Leading semiconductor manufacturer Anadigics, Inc. (ANAD) recently announced its plans to initiate corporate restructuring activities to reduce operating costs and better align its resources in accordance with the evolving demands of the business. The strategic move is also intended to focus more on its infrastructure markets and lesser on the legacy mobile business.
Anadigics expects to save about $15 million annually from these restructuring initiatives. Together with the previously-announced $10 million annual cost-savings through higher efficiencies in R&D and SG&A expenses and workforce reduction, the company will improve its gross margin and EBITDA going forward.
Restructuring Initiatives
During the ongoing quarter, Anadigics witnessed a sharp decline in demand for its legacy mobile business, offset by a stronger-than-expected progress in infrastructure-targeted activities. As the fulcrum shifted more towards the infrastructure-based business, Anadigics decided to expand its presence in these markets and reduce the same for legacy mobile products.
In addition, the infrastructure-targeted products have a higher revenue and profit margin than mobile-targeted products. As such, Anadigics decided to reduce its fixed costs by unwinding production of RF (radio frequency) power amplifier and front-end products for a variety of mobile applications including handsets, tablets and data cards in the cellular 3G/4G and WiFi markets. The company will also monetize some of the wafer processing equipment for these products to partially fund this restructuring process.
For the infrastructure market, Anadigics manufactures RF and optical products for cable television, cellular wireless small cell, WiFi and machine-to-machine (M2M). As global demand for high-data-rate connectivity to the Internet increases exponentially, demand for these high-performance products is set to rise as well. In order to capitalize on this revenue potential, Anadigics has also decided to align its R&D investment focus and in-house manufacturing capacity toward a higher mix of infrastructure products.
Cost-Cutting Benefits
Post-completion, the restructuring activities are anticipated to lower manufacturing costs by approximately $5 million and operating costs by approximately $10 million through workforce reduction by 140 positions to eliminate redundant manufacturing operations. Anadigics will record a cash workforce restructuring charge of approximately $2.3 million and a non-cash charge of about $5 million for fixed asset and inventory write downs. All these measures are expected to strengthen its presence in key infrastructure markets, reduce fixed costs and generate EBITDA breakeven revenue level of approximately $26-27 million.
Updated Q2 Guidance
Anadigics updated its guidance for second-quarter 2014 to better reflect the changing dynamics of the business. The company expects revenues to be approximately $23 million with infrastructure contributing the lion’s share compared with the prior quarter. At the same time, Anadigics expects a sequential improvement in non-GAAP gross margin and expects lower non-GAAP operating costs for the quarter. Consequently, non-GAAP loss is anticipated to be approximately 10 cents per share.
Anadigics presently has a Zacks Rank #4 (Sell). Better-ranked players in the industry that are worth mentioning include Advanced Micro Devices, Inc. (AMD), Avago Technologies Limited (AVGO) and FormFactor Inc. (FORM), each carrying a Zacks Rank #1 (Strong Buy).
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