of quarterly revenue?

Terry Gallagher

That’s the model, yeah, Quinn. That’s our -- yeah, Quinn, yeah, just to keep that.

Rob Michels

Okay. Great. Thank you, Terry. Thank you, Ron.

Terry Gallagher

Thanks, Quinn.

Ron Michels

You’re welcome, Quinn.

Operator

The next question is from Edward Snyder with Charter Equity.

Edward Snyder - Charter Equity

Hey, guys. Couple of questions. Ron, utilization model, most of your competitors have gone through something of an outsourced that they all have their own fabs. But even of Micro, is outsourcing all their silicon in an increasingly some of the gas on metal works. You’ve done some of that, along with there is a lot of what Skyworks does, TriQuint doesn’t yet.

But it seems like in the industry everybody is moving to more of an outsourced model with some internal fab capacity. Is that changed the model for ANADIGICS? Are you looking at that, are we able to get back to more historic utilization rates, or is it something we should look at just a normal one and margins could still go up given the cost advantages of outsourcing?

Ron Michels

Yeah. So, I would say this, the outsourcing gallium arsenide is tricky, and it’s not always the cost advantage. What we’re doing now is we’re -- I mean, we’ve very small market share and what ANADIGICS will be doing over the next couple of years is significantly gaining that market share. We still may have a smaller market share than our competitors, but we will be a different company than what you see today.

The short-range plan, when I say short-range I’d say over the next two years is the leverage, the process technology that we have here, so the ProEficient the kind of efficiencies we’re getting, the performance we’re getting in wireless LAN are all closely tied to our ILD BiFab process that we’ve developed over the last -- well over the last several years and have just begun to utilize over the last year. So that’s key to our growth.

We see that when that fab gets utilized here in Warren, which is almost completely brand new and most of the capital equipment has been purchased two, three, four years ago. We see that as a definite tool, and an advantage for us to get to the next step.

Now having said that, we do use WIN for I believe about 15%, maybe less than that 10% of our product production. We’re exploring silicon technologies as we discussed in the past, and we do use them silicon in some of our multi-chip modules and those, of course, are outsourced as well. And that silicon content will begin to increase as we get into next year and years after that.

Edward Snyder - Charter Equity

Remind us, then what is the target growth model for the internal fab? I mean, I understand winning a lot of these designs, speed and performance matter more than in many cases then just costs.

So in terms of gaining share, you almost want to have internal fab, but I’m just wondering does that limit your gross margin model and the big picture of it, if you have to fill the fab before you start outsourcing or at least supporting the technology outside.

So if you could remind us, what’s the revenue run rate that you think will fill the fab tomorrow, and what is your target model for gross margins and operating margins if the fab does fill?

Ron Michels

Okay. To get that fab filled, we would be well north of $60 million and I think I’m much more at -- I’m focused on getting through EBITDA break-even that’s the 45, and I think at that level we struck a gross profit level of about 25%. I can try and push the math, but I don’t want to be pushing it, while I’m here on the phone with you.

Edward Snyder - Charter Equity

Well, that’s fine.

Ron Michels

Okay.

Edward Snyder - Charter Equity

And then, Ron, you spoke to this a little bit earlier. The new products are less than 50% of legacy products now, but if we can sharpen that a little bit and instead of just looking at new and old, where do you think you are on the curve of legacy products that are kind of disappearing versus new products arising, because you are going still ship a lot of the older products even when you stabilize the topline and then start growing it. So, are we halfway through that you see in other several quarters, just any color at all where you feel the topline is in terms of the older stuff dissipating the new stuff arising?

Ron Michels

Yeah. So, if I use a metric, which products are on the new ILD process and which ones are running on the old average process? It’s around 45%, are on the new process and that’s pretty much equivalent to how many of those -- I mean almost all of that are new products. So we modeled by the end of next year that almost all of everything that we’re running including new and old will be on the ILD process.

So you can figure in about a year to 14 months, we’ll have completely switched over. By the way, that switch over includes a much more efficient process die being 20% -- 30% smaller than what we do on average. And we think design roles and critical dimensions that are unique in the gallium arsenide industry. Getting back to your gross margin question if I can.

So the gross margin doesn’t stop at 25%. So once we get to the utilization as what, Terry was saying around $60 million, which is fully utilizing the equipment we have today for a small investment. And when I say small, I mean something in the order of $2 million to $4 million.

We can increase our capacity by as much as 30%. That will result in that gross margin going another step beyond where we are when we refer to today’s utilization. And then we can do the same and do another step function beyond that. We have a very scalable fab here.

