Neutral on ANADIGICS

We recently reiterated our NEUTRAL recommendation on ANADIGICS, Inc. (ANAD), which designs and manufactures semiconductor solutions for the broadband wireless and wireline communications markets.

ANADIGICS is positioned in three fast-growing markets: 3G, Wi-Fi and CATV. In addition, the company is increasing its product content in markets, where multiple power amplifiers and multiple tuner ICs are needed. The continued expanded high demand for wireless connectivity in a growing number of consumer devices including smart phones, datacards, netbooks, notebooks and tablets provide substantial opportunities for growth to ANADIGICS.

ANADIGICS, which competes with RF Micro Devices Inc. (RFMD), Skyworks Solutions Inc. (SWKS), and TriQuint Semiconductor, Inc. (TQNT), is aiming to grow market share, which has been negatively impacted since 2008 due to inefficiencies in production followed by a period of low demand perpetrated by the economic crisis.

ANADIGICS has forged close partnerships with industry-leading chipset providers and Tier-1 customers including Intel Corporation (INTC), LG Electronics and Samsung.

Second quarter results beat estimates driven by a 26% sequential increase in wireless along with a moderate increase in broadband. This was the fifth consecutive quarter of sequential growth. The core drivers of growth for the company continued to be the strong and growing 3G and 4G wireless markets, which are being further fueled by most of the top customers gaining market share in the respective markets as well as the increasing power amplifier content in 3G markets.

Margins also improved in the second quarter due to increased sales volume and better factory utilization. Fab utilization was in the mid-60s, up from high-50s in the previous quarter.

However, ANADIGICS incurred losses in 2008 and 2009 and management expects the company to continue incurring losses in 2010 as well. The key initiatives for 2010 will be capitalizing on the growth of 3G and 4G markets by introducing new and superior products and improving operational efficiency, thereby increasing profitability.

We raise our estimates on the back of strong second quarter results and return to profitability (excluding stock-based compensation expense and restructuring expenses), but prefer to be on the sidelines and would wait for further improvement in the business before turning positive.

Our Neutral recommendation is supported by a Zacks #3 Rank, which translates to a short-term rating of Hold.

ANADIGICS CORP (ANAD): Free Stock Analysis Report

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