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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.
Commission File Number: 001-05560
Alpha Industries will file a proxy statement/prospectus and other relevant
documents concerning the proposed merger of Conexant System, Inc.'s
wireless business with and into Alpha Industries with the SEC. Investors
and security holders are advised to read the proxy statement/prospectus and
other relevant documents filed by Alpha Industries with the SEC regarding
the proposed merger referenced in the foregoing information when they
become available because they will contain important information. Investors
and security holders may obtain a free copy of the documents regarding the
proposed merger (when available) and other documents filed by Alpha
Industries at the SEC's web site at www.sec.gov. The documents regarding
the proposed merger and such other documents may also be obtained from
Alpha Industries 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 JANUARY 16, 2002
ALPHA INDUSTRIES, INC.
Moderator: David Aldrich
January 16, 2002
4:15 pm CT
Operator: Good day, and welcome to the Alpha Industries Third 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 to the Chief Executive Officer, Mr. Dave Aldrich. Please go
ahead, sir.
David Aldrich: Thank you. Good afternoon and thank you for joining the
Alpha Industries Q3 Fiscal '02 conference call.
During this call, we'll address the Q3 operating results, our current
outlook and visibility going forward, we'll provide a status update on new
products and new programs.
The format will be similar to prior calls where Paul Vincent, our Chief
Financial Officer, and I will provide a detailed update, and we'll then
take your questions.
First, Paul, would you read the Safe Harbor?
Paul Vincent: Thanks Dave. Today's conference call will contain
forward-looking statements. Today's comments reflect our intentions,
expectations as of today, January 16, 2002, but are inherently subject to
risks and uncertainties.
We therefore caution you not to inappropriately rely on forward-looking
statements. Alpha's actual results and future events may differ from those
anticipated in our comments based on various factors.
Such factors include -- but are not limited to -- variations in projected
financial results for the fourth quarter and for the fiscal year, the
benefits, timing, and success of our product development efforts, our
ability to maintain and improve product yields to participate in new
wireless interface standards in application and to develop new - a market,
new products, and technology, the timing of the recovery in our markets,
the success of our strategic relationships, our ability to predict customer
orders and the disproportionate impact of our relationship with our largest
customers, changes to our prices or margins or to our plans or intentions,
unexpected market developments, competitive pressures, and changes in
economic conditions, as well as additional factors related to our proposed
merger with the wireless communication business of Conexant Systems, Inc.
These factors include the expected benefits and timing of the merger, our
ability to successfully integrate the merged business, operation, personnel
and customers, our ability to accurately forecast the financial results,
and prospects of the combined company.
Additional information and risk factors are included in our periodic
reports filed with the SEC including -- but not limited to -- our Form 10-K
for the year ending April 2001 and subsequently filed Form 10-Q. 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 expectations, or in events, conditions, or
circumstances on which our comments have been based.
Dave?
David Aldrich: Okay thank you, Paul.
Let me start with some highlights for the quarter. We met our earlier
guidance, that is the guidance we provided during our Q2 earnings call,
with sales of $33.1 million. Our loss per share before merger expenses were
4 cents. And R and D investment was $9.6 million for the quarter.
Essentially, our revenues were slightly higher, and we improved our
operating results by roughly 1.4 million, or 2 cents per share, from a loss
of 6 cents in September to 4 cents this quarter.
The improvement resulted from cost containment measures instituted late in
the September quarter which reduced our breakeven from roughly 45 million
to approximately 39 million.
Also during the quarter we maintained an aggressive R and D investment
posture. We spent nearly 30% of sales to design new products and address
new opportunities. And as we've said in the past, we remain absolutely
uncompromising with respect to this investment and this strategy.
Now I'd like to move beyond the financials and discuss several of the
noteworthy events that occurred during the quarter.
First, we began ramping our InGap PA modules for top tier customers. And we
shipped approximately 300,000 units. This was slightly ahead of what we
initially discussed with you.
And I must say that I'm extremely pleased with the performance of our
production readiness and our module manufacturing teams. Our yields were
north of 90% on these 300,000 parts, and they rival the learning curve that
we experienced on our mature MESFET and PHEMT products.
