Filed by Alpha Industries, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
Commission File Number: 001-05560
Subject Company: Alpha Industries, Inc.
On May 3, 2002, Alpha Industries filed a registration statement with the
SEC containing a preliminary proxy statement/prospectus-information
statement regarding the proposed merger of Conexant Systems Inc.'s wireless
business with Alpha. Investors and security holders of Alpha are urged to
read the preliminary proxy statement/prospectus-information statement and
the definitive proxy statement/prospectus-information statement when it
becomes available and any other relevant documents filed by Alpha with the
SEC regarding the proposed merger because they contain, or will contain,
important information about Alpha, Conexant's wireless business and the
merger. The definitive proxy statement/prospectus-information statement
will be sent to Alpha shareholders seeking shareholder approval of the
proposed merger. Investors and security holders of Alpha may obtain a free
copy of the preliminary proxy statement/prospectus-information statement,
the definitive proxy statement/prospectus-information statement and any
other relevant materials regarding the proposed merger (when they become
available), and other documents filed by Alpha with the SEC at the SEC's
web site at www.sec.gov. The documents regarding the proposed merger and
such other documents may also be obtained free of charge from Alpha by
directing such request to Alpha Industries, Inc., Attn: Paul E. Vincent, 20
Sylvan Road, Woburn, MA, 01801.
Alpha Industries and its directors and executive officers may be deemed to
be participants in the solicitation of proxies from Alpha Industries'
shareholders. A list of the names of the directors and executive officers
and descriptions of their interests in Alpha Industries is contained in
Alpha Industries' proxy statement dated July 30, 2001, which is filed with
the SEC and will also be included in future proxy statements filed with the
SEC. Shareholders may obtain additional information about the interest of
the directors and executive officers in this transaction by reading the
proxy statement/prospectus when it is available.
THE FOLLOWING IS THE TRANSCRIPT OF A CONFERENCE CALL WITH ANALYSTS AND
OTHERS HELD ON APRIL 30, 2002
ALPHA INDUSTRIES, INC.
Moderator: David Aldrich
April 30, 2002
4:15 pm CT
Operator: Good day and welcome to the Alpha Industries Fourth
Quarter Fiscal Year 2002 Earnings Announcement
Conference Call. Today's call is being recorded. At
this time for opening remarks and introductions, I
would like to turn the call over the Chief Executive
Officer, Mr. David Aldrich. Please go ahead sir.
David Aldrich: Thank you and good afternoon. Thank you for joining
our Q4 fiscal year 2002 earnings conference call.
During this call we will be addressing our fourth
quarter results. We'll talk about recent design wins
and order activity. We'll talk about our current
outlook and guidance going forward and we'll provide
some color and update on our pending merger with
Conexant Systems Wireless Business.
The format will be similar to prior calls. I'm being
joined by Paul Vincent, our Chief Financial Officer.
He'll give a financial update and then we'll take
your questions. But before we start, Paul please read
the safe harbor.
Paul Vincent: Thanks Dave and welcome everyone. Today's conference
call will contain statements which do not relate
strictly to historical or current facts and which
reflect our intentions and expectations as of today,
April 30, 2002. These forward-looking statements are
inherently subject to risk and uncertainty. We
caution you not to inappropriately rely on them.
Alpha's actual results and future events may differ
from those anticipated in our comments because of
various factors including but limited to the
following. Variations in projected sales, earnings,
losses, expenses and other financial results, the
magnitude, mix and timing of orders and shipments and
our ability to accurately predict them.
The timing and success of new product development and
product marketing for both Alpha and for our
customers. The success of our critical supply and
product relationships, variations in our strategic
direction, operating plans and financial model, the
timing and extent of recovery in our markets, and
market development's competitive pressures and
changes in economic conditions that vary from our
expectations.
As well additional factors relate to our proposed
merger with the wireless communication business of
Conexant Systems. These factors include the expected
costs, benefits, and timing of the merger, and our
ability to successfully integrate the merged
businesses, operations, personnel and customers.
Additional information and risk factors are included
in our periodic reports filed with the SEC, including
our form 10-K for fiscal year 2001.
This fiscal year forms 10-Q and in the preliminary
proxy statement we file and our registration
statement on form S-4/A on April 16, 2002. Copies may
be obtained by contacting us or the SEC. Please note
that we do not intend to update or revise these
comments to reflect changes in our expectation or in
facts or circumstances on which our comments may be
based. Dave?
David Aldrich: Okay, thank you Paul. Let me start with some
highlights. We met our earlier guidance. That was the
guidance that we provided to you during our March 28
conference call. Our sales were just north of $28
million. Our loss before loss per share before merger
expenses was $0.12. Our research and development was
just under $10 million and our book to bill was
slightly greater than one.
As you all are well aware March was a seasonally weak
quarter for the industry and as we discussed during
our last call, Alpha's been designed into several new
phone platforms with our power amplifiers and our RF
front-end modules. However the production ramp of
these products did not contribute significantly to
revenue in the March quarter.
Coupled with the slow down in wireless infrastructure
which we also discussed we revised our guidance
during that call. So where are we today? Well as we
presented it in March the power amplifier contract
that slipped out of the quarter are beginning to ramp
as we speak.
These contracts will continue to ramp and accelerate
throughout the summer months and into the back end of
the year. In addition and we're quite pleased that we
were just awarded a production order for our newest
CDMA gas switch component from Samsung. This is on a
very high volume CDMA phone platform and we have
production is beginning in June.
The net effect is that we're projecting sequential
improvement in our top line results for the June
quarter of between 8-12% and the products and orders
contributing to this increase will continue to ramp
beyond June and in fact on into next year. I'd like
to run down a few of the highlights; we've had
several announcements during the quarter.