We’re also, as we switch over to ILD, enjoying some tremendous cost savings in precious metals. So when we go to outsource, we don’t see the kind of limited utilization of precious metals that we think will be doing in less than six months anywhere else. So, I think that what we have here is going to be quite profitable for us going forward.

Rob Michels

Thank you. We’re running through a fire alarm. So, I apologize for the background noise.

Edward Snyder - Charter Equity

And then in terms of pricing on 3G plans, particularly have kind of taken a beating over the last six to nine months or so. Some of the newer products, actually CF5 has particularly held up as well as MMPA. How would you see your pricing at the same time? You’ve got a lot of legacy stuff out there, are you seeing the same kind of affect in more difficult pricing environment some of the legacy stuff.

And then how do you -- how is the pricing holding up on some of the newer products? I know you haven’t started selling the Penta-band MMPA, but you’ve got the Dual-band out there. So, what’s your take on pricing right now?

Rob Michels

Yeah. I’d say we’ve -- the older products we have pricing pressure on them and they are the lower margin, they are the lower margin variety. The new products, which we done on the new process, which were substantially smaller die and process with a less costly process, actually have margin numbers that we’re quite pleased with. So, I think that we think that we’re pretty happy with the direction things we’re going to go and as we convert everything over to the new process.

Edward Snyder - Charter Equity

And then, Terry, if I could, I mean things are some like you’ve got a plan in place to trying to stabilize, at least fears in the stock about the cash flow issues. What’s your view of next quarter? I mean, we’re going to get to the election this week. Well, a lot of talk about the financial cliff all -- almost everybody reporting the semiconductor sector was talking about pretty steep decline in the forecast for -- especially horizontal products. It seems because the economy is slowing and it’s affecting just about everybody, May to January, we’re getting this financial cliff and if we do see a step down in some of the product that we saw on away not -- I’m not trying to saying again repeated that performance.

But if fears increased and specifically around cash flow and balance sheet, given more aggressive plan to trying to stabilize your balance sheet in the face of what will probably be a big decline in most entire sector?

Terry Gallagher

So I think, Ed, we’re solid. We’re making improvements. It’s tied to product wins and progress that we’ve got with the solid products. So Q4, there will be further improvement. Q1, it’s somewhat. It’s anybody’s gets in terms of inventories and where that goes. We’re not being aggressive there at all. And as we step through ‘13, we’re solid. The working capital line, as I say I mean, it’s there.

I have trouble looking at it as a financial guy to spend money by borrowing it and just invest it at less than a percent of return. But if -- and we don’t need it. So, you are borrowing your own money in that regard, but our cash is solid. We’ve got that working capital there to support the expansion that’s going to happen on the balance sheet. But the cash to the P&L or bunch to the P&L will lessen and lessen and then really go away end of ‘13 back half of ‘13.

Edward Snyder - Charter Equity

I totally understand that. But if you look like even Nortel’s experience, Mike Z running Nortel in 2007, when he stabilized the company, had similar plan, which you described of course included different market. We’re going to increase cash over period because the slow improving the performance of the company. And then he was faced with the opportunity to bring in or doing a float in getting more cash in the door or not deluding the shareholders and working his way out of it, excuse me.

And he choose the latter and then we hit the financial crisis and the concerns over a capital, what sink the company eventually, because -- and it’s a different business, because the infrastructure you have the bigger balance sheet. But customers quit doing business with them after a while because they were worried about them being around that was the end of that.

I’m not trying to predict anything here, but given your size and what looks to be increasingly cloudy outlook for 2013 would you be at more open or you considering pulling in more cash when it’s readily available even though I totally agree it’s going to cost you money but [LA] concerns, if we see the worst of it in the beginning of 2013 that ANADIGICS can survive the storm?

Ron Michels

Yeah. I mean I’m -- we believe we are executing well on the plan. And that we’re going to -- we’re in the process to the turn and we’re well placed to execute.

Terry Gallagher

So, I would answer the question by saying that as revenue increases we’ve very, very quickly changed the bottom line. We don’t need to increase revenue. Relatively speaking by that much to be cash break-even, and we intend to be there by the end of next year.

So, I think that with the metrics to look at, for ANADIGICS, is are we growing market share. The answer is yes, it has been significant over the last three months and we continue to go in that direction. So, I think that’s how we look at it as of today.

Edward Snyder - Charter Equity

Okay. Final question. WiFi, who are you selling into primarily in terms of the baseband, I know it’s not really partnering but everybody sells into some sort of socket, as the amplifiers. Is that predominantly focused anyone vendor like Broadcom or you spread around just trying to get an idea of how we pair you up with who’s winning and losing in the baseband side of that?

Ron Michels

Yeah. I would say all three guys.