This is very important obviously, and it gives us a high degree of
confidence that we will avoid many of the problems experienced across the
industry as suppliers have launched these complex multi-chip modules.
Also during the quarter, we announced orders for our InGap HBT modules with
a top tier OEM that are expected to generate roughly $20 million in
calendar year '02.
We also have additional design wins that are slated for production later in
the year that will move us beyond that number. So obviously, the
performance of these modules and the high yields give us great confidence
that we can yield these relatively - we can ramp these comfortably.
We also announced that we have increased our market share with a leading
European handset OEM with multiple GaAs ICs and components for CDMA and
TDMA standards. These phones are expected to ramp throughout calendar year
'02.
Finally, we announce that we have received orders during the quarter for
more than 3 million of our new family of ultralinear switch ICs for the
802.11b market from a number of customers including a reference design
included in the world's largest suppliers 802.11b chip sets.
In addition, we've released our new 5.8 GHz, 802.11a chip sets in the
quarter. And this chip set includes a power amplifier, a switch, and a
low-noise amplifier. This product has been shipped with an initial
qualification quantities to a world-leading wireless company.
All three of these design wins -- the power amplifier modules, the CDMA and
TDMA handset design wins, and the 802.11 products -- are expected to
contribute significantly to our revenue throughout calendar year '02.
And finally, and perhaps most significantly, on December 7 we announced the
signing of a definitive agreement to merge Conexant's wireless business
with Alpha to create the world's leading pure-play wireless semiconductor
company.
By combining forces with Conexant, we will have created a company that
first, has the top four cellular phone OEMs as our top four customers.
Secondly, we have an extraordinarily complimentary RF product portfolio to
address everything from switch and filter products and multi-chip PA
modules to highly integrated transmit and receive devices.
In addition, we will deliver the most - the world's most comprehensive
2-1/2 G GSM GPRS solution including the complete radio, base band
processing, protocol stack, and user interface software.
So obviously we're very excited about this pending merger. And our
integration planning teams are making process, and we are on schedule for
calendar Q2 closing.
Okay moving on to our current business outlook, based on recent customer
discussions and after reviewing several industry handset forecasts, which
I'm sure many of you have seen, it seems obvious to us that the March
quarter will be seasonally lower than December. That's no surprise.
Also we believe that the inventory levels of phones in the channel, while
nominal compared to a year ago, may have gotten a little ahead of desired
levels in December.
So we see the March quarter being lower as a result in the overall market
than December.
However, due to the fact that we have new products ramping into production,
several which I just discussed, and we've increased our overall market
share, we fully expect to outperform the overall market and avoid this
downturn.
Consequently, we expect revenues and our operating performance to be in
line with the December quarter.
Paul will elaborate further, and I will provide additional commentary once
Paul completes the financial overview. Paul?
Paul Vincent: Thanks Dave.
I'll begin as I normally do by reviewing Alpha's overall financial
performance for the third quarter of FY '02 which ended December 30. I will
then comment on our financial outlook for March.
Before detailing some specifics, let me outline a few highlights for the
quarter. As Dave has already indicated, the results for the quarter met the
guidance which we provided on October 17 during our last quarterly
conference call.
Our slightly higher sales net loss per share for the quarter, excluding
merger-related costs, was 4 cents per share -- a 2 cent improvement over
last quarter.
We achieved the improved result primarily due to cost reduction and
containment initiatives. These cost initiatives have reduced our breakeven
below $40 million as indicated in our last conference call.
Our financial position remains solid as we ended the quarter with cash of
$130 million and essentially no debt. We continue to reduce our
inventories, improving our overall inventory turns to approximately ten -
nine times with the semiconductor inventories turning to twelve - returning
to twelve times.
In December, we announced an agreement for Alpha to merge with the Conexant
wireless business. This transaction is expected to create the pure-play
world leader in RF and complete semiconductor system solution for mobile
communication applications.
We are in the process of filing documents with various regulatory agencies.
And we will be requesting our shareholders to approve this business
combination. This transaction is expected to be completed in the second
quarter of this year.
Now for the specific results for the quarter, sales were $33.1 million,
down 58% over last year but up 100K sequentially.