During the quarter however, before I get to that,
we've maintained an aggressive R&D investment
posture. We've been spending nearly 30% of sales to
design new products and address new opportunities and
we've remained absolutely uncompromising with respect
to this strategy. This commitment to positioning
Alpha for the future resulted in several
announcements and they include first the completion
of our acquisition with Aimta.
Aimta is a developer of Low-cost, Low-temperature
Co-fired Ceramics, LTCC. LTCC is providing us with
the required technology to differentiate Alpha with
lower module costs at our higher level of integration
than our competitors. In addition we received two
design wins for switch built modules incorporating
Aimta's LTCC technology.
One is included in the CDMA wireless handset with GPS
capability and the second is an 802.11 LAN
application. During the quarter we also received an
order for our quad-band, our quad-band InGaP power
amplifier module. This module's been designed into a
new handset being introduced in 2002 by our largest
handset customer.
And finally we were just awarded pre-production
orders for our new transmit chain, our TX module.
This module incorporates our dual-band HBT, InGaP HBT
power amplifier, a silicon A6PA controller, a PHEMT
gap switch, a band-pass filter, a gallium arsenide
directional detector and switch controller, along
with discreet semiconductors.
We believe that this is the most highly integrated RF
front-end in the world today. So as these events
indicate despite the 2002 market we continued to
execute and deliver an aggressive product roadmap and
we've introduced what we feel is a very exciting
line-up of these module based products and we expect
payback to begin this quarter and beyond.
Finally and perhaps most significantly, given that we
are moving very quickly to complete the merger with
Conexants Wireless Business, I will provide more
information and commentary on our progress to date
after Paul provides a financial update. Paul?
Paul Vincent: Thanks Dave. I will begin by briefly commenting on
Alpha's overall financial performance and noteworthy
events for the fiscal year ending March 31, 2002. I
will then review the specific financial results for
the fourth quarter, which met the revised top line
and bottom line guidance provided in March.
And then I will comment on the financial outlook for
June. In my comments, reviews and comparisons I will
exclude the charges and expenses related to the
acquisition of Aimta and the pending merger with the
Conexants Wireless Business.
Fiscal 2002 was a challenging year as Dave has
indicated as the economic downturn continued
throughout the fiscal. Demand and therefore sales for
our products in our targeted market wireless and
broadband decline 58% resulting in net sales for the
year of $126 million. To minimize the impact of lower
sales we reduced our quarterly breakeven from
approximately $54 million to $40 million or 25%.
The lower cost structure was achieved while
increasing our investment in process and product
development in response to our customer's
requirements for more integrated solutions. Operating
and net results declined by $67 million and $47
million respectively as compared with last year. Net
loss for the fiscal 2002 was $14 million or $0.31 per
share.
In December we announced an agreement to merge
Conexant Wireless Business with Alpha. We believe
that by combining the wireless technology and product
portfolio of the two companies, the new entity will
be uniquely positioned to drive the evolution of RF
integration and complete semiconductor system
solution for mobile communication application.
During the March quarter we made significant progress
in completing the regulatory filings and
requirements. We expect to close the merger in the
current quarter. In preparation more than 100
employees are participating and planning the
integration, reviewing all aspects of our investment
strategy, sales channel and cost structure. We will
provide details about our strategic direction and
financial models as we complete the regulatory
requirements.
In March as Dave had indicated we finalized the
acquisition of Aimta, Inc., a developer of
Low-Temperature, Co-fired Ceramics, or LTCC. LTCC is
an enabling technology allowing our customers to
reduce design lead-time, enhance functionality, and
shorten time to market. We have recently announced
design wins for March orders incorporating this
technology.
Now for the specific Q4 results, sales for the
quarter were $28.2 million. Order delays for power
amplifiers late in the quarter combined with
continued weakness for the wireless infrastructure
products were the primary factors contributing to the
sequential sales decline. Gross margin for the
quarter was 22.4% versus 33.7% last quarter due to
lower sales on a relatively fixed cost.
R&D for the quarter was $9.8 million or 34.8% of
sales, up slightly from last quarter. We have
maintained our R&D spending to meet our customer's
changing product requirements to more integrated
solutions. SG&A for the quarter was $5.7 million or
20.1% of sales, essentially flat for last quarter. As
a result operating loss was $9.2 million in line with
revised guidance.
Turning to our financial outlook we are projecting
sales to increase 8-12% sequentially on the strength
of our production order and design wins mainly for
handset application. Based on the current cost
structure we expect sequential improvement in gross
margin of 400-400 basis points and operating expenses
to be consistent with last quarter's spending.
Net interest and other income is forecasted to be
approximately $700K given the current level, not
current investment level, and lower interest rates on
maturing and reinvested cash investments. Based on
the foregoing factors and maintaining an effective
tax rate of 33%, the loss per share for the June
quarter is expected to be $0.09 - $0.10.
I will now comment on our financial position. At the
end of March we had cash and short-term investments
of approximately $114 million with minimal debt.
During the quarter we used cash of approximately $15
million, the primary uses being the pre-tax loss
before adjustments of $8.2 million as there was no
cash benefit to the tax credit and the Aimta
acquisition which was procured by cash of $7 million.
Cap-ex for the quarter was $8.1 million and
depreciation of $5.3 million for net cap-ex of 2.7,
which was offset by a $2.7 million reduction in
working capital. Receivables declined by 2.6 million.
Payables increased by 2.1 offset by inventory
increases of $2 million.
Finally for those of you who track the two operating
segments I will summarize the quarter four actual
results. For semiconductors, sales for the quarter
were $22.8 million. Gross margin was 4.6 million or
20.1%, and operating loss was 9.1 million. For the
ceramics segment sales were $5.4 million, gross
profit was 1.7 or 31.9% and the operating loss was
110K.