Edward Snyder - Charter Equity

Okay. Thanks a lot, guys.

Ron Michels

You bet.

Operator

Your next question is from the line of Krishna Shankar with Roth Capital.

Krishna Shankar - Roth Capital

Yeah. Congratulations on the good results. And in addition to Samsung, can you talk about any other Android or handset engagements that you have, whether it’s the China vendors or any other android customers?

Ron Michels

Yeah. We have design wins and we have done some press releases on phones at ZTE. We have multiple design wins at ZTE and Huawei, so many, many models in China. And then of course, the big drivers for us are -- you didn’t specifically ask, but of course the big drivers for us are the Galaxy SIII and the Note II. The Note II will be a lot bigger -- the Note II will be a lot bigger than Note 1 was we believe, because Note II now is point to be in all of the four carriers in North America.

The Note 1 was only at AT&T. And of course, we have -- most of our concentration is CDMA so that helps us a lot. We’ve had design wins in Japan for our MMPA and we have more coming up that will be announced in the future. Does that pretty much give you a flavor?

Krishna Shankar - Roth Capital

Yeah. It does. Great. Thank you.

Ron Michels

You’re welcome, Krishna.

Operator

Your next question from the line of Paul McWilliams with Next Inning Technology.

Paul McWilliams - Next Inning Technology

Hi. Good morning, guys. Thank you for taking the call and congratulations on a great quarter.

Ron Michels

Thank you, Paul.

Terry Gallagher

Thanks, Paul.

Paul McWilliams - Next Inning Technology

What do you envision your capacity utilization to be in Q4?

Terry Gallagher

There’s a step-up, Paul. What as we get closer to the end of the quarter we want to be getting a little clearer view on Q1 and that can kind of throw off overall percentages, but we do see it stepping a little bit here in Q4.

Paul McWilliams - Next Inning Technology

Okay. Well, assuming a little bit of inventory management going into the seasonally soft Q1, would you think that if I model it at 48%, it would be reasonable?

Terry Gallagher

Very reasonable, Paul. Yeah.

Paul McWilliams - Next Inning Technology

Okay. Thank you. You mentioned a KDDI handset or smartphone I wasn’t clear which. Is that from Kyocera?

Ron Michels

Yeah. I specifically said KDDI, because I could not say who it was, but it is a smartphone.

Paul McWilliams - Next Inning Technology

Got you. Are you involved in all and new handsets that are or combining PHS with 3G?

Ron Michels

No. We’re not.

Paul McWilliams - Next Inning Technology

Okay. Shifting just real quickly to this new 802.11 front-end, could you step through there and identify the various pieces that are your content versus content from another source?

Ron Michels

Sure. What we make is the power amplifier and what I’m about to describe carries its way into either a 2-gig channel or 5-gig channel. But we have power amplifiers, switches and one-ways amplifiers. It’s a very unique configuration, because it’s done in our new process and it’s a single die solution in a very small package.

Paul McWilliams - Next Inning Technology

It is single die?

Ron Michels

Yeah.

Paul McWilliams - Next Inning Technology

Okay. So within the front-end module is it totally ANADIGICS content then?

Ron Michels

Yeah. It is.

Paul McWilliams - Next Inning Technology

Excellent. Very good design. What’s your capacity utilization with the ILD BiFab process?

Terry Gallagher

In terms of mix?

Paul McWilliams - Next Inning Technology

Well, capacity utilization of that fabrication line?

Ron Michels

Yeah. So actually, it’s very high and we increase it with each quarter as we get design wins that utilize it.

Paul McWilliams - Next Inning Technology

Got you. So, the transition is a fairly low cost transition, the transition to your legacy over to the ILD?

Ron Michels

That’s correct.

Paul McWilliams - Next Inning Technology

Excellent. And last question here is, who you using for silicon outsource?

Ron Michels

Yeah. TFMC in Taiwan.

Paul McWilliams - Next Inning Technology

Got you. Okay. I’m familiar with that, of course. That’s it. Thank you very much.

Ron Michels

Great. Thank you.

Terry Gallagher

Thanks.

Operator

At this time, we have no further questions. I’ll turn it back over the presenters for closing remarks.

Ron Michels

Great. Thank you, Operator. To summarize, I believe ANADIGICS has made tremendous progress this quarter and aggressively launching new products as well as securing design wins and orders. By remaining sharply focused on three industry drivers, wireless, 3G, 4G, infrastructure and new WiFi applications, we believe that ANADIGICS is well-positioned for continued growth and success. Thank you for joining us on the call this morning.

Operator

Thank you. This does conclude today’s conference call. You may now disconnect.

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