Sales to our customers in our two focus markets -- wireless and broadband
- -- were approximately 70% and 15% of total sales respectively, consistent
with last quarter's results.
Sales to the wireless infrastructure customers increased 10% sequentially
offsetting the 3% decline in the wireless handset sales. Wireless handsets
and infrastructure sales represented 54% and 16% of total sales
respectively.
Gross margin for the quarter was 33.7%, down from the 46.2% last year, but
up 140 basis points sequentially. The sequentially higher gross margin
resulted primarily from trimming excess capacity and other cost-containment
initiatives.
R and D for the quarter was 9.6 million or 28.9% of sales, up slightly from
the same period last year, but down 3% from last quarter. The slightly
lower R and D expense for the quarter reflects some realignment in focus
and some ((inaudible)) cost-containment initiatives.
We continue to increase our R and D efforts to meet our customers' changing
product requirements to a more integrated solution.
SG&A for the quarter was 5.5 million or 16.8% of sales, down 5.9 million
and 500 K from last quarter and last year respectively. A 14% staff
reduction and other cost containment initiatives were the primary factors
contributing to the sequential decline in SG&A spending.
Operating loss, excluding merger costs, was 4.9 million, down 11.5 million
from Q3 last year but an improvement of 1.4 million sequentially and in
line with our guidance.
Turning to the financial outlook, given the current economic and market
dynamics for the wireless and broadband products, we expect revenue,
operating income, and EPS before additional merger-related costs to be
similar to the December quarter.
We expect any seasonal decline in demand for our March - in our March
quarter to be offset by new products ramping for both our handset and
infrastructure customers.
I'll now comment on our financial position. We have a solid financial
position with which to weather this economic downturn. At the end of
December we had cash and short-term investments of approximately $130
million with minimal debt.
During the quarter we used approximately $16 million. The primary use of
this cash was the pre-tax loss of 4.9 million as there is no cash - current
cash benefit from the tax credit, cap ex net of depreciation of 6.4 million
- -- during the quarter the cap ex was 11.7 million and depreciation was 5.3
million -- and the balance was mainly working capital of 4.7 million.
DSOs for the quarter increased to 75 days, up from 68 days due to a higher
level of shipments in the last month of the quarter. Total inventory
declined by 800K improving our inventory turns to 8.6 times with the
semiconductor turns improving to 11.9 times.
Excluding any cash outlay relating to the impending merger with the
Conexant wireless business, we expect to reduce the use of cash in the
March quarter to approximately $5 million.
Cap ex for the March quarter is expected to be between 5 and 6 million,
essentially offset by projected depreciation of $5.6 million.
Finally, for those who track the two operating segments, I will now provide
summary results for the quarter. For the semiconductor segment sales were
26.5 million, down 60% from last year and down 1.3% sequentially. Gross
profit of 8.8 million, or 34% down from the gross profit margin of 47.7
last year but up from the 32.1 last quarter.
The operating loss of $4.2 million was down from the 17.4 million from last
year, but an improvement of 1.1 million sequentially.
For the ceramics segment sales were 6.6. million, down 48% over last year
but up 7% sequentially. Gross profit was 2.2 million, or 32.5 million down
from gross margin of 38.6 last year and down 20 basis points for the
quarter.
They achieved an operating income of 300K for the quarter which was down
from last year by 1.9 but up 300K sequentially.
In summary, we've met our previously stated guidance. During this period of
economic and market uncertainty we will continue to manage our costs while
maintaining our core manufacturing capabilities and our aggressive
investment in R and D to position ourselves for future growth.
I'll now turn it back to Dave for more in depth comments on the quarter and
the outlook.
David Aldrich: Okay thank you, Paul.
As in the past, I'll comment on our three market sectors -- handsets,
wireless infrastructure, broadband and data.
In our handset business while the revenues for the quarter, as Paul
mentioned, were basically flat, you may recall that we transferred one of
our high runner amplifier products into a stocking hub during the quarter
which resulted in a one-quarter revenue loss.
This was at Motorola's request and is essentially a one-time consignment
type of an arrangement.