In summary we met our revised guidance, we expect
sequential revenue growth and improved operating
results in the June quarter. I will now turn it back
to Dave for more in-depth comments on the current
outlook and market dynamics as well as the update on
the impending merger with the Conexant Wireless
Business. Dave?
David Aldrich: Thank you Paul. Okay, at this point I'd like to
discuss some of our recent accomplishments in a bit
more detail. I'll comment on our competitive
positions and I'll end with some details on our
merger with Conexants. And as I mentioned before as
we announced during the quarter, we completed the
acquisition of Aimta.
Aimta brings LTCC to our technology line-up, and LTCC
or Low-Temperature, Co-fired Ceramics is essentially
a design and production platform for packaging and
integrating multi-chip modules. The advantage that
this essentially offers to our customers includes a
much smaller footprint, the high-Q ceramic you can
shrink it, lower cost since many of the passes,
filters and discreets are essentially imbedded or
included if you will in the ceramic sub-straight.
These modules will be produced in Taiwan initially
and subsequently China using a volume production line
dedicated to Alpha as part of the acquisition
agreement. And during the quarter we received our
first design wins for switch built modules including
this technology. This includes a module that's been
included in the CDMA handset with GPS capability and
modules for 802.11 chip set.
In addition we received qualifications orders for
Alpha's new transmit chain module. Now this module as
I mentioned we believe is the most highly integrated
RF front-end in the world and it has our PA
controller switch detector and discreet
semiconductors.
In addition we just received, and we previously have
not announced this, we received a volume contract
from Samsung on a new CDMA phone. This is A very high
volume runner and we're quite excited about this
because this OEM is taking market share and has been
a target of ours for quite some time. In addition
during the quarter we received volume orders for our
quad-band power amplifier.
This is a new amplifier designed for us as part of
our Alpha's AP137 series and it's being introduced
into two phones during the second half of this year.
These are GSM and GPRS related platforms. Our market
share for power amplifiers with this customer,
Motorola, when we include the previously announced
tri-band modules and the IC based product, has
increased dramatically for the second half of this
year and going into 2003.
I must say that I'm really quite pleased with the
performance of these PA modules. We started with the
AP134 tri-band family and our performance quite
frankly exceeded our expectations as we generated
greater than 90% final yield. Our module production
teams in conjunction with our packaging and test
people delivered the product on time and on budget.
And we feel it's a great start to an important
product family for us. When we couple these modules
with our leadership in gas switches and now our
proprietary LTCC capability, we've been able to
introduce a family of products to provide our
customers with very high RF performance in a
miniaturized or small footprint with lower overall
product cost for the solution. And we're quite
pleased that many of our customer agree and we're
beginning to be awarded design wins on the newest
platforms.
I'd like to turn for a moment to our infrastructure
business. As we outlined during our March call we've
seen service providers push out orders with our
customers, our OEM customers, as they delay capital
expenditure initiatives. And while this business
continues to face a low visibility, we have some
cause for optimism driven by our position with the
leaders and I'll comment on a couple.
We completed our annual negotiations with Ericsson a
couple of months ago. They went very well. We've
increased our share with Ericsson. Ericsson's our
number two customer. We've seen pockets of increased
demand for their 1900 MHz GSM based stations for the
U.S. market, people like Cingular and AT&T. and with
the 1800 European GSM edge system scheduled for Q2
and Q3. We have very high content on these platforms
with forecasted demand later in the year.
We're also quite pleased that Samsung, now also a
handset customer, has been and is a large base
station customer of ours. This has given us increased
penetration of the CDMA base station market both in
the United States and in China. And our business with
Nokia, Lucent, Nortel, and others, while lower than
expected remains quite strong in terms of our market
share and positioning.
In fact our position on the latest redesign 2G
systems as well as 2 1/2 and 3G architecture
significantly exceeds our content and older designs
with each of these customers. Infrastructure will be
a contributor to our business as 2G networks are
retrofitted and upgraded and 2 1/2 and 3G networks
are deployed though the exact timing is obviously the
subject of considerable debate.
Okay, let me try to give some more details on our
pending merger with Conexant. It's obviously
something that we've been quite involved with for the
last few months. On December 17 we announced the
signing of our definitive agreement and the intent
and our message is that we are launching a business
that creates a world leader in wireless
semiconductors. By combining forces we will have
created a company with the top cellular phone OEMs as
our top customers, Samsung, Nokia, Motorola.
We have a quite complementary with almost no overlap
RF product portfolio to address everything from
switch and filter products and multi-chip PA modules
to highly integrated transmit and receive products.
In addition we deliver comprehensive GSM, 2 1/2G
GPRS, solutions including the complete radio, base
stand processing, protocol stack, and user interface
software.
So we have a process and product breadth that really
is quite unparalleled in the industry. Now since the
announcement we've assigned more than 100 people from
both companies to the integration and optimization of
our systems, our sales channel, our organization, and
our operations. Our business teams of these
integration groups are making a lot of progress
towards a successful launch later in the quarter.
I'll tell you my observations to date are firstly
that we see and we continue to see more opportunities
for top line growth. Our customers on both sides have
received the news very positively. We see
opportunities for cross selling and opportunities to
truly integrate our truly unique product breadth to
satisfy our customer's road maps. The combination of
these factors gives us a great deal of confidence in
our ability to accelerate our combined top line
growth.
And as an example the recent win with Samsung for our
gas switches, this customer seems very eager to
engage us, likes the road map of our combined
products. In addition we see numerous opportunities
to insert Conexant CDMA PAs where they have quite a
leadership position into sockets with our top
customers.
We are finalizing specific action plans to reduce our
product costs and to lower our overall breakeven
point. We are aggressively pursuing synergies that
will provide us with the product cost advantage and
enhance our margins.