Our InGap PA module, the AP134 series, exceeded our expectations, as I
mentioned earlier, with 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.
This is obviously a great start to an important product family for Alpha in
the upcoming quarters.
We also won a significant increase in market share with a top-tier European
handset OEM on their new lineup of CDMA and TDMA phones. We have multiple
products and components on each phone.
In addition, sales to Sony also increased on their GSM phones during the
quarter.
Sales to Motorola were essentially - well were sequentially lower due to
the (hubbing) contract. However, we've recently concluded our negotiation
for calendar year '02, and we've increased our market share of switches
from what had already been a high base last year. But we've increased it
rather substantially. We're now north of 70%.
Our integrated circuit or IC amplifiers, our share increased. And PA
modules - InGap HBT modules increased dramatically as a result of these
negotiations. So we fully expect sequential growth with Motorola to resume
as these new products ramp into volume production and as we move past the
March seasonality.
Now turning to infrastructure, you may recall that our expectations going
into the quarter were that infrastructure would remain flat with some
pockets of spending improvement, but being potentially offset by an
inventory burn of components in the distribution and contract manufacturing
supply chain.
Actual results for the quarter were in line with those prior expectations
with a sequential increase that was rather substantial to Ericsson,
Samsung, and Nokia being offset by lower sales to our component
distribution.
Our annual negotiations with Ericsson also went very well, and we have been
awarded increased share that is projected to drive sequential sales
throughout each quarter of calendar '02.
We are now seeing increased demand for their 1900 MHz GSM-based station for
the US market with 1800 and 1900 GSM and later (Edge) scheduled for mid
year.
We're also very pleased that Samsung is now among Alpha's top ten direct
customers. Our shipments in Q3 were a record and represent our increased
penetration of their CDMA-based stations for the US and Chinese markets.
In summary, our business and infrastructure with Ericsson, Nokia, Samsung,
and others is quite strong. And in fact, our participation -- that is, our
revenue per radio board or our revenue per base station -- on the latest
redesigned 2 G systems, as well as the 2-1/2 and 3 G architecture,
significantly exceeds our content in older designs.
Infrastructure will be a strong contributor to our growth as 2 G networks
are retrofitted and upgraded and 2-1/2 and 3 G networks are deployed.
And finally, with respect to our broadband and wireless data business, we
have recently experienced increased demand for our 802.11b products and our
newly-released 802.11a products. During the quarter we received orders for
an excess of 3 million units of our high-linearity, low-loss PHEMT
switches.
Again, we're capitalizing on our leadership position in GaAs switches for
handsets and modules by providing the highest performing control solutions
in the world.
In addition, we released and shipped our 5.8 GHz 802.11a chip set to a
top-tier wireless OEM. This RF front-end solution includes the power
amplifier, the low-noise amplifier, and switch configured in a complete
front-end chip set.
And of course, this is in addition to our participation in (CATV) including
cable modems and infrastructure.
Our broadband and wireless data businesses grew to 20% of sales in the last
year. And despite the current environment, we expect growth in the second
half of this calendar year. This is really on the strength of our new
product launches that I just discussed as well as specific customer
initiatives
Okay that's the situation in our three market sectors. We're seeing
strength in design activity in base stations and in handsets as well as
some new wireless data products being offset in the current quarter by some
seasonality with growth resuming later in the year.
I guess the bottom line is that we've taken this period of time over the
last couple of quarters to capitalize on the softness by improving our
competitive position and aggressively moving forward with several of our
strategic initiatives that we've talked about in prior discussions.
But to reiterate, our first order strategy remains to increase market share
by diversifying our customer base and further penetrating existing
customers.
Towards that end, during the quarter we strengthened our position with
Motorola by increasing our switch market share for '02.
We maintained our position on IC-based amplifiers that are still used on
several current platforms. And we dramatically increased our participation
on GSM, PCS, and GPRS handsets for amplifiers using our InGap module. And
these products will continue to ramp throughout the year.
We added Samsung as a top ten customer. I think that growth with that
customer will continue to grow. And we increased our penetration with an
additional leading handset OEM with multiple GaAs ICs and components for
CDMA and TDMA.
Secondly, we have made progress on a strategy to capitalize on our broad
product and process ((inaudible)) by creating compelling product solutions
for our customers.
And the end here - the idea here is that we want to integrate, we want to
capitalize on what is one of the broadest product and process portfolios in
the industry, and at the same time increase competitive barriers to our
competitors.
Towards that end, we launched our InGap PA module products with impressive
yields. And not only will we ramp these products successfully satisfying
our customers' needs, but we will also ramp them in a financially
responsible manner.
We increased penetration in the wireless data market with high-performance
switch products and our new 802.11 chipset solutions.
And as we've mentioned, we will continue our aggressive R and D investment
program and remain focused on positioning Alpha for future growth. We look
forward to communicating our progress as we move forward.
And operator, I'll take questions now.
Operator: Thank you. The question and answer session will be conducted
electronically today.
If you do have a question, please press star 1 on your touch tone
telephone. Once again, that is star 1 if you do have a question.
We will go ahead and proceed in the order that you signal us. And we will
pause for one moment to assemble our roster.
And we will take our first question from John Barton with Prudential
Securities. Please go ahead.
John Barton: Yes, good afternoon. I wonder if you could just quantify the
hit that you took in the fourth quarter from the move to the consignment
arrangement at Motorola if you would please.
David Aldrich: We thought it was - we expected it to be about 2 million. It
actually was closer to one million, John.
John Barton: Okay, and then, David, if you could also comment, you know,
post the announcement of the merger with Conexant, what has the response
been from customers? How do you think it may have helped your design wins
to date? And, you know, without elaborating too deeply, you know, going
forward what do you think that can mean to design wins?
David Aldrich: Well I think that the initial reaction from our top
customers on both sides was quite positive. I think that the way we've
positioned this combination is that by combining forces we not only have
the critical mass to lower cost, but also we have the product and process
((inaudible)) to integrate in a way that our competitors cannot.
So we're able to give a solution that's easier to use for our customers and
lowers their overall product cost. And that's clearly on the - in the front
of everyone's mind, all of our cellular OEM customers' strategies.
So it's been very well received I'd say.
John Barton: And then just finally, if you could comment on pricing trends
and to the extent that you can share the amount of turns needed to make
your March expectations, I'd appreciate it.
David Aldrich: Well the pricing trends have been similar to what we saw
last year. And in fact, we did just negotiate a couple of our largest
customers' '02 awards. And they're in the 10-15% decline year over year.
And that's about what we've experienced and it's about what we - it's
roughly what we planned for.
With respect to our backlog and our bookings going forward, you know, one
of the things that has made forecasting a little bit more difficult is that
the hub, for example the product - we now have several high-volume products
going into these hubs in consignment. There's no - technically there's no
backlog there. They just pull what they need.
Secondly, our infrastructure customers are now demanding and getting a
couple of week lead time. So they really only commit to a few weeks.
So, you know, backlog right now is becoming defined in different ways by
different companies.
Having said all of that, if I were to I think try to align the way our
competitors talk about backlog, we'd be in the 80-90% book. And that's
using our guidance and our forecast as compared to the schedule share and
forecast of our customers.
John Barton: So with the consignment arrangement you're getting a (EDI)
schedule share from Motorola, for example, and that's what you're basing
those numbers on?
David Aldrich: Correct. But it's really based - and it's also a schedule.
So you get (EDI), this is what we pulled for the week, so there's your
revenue. But you also get - but you don't get backlog in the traditional
sense.
John Barton: Right, but you get a 52- and 26-week forecast, and that's what
you're basing it on basically.
David Aldrich: That is correct.
John Barton: Thanks, Dave.
David Aldrich: You're welcome.
Operator: And we'll go ahead and move to Dale Pfau with CIBC World Markets.
Please go ahead.
Dale Pfau: Yes, good afternoon gentlemen.
David Aldrich: Hi Dale.
Dale Pfau: Couple questions - first, housekeeping, Paul. I must have missed
it; during the commentary my pen didn't work.
Gross margins were about 33%. Is that correct?
Paul Vincent: That's correct, 33.7%.