Our current models indicate that as we stated during
our merger announcement, our conference call, and our
road show, the combined business will be profitable
at $150 million per quarter. However we intend to
lower our breakeven point below that level so we will
be well positioned to meet our financial objectives.
Our combined revenue guidance, that is for Conexant
Wireless Business and Alpha in the June quarter is in
excess of $130 million. And given the seasonally high
back end of the year and the products that both
companies plan to ramp in the upcoming quarters, we
are confidant in our ability to deliver strong
results to you our shareowners.
We'll be communicating our progress and more details
going forward. We look forward to getting the merger
behind us and providing these details on initiatives
and our operating financial plans as we close the
transaction. Silvia I'd like to turn this over to
questions.
Operator: Thank you, today's question and answer session will
be conducted electronically. To ask a question please
press star 1 at this time. We will take as many
questions as time permits and proceed in the order
that you signal us. Once again please press star 1 at
this time and we'll pause a moment to assemble the
roster. And we'll take our first question from Mark
Roberts of Wachovia Security.
Mark Roberts: Thank you, good afternoon. Could you give us a
breakdown of revenues? What percentage came from
switches, what percentage came from power amps?
David Aldrich: We really don't provide that kind of detail.
Mark Roberts: Okay, even generally in terms of kind of broad
percentages.
David Aldrich: Well I'll say that we have mentioned in the past that
power amplifiers have been growing faster than our
switches. We have a much greater market share in the
switch market. And our power amplifiers are, let's
see, roughly equal, perhaps not quite equal to our
switch business.
Mark Roberts: Okay and then second question, Conexants Wireless
gross margins appear to be considerably below yours.
When the two businesses are merged, what are - are
there specific cost items that we should think about
that you're intending to eliminate or ways that your
synergies that you're expecting to get that are going
to bring the combined gross margin closer to your,
excluding Conexant?
David Aldrich: I'm glad you added that. There's only going to be one
gross margin. Well, I'll start with the cost side.
There's truly nothing that's off the table, so our
integration teams are looking at all aspects of our
logistics, they're looking at our combined cost
structure with respect to how we assemble test
product. We're looking at our labor costs, our fixed
costs and quite frankly there's nothing off the
table. So we are developing those detailed plans as
we speak and there will be synergies there.
And on the top line perspective we're really quite
impressed by how relevant the products are to our
customers when we combine them. And as we look
towards our ability to offer our customers more than
our competitors quite frankly we see an opportunity
to accelerate top line growth with compelling
products and with our ability to leverage our
respective sales channels.
Mark Roberts: Okay, thank you.
David Aldrich: You're welcome.
Operator: We'll hear now from Joseph To of Lehman Brothers.
Joseph To: Hi guys, just a couple of quick questions in terms of
your largest customers, Motorola and Ericsson. Can
you give a percentage of revenue for each customer
during the quarter?
Paul Vincent: Yeah during the quarter, Joe, this is Paul, the
Motorola was about 27% of total revenue and Ericsson
was just shy of 10%.
Joseph To: Okay, and then just in terms of - maybe you can give
a rough ballpark answer in terms of the mix in the
March quarter infrastructure versus handsets. Could
you possibly give that?
Paul Vincent: Let me look here - handsets were about 50% of the
total, and infrastructure was somewhere about 15% of
the total.
Joseph To: That was 1,5?
Paul Vincent: That's correct.
Joseph To: Is that going to change in the June quarter? Will
percentage in infrastructure increase or will
handsets increase?
Paul Vincent: We expect that the handset will definitely dominate
in the upcoming quarter. Infrastructure is still an
unknown. Our expectation would be is that on a dollar
basis that it would remain relatively consistent, if
not grow slightly.
Joseph To: Okay thanks a lot guys.
Paul Vincent: Thanks.
Operator: And we hear now from Sam May of Piper Jaffray.
Sam May: Hi good afternoon. Dave on the switch business, can
you talk a little bit about the competitive
environment for the switch business and how that has
changed or evolved over the past year for Alpha? Who
you are seeing and where the competition has changed
over the past year?
David Aldrich: Yeah I think it hasn't. What's been remarkable about
it is how little it's changed. The companies that
provide gas, compelling gas solutions, that is really
competitive gas solutions are using PHEMT in their
front, primarily in Sony and NEC and Maycom Tyco. We
feel we've got about 40% share of that market. We've
increased our share with our top customers recently
because those are moving from single gap chip in a
box into more highly integrated solutions and we have
the technology to bolt around if you will the switch.
We've seen no one enter the switch market that I
would say has any more than very low single digit
share. We've also seen our share with respect to both
Sony and Tyco increase, and I think that's more focus
issue so we've seen ourselves from a technological
point of view distancing ourselves from those two
competitors and really there's nobody new to speak
of.
Sam May: And are you - are there any technology transitions
that are being undertaken in any of the handset
manufacturers that are avoiding the need to a gas
based switch?
David Aldrich: Well we're seeing the gas switch being incorporated
into really two areas. In the TX module that I
referred to where you really have the entire transmit
chain, band-pass filter, front-end switch, amplifier,
that switch is being incorporated into the module,
and a couple of customers now are actually doing that
as we speak. And we've got more that are very
interested in their products.
So it's still a multi-throw PHEMT gas switch but it's
incorporated in TX. The other emerging trend is
taking the gas switch and incorporating it with
filter technology wrapped around a LTCC multi-layer
sub-straight and that creates, if you will, a receive
front-end module. So you come from the switch, the
front filter, perhaps a band-pass filter and it may
or may not include soft filters.
Today none of our customers seem to want the soft filter
but that's an option that we offer.
Sam May: Okay, and final question, on the base - on the
infrastructure side on the base station, what's the
average dollar content that Alpha gets out of a base
station platform and does it differ much from TDMA to
CDMA to GSM platform?
David Aldrich: It doesn't differ much by air-interface standard.
Recently the content has gone from in the tens of
dollar range to as high as close to - and it depends
on what we have Sam, but we've got a lot of product
that address that market. Let's just say tens of
dollars.
We have significantly more content, let's call $20 -
$30 more when there's an MCPA or a multi-channel or a
highly linear power amplifier involved because then
there are ceramic delay line filters. And there are
widgets that we call (beckter) modulators and modules
that increase the performance of that feedback loop
and provide greater linearity to the PA. So if it's
got an MCPA we've got quite a bit more content today.
Sam May: Great thanks.
David Aldrich: You're welcome.
Operator: And we'll hear now from Jeremy Bunting of Thomas
Weisel Partners.
Jeremy Bunting: Thanks very much. Would the expectations for the June
quarter including the PA modules, which you refer to
in your pre-announcement, have been delayed?
David Aldrich: Well, the - as we refer to in the June quarter,
Jeremy, we saw those modules delayed into - there
were two of them, and one was in the May - June
timeframe and the other the June - July. So say May -
July and we see that is exactly what's happening. So
it looks like they'll be ramping in May and June.
That gives us an up-tick in our power amplifier
business. That's providing most of the growth,
sequential growth quarter over quarter.
We'll get some of that switch business late in the
quarter, so it'll be a bigger contributor next
quarter. And the new quad-band design and the TX
module is a summer event.
Jeremy Bunting: Okay, your answers were helpful, thank you. And Dave,
congratulations on the first win with the LTCC switch
filter module. I was wondering if you could comment
on, what is the relative ASP for that part, relative
to say a switch or relative to say a jewel band VA
module?
David Aldrich: Well, relative, let's assume it's that front-end
module. If it's just the switches, the switch and the
filter...
Jeremy Bunting: Yeah, right.
David Aldrich: If it's just the switch or the filter, it's around a
dollar to a dollar and a half. If you take the
transmit module now you take your power amplifier and
include the switch it gets up to about $3.50 for just
that TX module. So compared to a gas switch which was
perhaps a half dollar, a power amplifier module which
is perhaps $2 - $2.50, an LTCC front-end is perhaps a
buck and half. And if you come up with a TX module on
a really creative integration platform you can get it
all. And we have a couple of phones where we have it
all.
Jeremy Bunting: Okay, and one last question, on the quad-bands' PA
into most fronts, will they be into circled gate
funds?
David Aldrich: No, and in fact it's a quad-band PA and it's being
incorporated initially into a U.S.-based phone. It
will not - the phone won't operate quad-band. The PA
is quad-band and it's being designed into multiple
platforms that avails themselves of being able to use
the same part and can be configured with a relatively
easy software upgrade to be used in dual-band
configured for Europe or Asia or the U.S.
It can be configured as a world phone. It can be
configured as a tri-band phone but it's all one PA.
Operator: And we'll take our next question from Blain Carroll
of Adams Harkness & Hill.
Blain Carroll: Yes, thank you. Dave could I just go back to a couple
of questions ago? When we were talking about the
dollar content in the base station, in a $50-$70,000
base station, the dollar contents to Alpha you're
saying is in the tens of dollars?
David Aldrich: No, it really depends - we have more in the high
power base stations. It really also depends quite a
bit on whether or not we have the filter combiner.
I'll give you an example, on a high powered based
station, if there's a ceramic cavity or filter
combiner technology, we would have those resinator
filters and they could be $10 - $30 dollars or $10
-$40 a piece and there are several of them.
We also have the magnetics or the (pherites) that
will go in the isolator, that's a few dollars, and
then we have high isolation switches, gallium
arsenide, directional detectors, gallium arsenide
attenuators, high isolation switches, game block
amplifiers, so it's very really dependent on the
architecture. In a lower power base station we tend
to have less obviously.
So I would say it would be quite a bit less, and if
it's an MCPA or a highly linear amplifier application
we can get anywhere from say $7 - $25 in components
or widgets that improve the linearity of the
amplifier.
Blain Carroll: Okay, so it could get upwards of $100 per base station.
David Aldrich: It sure could and a high powered goes over that.
Blain Carroll: Okay, the win with Samsung, congratulations on that.
Is that a first win with Samsung on the handset side?
David Aldrich: It is the first - on the handset side, Samsung's been
a base station customer of ours. It's the first win
in Samsung in some time. We've done business with
Samsung in handsets in the past but it's been a
couple of years and we haven't participated in this
series of very high run or successful CDMA phone
platforms. That's where this switch is designed in
and it's going into more than one phone.
Blain Carroll: Okay, tell me this, was the sales call done in
conjunction with Conexant? Are we starting some
synergies here and benefits?
David Aldrich: Absolutely not.
Blain Carroll: Okay.
David Aldrich: I think there are benefits. And the benefits are the
fact that Samsung among other top customers they like
the idea of this combination, so I think that
obviously makes it easier for our Alpha sales team or
the Conexant sales team because they know that this
deal's going to happen and they like the road map.
Blain Carroll: Okay, I think it was Paul that was talking about the
breakeven, the $150 million with Conexant. What type
of gross margins are assumed with that $150 million
to get to breakeven and also the op-ex as a
percentage of sales?
Paul Vincent: Blain, at this point in time I'd like to beg off
giving the details because as Dave is indicating
we're looking at all aspects of sizing the business
and making an appropriate, and so I think it's a
little bit premature to give that level of detail.
David Aldrich: We're also in registration.
Operator: And we'll take our next question from Kalpesh Kapadia
of CE Unterberg.