Dale Pfau: And I had modeled them something higher. Was there an issue with
yield, expenses? What went on here so that you didn't improve your margins?
Paul Vincent: They did improve. They improved about 140 basis points. They
didn't quite meet where I had expected if you recall. The expectation was
to have a little higher revenue than that. In fact, the consensus was
probably several hundred thousand dollars higher. So part of it is just
where the revenues came in.
But in terms of our cost strategy and containment was right in line with
our expectation.
Dale Pfau: Okay and as far as modules, what percentage of revenues in the
quarter were modules and how did they ramp sequentially?
David Aldrich: Well they went from - if you want to talk about just - we
have different types of modules. If you want to just talk about InGap PA
modules, we shipped about 300,000 at $2 to $3 a module, and that was zero
in the prior quarter. And in fact, those modules ramping really began late
in the quarter.
So that's the number, about 300,000 modules of that type.
Dale Pfau: And I understand your guidance for the March quarter, Dave, you
said growth resuming later in the year. Do you expect growth in the June
quarter? And also, could you describe order trends since the first of the
year?
David Aldrich: We do expect sequential growth. I think we - you know, we
obviously expected it in March. But if you look at the current dynamic as
we described in our monologue, we think first of all, visibility is a
little bit cloudy and there will be some seasonal impact in the March
quarter.
I think that gets flushed out - any inventory that may have been created in
December gets flushed out in the March quarter.
So we expect sequential growth. It's difficult to peg it with a lot of
visibility right now, because our customers are just beginning to
assimilate what actually happened in December and the infrastructure OEMs
are, you know, classically not giving a lot of visibility.
So the answer is we do expect growth, but it's difficult to put the exact
number on it.
Operator: And we'll go ahead and move to Sam May with Piper Jaffray. Please
go ahead.
Sam May: Hi Paul. Hi Dave. First question...
David Aldrich: Hi Sam.
Sam May: Hi. Can you give us the 10% customers for the quarter?
David Aldrich: The only 10% customer was Motorola and - I want to say they
were 34% of sales. They were about $11.3 million.
Sam May: Okay great. And you've talked a little bit about 802.11 here, both
a and b. It sounds like you're seeing a fair amount of pickup which would
be commensurate with what we're hearing from other people.
Do you see that being 10% of revenues in any quarter during calendar '02?
David Aldrich: You know, I wouldn't think it would be, because my
expectations are that the module ramp and the handset ramp would outstrip
it. While I'd expect them to grow, I wouldn't expect them to exceed 10%.
That's a lot of LAN and data products.
However, I'll mirror what you just said. We are seeing a lot of inquiries
and increasing demand from - in some cases from some unlikely places. So
demand there looks very good for 802.11b and a lot of design activities and
discussions around this new chipset for 802.11a which I suspect will be
later in the year for significant volume.
Sam May: But you could see 5% of the quarterly revenue maybe?
David Aldrich: Yeah, I think that makes sense.
Sam May: Right. Okay, and then the inventory hub you mentioned stocked, you
believe, with a million dollars worth of product, is it done? Or will that
spill over into this March quarter?
David Aldrich: No, it's done. Although, Sam, what's happening is we now
have three customers that are dealing with hubs and consignment. And
unfortunately, there is a lot of push to have new products go into the hub
as well.
So it's over for what we're in volume production, but it's not over for the
industry and it's not over for us. There'll be more of it unfortunately.
But it should be over for March.
Sam May: Okay and final question, the - you said 4.5 - or 4.7 million of
working capital was taken in - or used during the quarter.
Paul Vincent: Right.
Sam May: What was that used for?
Paul Vincent: Primarily receivables went up, as reflected in days
outstanding, a couple million dollars. And payables actually came down
about $3 million, offset by some minor improvements in other inventory in
particular.
Sam May: Great. Okay thank you very much.
David Aldrich: Thanks.
Operator: And we'll go ahead and move to Blaine Carroll with Adams,
Harkness, and Hill. Please go ahead.
Blaine Carroll: Thank you. Dave, during your prepared comments you were
talking about four key initiatives, one of which was the InGap HBT. And you
said that can contribute upwards of 20 million during calendar '02. I guess
as we look at the other ones, you know, the increasing the market share and
the 802.11, how much could those other new initiatives contribute during
calendar '02?