Kalpesh Kapadia: Good afternoon guys. Dave, you mentioned the $130
million access fund $130 million revenue in June
quarter for the combined company and breakeven point
lower than $150 million. Could you help us understand
a year down the road when the integration is up and
running and then the combined company, what will the
operating model look like?
David Aldrich: Well we're going to have to beg off on that right
now, Kalpesh. We just can't give - we really can't
give a lot of detail. We're in registration and I
hate to hide behind that but that's a fact of life.
But you know you know us pretty well and I think any
successful semiconductor company's got to strive for
operating margins to get into the double digits and
gross margins that are respectable.
And we're looking at a company of this size and
magnitude having significant critical mass to become
a low cost producer and we're seeing detailed plans
to confirm that earlier assumption. So I can't give
you details but we're going to work this real hard
and we're going to squeeze our product cost as hard
as we possibly can so that we both take share and
deliver a strong margin performance.
Kalpesh Kapadia: The next question relates to the transmit chain
module, the Alpha integration module that you have
big production order for. When will you start seeing
the revenues from that part, and how much would be
the dollar content improvement over the current
switch or the in-depth modules?
David Aldrich: Our customer expects to be ramping this in the
summertime, so it's the July, August, September time
frame, and we get we get several dollars in those
phones.
Kalpesh Kapadia: Okay, and the question for Paul. The infrastructure
revenues, you know, right now the market is at a low
point. When it actually returns to a steady state,
what kind of steady state infrastructure revenue can
you come back to? I mean if I look back at last year
you were about $8 - $9 million range from
infrastructure not too long ago. Can you bounce back
to that level when the market returns to normalcy?
Paul Vincent: I see no reason why we wouldn't be able to. We have
been positioned and designed into many slots as Dave
has indicated, especially some of these new linear
amplifiers that have additional circuitry around
them. That gives us higher value added, and so once
there is a rebound we're well positioned in taking
revenue. So I see no reason why we shouldn't get back
to those levels where we were at.
David Aldrich: Kalpesh we used to be a lot higher than that.
Kalpesh Kapadia: I know that. This was a June number I was quoting so.
Paul Vincent: I'd be disappointed in steady state if we weren't
able to get to at least that level.
Kalpesh Kapadia: Thank you very much and good luck.
Paul Vincent: Thank you.
Operator: We'll hear next from Dale Pfau of CIBC World Markets.
Dale Pfau: Good afternoon gentlemen. When we take a look at your
results for the quarter, obviously you're very heavy
leveraged to your top line. Your cost of sales is
essentially flat. Is your - you stated earlier that
your breakeven Alpha loan is now $40 million, is that
correct or is it below that right now?
Paul Vincent: It's around $40 million. If you use last quarter it
was slightly higher.
Dale Pfau: And so this is the primary reason if we get the 10%
sequential growth that's where we're getting the 400
basis point increase in the gross margin? Again we're
going to see only a slight increase in the cost of
sales here Paul?
Paul Vincent: That's correct. We'll see the leveraging at the cost
of sales and with operating expenses being relatively
flat with last quarter.
Dale Pfau: And Dave when you talked about the ramp that we're
going to see in the June quarter, can we expect that
the ramp of several of these products where your ASPs
for phone are actually going up nicely that we could
see a stronger ramp for Alpha alone, sequentially in
the calendar third and fourth quarter?
David Aldrich: We'd be stronger than what you're seeing in the June
quarter.
Dale Pfau: Yes.
David Aldrich: We're not going beyond June at this point but I'll
say this that the products that didn't ramp in March
that are ramping in June continue to ramp throughout
the summer. The TX module begins to ramp in the
summer through the fall and into next year. That's
going into multiple all three platforms as is the
quad-band.
So my expectation is the infrastructure stops
dropping and hopefully begins to come back at some
point. We've got the products and that these module
products begin to gain more traction and we would
expect, we would hope snowball.
Dale Pfau: And then as a result of the combination with the
Conexant operation, I know you're looking at all
things to lower the cost, is it conceivable that the
Alpha alone cost or breakeven Paul is going to drop
below the $40 million line?
Paul Vincent: That's correct, because we'll be looking at the
synergistic outlook for both groups, not just looking
at one side. And obviously we'll take the best in
class where it should be done, and so I would expect
Alpha's breakeven should in fact drop.
David Aldrich: Dale, I'll give you an example. We will own
(Mexicali) and the reason we like (Mexicali) is on a
variable cost basis we think we'll have the lowest
packaging cost in the world. And that's directly
applicable to our power amplifiers, so there's a lot
as Paul mentioned a lot of cost synergy that we can
execute.
Dale Pfau: And as far as the leverage when we're talking about
the leverage that you Alpha have currently for your
top line, is it a similar situation at the Conexant
operation or is it not as leveraged as you are at
Alpha?
Paul Vincent: Well I think that they also have the leveraging. They
are in the semiconductor business and so again the
same parameters are provided in there that the more
they can shrink the overall size of the dye and
utilize the fixed capacity and both areas are
under-utilizing their fixed capacity. They should be
the same type of leveraging. It may vary from product
to product.
David Aldrich: Dale one of the issues that we have is the combined
company. If you would just look at and add the two
together, add the publicly available information, the
S-4 from Conexant and our data, the R&D number's very
high and the only reason that we live with a high R&D
number is we think we're going to take share. We're
going to add more compelling, more highly integrated
products.
In the case of Conexant, their systems, their DCRs,
in the case of Alpha, their RF front-ends, so the way
you rationalize that R&D is you look at project by
project basis and ask the question how do we exceed
the top line growth rate of the overall market. So
you get leverage both for the gross margin and you
get a lot leverage at the R&D line.
Operator: And we'll move on to John Lau of Soundview Technology
Group.
John Lau: Yes, hi, thank you. Just have some general questions
back on for low-temperature, co-fired ceramic. I was
wondering if you could go over some of the benefits
besides the size, such as the temperature handling
and the cost versus the laminate. And finally, do you
find that the LTCC is more critical, applicable to
the RF switches, passives or the base stations or
both. Thank you.
David Aldrich: Okay, great question but very technical. It is today
more applicable to the passes and the switches
because the reason, the advantages are cost and size.
You take a high cube ceramic layer metal, it's very
inexpensive, it's produced by the millions in the
ceramic capacitor world. And you're able to
essentially - think of it as taking the a lot of the
discreets, the resistors, the passes, and including
them if you will for free imbedded in this
multi-layer platform.
So your band-pass filters and so on, your resistors,
your capacitors. So you take the parts count way down
on your module. It can be small because the ceramic
is high-Q and multi-layer versus the BT laminate. The
issue is to whether it adds a lot of value on the
power amplifier is one that's debated for a PA as a
stand-alone.
However, if you're going to do a full up RF
front-end, there's going to be some LTCC content in
there because it's the only way to significantly
reduce the complexity of the design that we know of.
John Lau: Okay, and again although I may have missed it, and
this applicable also for base stations or NCAs?
David Aldrich: It's applicable for - it's not applicable, we haven't
seen it, we're not looking at it for a high power
base station amplifiers. So the answer is no. It is
applicable in base station applications at the
component level.
John Lau: Okay, thank you.
David Aldrich: You're welcome.
Operator: And we're hear now from Mark McKechnie of Banc of
America.
Mark McKechnie: Okay thanks, couple of questions for you. Did you
talk about what your visibility on March is in terms
of how much you have plugged versus turns business
and if you see if relatively loaded or is it back end
loaded? How do you talk about that?
Paul Vincent: Well actually Mark the last coming out of the March
month and into April that we've seen progress in
terms of order inflow and we're looking at that we
would need somewhere between 20 - 25% turns business
for the year.
Mark McKechnie: For the June?
Paul Vincent: Yes.
Mark McKechnie: Got you. And you know is that going to be spread
across the months or how do you see that?
Paul Vincent: Yeah, given the order rate in the beginning of this
quarter as well as coming out of the end of this
quarter we were expected to be more level load.
Mark McKechnie: Got you. A couple of other questions. Some of the
customer shipments, I might have missed it but some
of the business that Motorola pushed out a bit, I
mean is that part of your June guidance? Do you have
that coming back starting up here in the middle of
the quarter or so?
David Aldrich: June will be sequentially - Motorola will be
sequentially higher in June so that's correct, and
it's really these new products going into production.
Mark McKechnie: It's those guys, okay, and then the Samsung CDMA
switches there, is that also part of the June
guidance?
David Aldrich: Well, it's not a lot - I mean it's coming in June and
while the volumes are very significant it's really
backend loaded, so not a lot. There's a little bit in
there but not a lot.
Operator: Moving now to Chris Versace of Friedman Billing
Ramsey.
Chris Versace: Hi guys, just a couple of questions for you. Just
kind of understanding getting back to the
rationalization and looking at the cost structure for
the combined entity, are you guys saying that R&D is
indeed on the table to try and take some costs out of
that or not?
David Aldrich: No what I'm really is that - well, everything's on
the table, everything's on the table because this
business has got to be profitable and we recognize
the market that we're in and we've got to figure out
how to leverage both the top line and the bottom
line. And so from that point of view everything's on
the table. However my comments in R&D were really
directed at the fact that you accept a higher level
of R&D investment as a percentage of sales only when
your business people and your technologists can
demonstrate a credible plan to drive top line growth
and take share.
And that's why you live with a higher R&D and that
was really my comment, so I very much like and am in
favor of the system solutions business that
Conexant's engaged in, the direct conversion radio
business that they're engaged in. I think we can
combine our products and do things that are even more
compelling on the RF front-end. So I like that
business but I only like it in the context of
leveraging that R&D line because when we start out
it's too high as a percentage of revenue but it'll
come down as we accelerate top line growth.
Chris Versace: Okay, and just two other quick questions. I know that
after the merger you guys will be roughly 90%, that
your mix will be coming from the handset market. Are
there longer term plans to broaden that out, kind of
you know bring the infrastructure piece up and attack
some other areas as well so it's more of a balance
mix over time?
David Aldrich: Well, again I can't get into a lot of details here,
but I'm very much in favor of having a business
that's diversified but only diversified in areas
where you have a core competence, where you can win,
where you can have some differential advantage. So
the markets I very much like because we can do it and
we can demonstrate leverage are the base station
business, lower volume but higher ASP, higher
margins, and I like some of the wireless data
applications that show promise where we have a
technical differential advantage.
Chris Versace: Okay and just a quick last one. Are you guys seeing
any beneficial raw material costs say you know
sub-straights or wafer pricing at the wafer.
David Aldrich: By virtue of the merger?
Chris Versace: No just in general today in the market, say quarter
over quarter over the last couple of quarters.
David Aldrich: There has been some as when you have excess capacity
over demand there's a tendency to have more favorable
pricing. And so we're seeing some benefit to that.
Operator: And we'll move now to Mike Whitfield of Wachovia
Securities.
Mike Whitfield: Thanks, good afternoon. I have a question regarding
reference designs that many design houses are putting
out today. Conexant has one, Motorola. Can you say
how many of those designs in general Alpha is in and
what is the range of content.
David Aldrich: I'm not sure I understand the question. Let's try again.
Mike Whitfield: For example, if you take - as an example Conexant
System Business where they sell a complete phone
reference design to an OEM, to a handset manufacturer
third party. Do any of those reference designs
include Alpha content?
David Aldrich: Oh I see, okay. The answer is yes with a host of
customers and that list is growing. There really are
two ways we participate in a reference design. One,
if you're making a power amplifier or even this next
generation transmit module, there are several things
you need. You need to have discreet semiconductors;
we make them. Our competitors typically don't.
You need to have a strong integrated multi-throw
switch capability. We have it - most of our
competitors do not. You need an in-gap PA, you need
pins and that sort of thing, pin diodes. So the
front-end module strategy that Alpha as a stand-alone
has had has been to take those technologies and
complement them in a module where we have higher
content than our competitors.
Conversely though our competitors are coming to us
and saying look, we've got to have gallium arsenide,
we've got to have switches, detectors and so on in
our module. So we have several customers that are
buying components from us that are begin incorporated
into their modules.
We also have products that we're selling, I wouldn't
necessarily call it a reference design. But that are
being sold where a customer will have for example a
cable modem chip set and will have as a part of the
application nodes our switches or our amplifier, and
so we get revenue by virtue of that if you can call
that a reference design.
Mike Whitfield: Can you potentially put a range on some of the ones
that are handset centered?
David Aldrich: You mean a dollar range?
Mike Whitfield: Yes.
David Aldrich: Well, I tell you this, it's difficult to do that but
it is growing because what we're finding is - in fact
I had a discussion today with the fellow who runs our
discreet semiconductor business. And he's seeing a
shift where the OEMs are buying few of that class of
components direct because they're buying modules. Now
they're buying some of those modules from us but when
they buy them from a competitor, that competitor then
needs to buy the content.
Almost none of our competitors have the process
breadth for RF semi-conductors that we do, so they
need to go to somebody to buy the components as the
level of integration rises. So it' getting bigger.
Operator: And we'll move now to a follow-up from Blain Carroll
of Adams Harkness & Hill.
Blain Carroll: Yeah just a couple of quick ones. Did you give out
the number on the modules, the percent of module
business during the quarter?
David Aldrich: No we didn't and we don't typically disclose that.
Blain Carroll: Okay, I thought I remember a couple of quarters ago
talking about 300,000 modules with 92% yields. Have
we moved away from giving out that information.
David Aldrich: We were giving out that information because we were
ramping those modules. What I think is significant
about it is the 91% yield was relatively few modules
behind us. We shipped many hundreds of thousands more
and that's where the top line growth is coming from
and the yields continue to run north of the 90%
range. So what's significant about it is the fact
that the yields have come up very quickly for us.
Blain Carroll: Okay, thanks.
Operator: And we'll take another follow-up from Dale Pfau of
CIBC World Markets.
Dale Pfau: Quick question, when you see many forecasts from many
of your customers out there, and their forecasts for
handset ramps in the second half of the year stronger
than their forecasts for handset shipment in the
first half of the year?
David Aldrich: In general yes, in general yes they are. I would say
that the summer still looks to me, gaining inputs
from all over the place, the summer still looks to me
- the late spring and summer is where there's really
a push on to get every latest phone out on the
market. The latest feature set with the expectation
that late summer spring entering into the end of the
year is where many consumers actually purchase their
phones. So I see that seasonality Dale still very
much still being planned upon.
Dale Pfau: And so it's conceivable that similar to what you've
got, you're just beginning to see the ramp up of some
these contribute this quarter. And in your own words
accelerate next quarter and beyond and so the handset
manufacturers are almost following that same sort of
theme from what they're telling you?
David Aldrich: Well, I think it's really coming from these specific
designs. It's where we have gained a socket on a
specific phone and that phone coincidentally is
ramping through that period of time, but I think
there is a trend for many phones to ramp during that
period of time. So it is a market phenomenon I
believe as well as an area where we're beginning to
gain traction with these new products.
Dale Pfau: And could you talk just really briefly about some of
the complex new modules that you're making or of
course are difficult to second source? How are you
dealing with that situation with your customers?
David Aldrich: Well you know we don't. We've had a couple of what
you're alluding to is if you move up the integration
chain too quickly your customer's faced with a
dilemma which is look, we're going to have to have a
sole source here. And there aren't very many
customers who are intimate enough with a supplier who
are willing to do that.
So you get this chicken and egg phenomenon. And we've
had that happen to us. We've had really we thought
compelling solutions that didn't get any traction as
early as we could because the customer came back and
said hey look there is no other competitor who's been
able to step up and get it done. In the case of the
high level products, these are new phone platforms
and our customers have been working with us and in
the case of one of the products for example, the most
integrated another supplier in lock step.
And basically dealing with split share between two
because they very much would like to have two sources
of supply. It is a fact though that as chip sets and
solutions become more dominant we'll see more and
more customers that are going sole source with entire
lineup. And that's just a fact of life because you
can't get two complete chip sets with software
wrapped around it to work the same.
Operator: And we'll take our next question, our final question
from Kalpesh Kapadia.
Kalpesh Kapadia: Dave you mentioned having cross setting synergies and
using your Motorola leverage to get Conexant and CDMF
guards in, just curious when will we see first Nokia
GSM, and then Conexant has Nokia as a good feeling as
a customer?
David Aldrich: Wow, I tell you that's right on the top of all of our
strategic plans, getting into Nokia's GSM business
which we - if you look at the product lineup, it's a
pretty compelling story that we could tell. Clearly
that's very very much on our radar and I'm not going
to for a minute define when that's going to happen
but boy it's right up there on our list.
Kalpesh Kapadia: Well, good luck on that.
David Aldrich: Thank you.
Operator: I'll turn the conference back over Mr. Aldrich for
any additional or closing remarks.
David Aldrich: Well, thank you very very much for listening. Great
questions and we look forward to speaking with you
again soon.
Operator: And that does conclude today's conference call. Thank
you everyone for your participation.
END