David Aldrich: Well I'm really not prepared with that number just yet. I
think the point is that they're ramping their new business, of sequential
business or it's incremental business, and it - and in all cases they ramp
throughout the year. I'm really not prepared with the exact number.
Blaine Carroll: Okay, secondly, I guess on the DSOs going up, I wonder if
you could talk about linearity during the quarter. And if there was a
little bit of inventory build, you know, maybe a couple of weeks, I would
have expected the quarter to be a little bit more front-end loaded than
back-end loaded. Is that fair?
Paul Vincent: No, I don't - you know, as we exited the quarter, in fact at
our conference call, we're indicating that coming off of the September
period that things were still in sort of a malaise in terms of orders and
things of that nature and that we expected that we were going to need
substantial book to bill.
And as it progressed it turned out that it was more back-end loaded,
meaning in the final quarter - in that final month being a five-week month,
but greater than 50%.
David Aldrich: And as we mentioned earlier for example, all the modules
virtually...
Paul Vincent: ((inaudible)).
David Aldrich:...were shipped in December. And that was the schedule,
because a lot of these new - a lot of the new products we've been talking
about are really ramping late in the quarter into next year.
Blaine Carroll: Okay, and then Paul, focusing on the manufacturing side, if
we are expecting revenues to be flat at that 33 million, where will gross
margins trend? Will they be flat? Do we see the 140 basis point improvement
again or what would go on there?
Paul Vincent: Our expectation is that it'll be relatively flat with the
December quarter. We're going to have to make sure that we control our
costs. And as Dave has indicated, right now we've experienced good yields
and things as we've ramped, and we'll just have to monitor it.
But our expectation in giving the guidance is that everything will be
comparable to the December quarter.
Blaine Carroll: Okay and then last one. As far as (Nuco) goes, you know,
you're talking about a second-quarter close. But can you give us an update
as far as, you know, is an integration team in place? You know, are we
moving through it? Is HSR necessary? Are we moving through there? And any
comments back as of yet?
Paul Vincent: Yes. We've made several regulatory filings, tax filing - or
ruling as well as, in the process - or have filed the HRS filing. We're in
the process of putting together the S-4 filings and other regulatory type
filings.
So that's well in line with that expectation to close in the second
calendar quarter.
In addition, teams have been formed in terms of integration to do the
planning process such that our expectation is when it does close that we
can launch right into operation fully prepared. So the planning process is
well along.
Blaine Carroll: Okay great. Thank you.
Operator: And we'll go ahead and move to Jeremy Bunting with Thomas Weisel.
Please go ahead.
Jeremy Bunting: Thank you very much. Paul - and I apologize if I've missed
this. Did you do a revenue breakout between infrastructure, broadband, and
handsets? ((inaudible))...
Paul Vincent: Yeah, I mentioned what the percentages were. I don't think I
actually gave the numbers for it. But the handsets were 54%, or almost $18
million, 17.8. The infrastructure was 16%, 15.2. Broadband was essentially
4.8 million, or 15%, the same as it was last quarter. And other was in the
5.3 million range, consistent with, again, last quarter.
Jeremy Bunting: All right, thank you. Dave, I would be interested to hear
your perspective on what you feel the dynamics in the handset market
currently are and how you feel that they might play out during Q2 - 2002.
Clearly we're in this kind of a hazy phase where we're not really hearing
very much from the handset guidance. I think things may change over the
next few weeks.
What is your stance about how new services might play out and what the
growth, if there is any, in handsets might be?
David Aldrich: Well yeah we've obviously been in contact with all of our
top customers and many others as well as the infrastructure customers.
And I think that, you know, it's difficult being in mid-January, because
the December numbers are really just being pulled together. I mean they
don't fall out of a report. I mean when we talk to our customers they're
actually going out and assimilating the numbers through the channel.
And so you're right. The information is beginning to spill in. And there
are certain sectors of the world where the numbers look pretty good. And
there are others where they were somewhat disappointing versus December.
I think that, however, that again this notion of seasonality in the March
quarter is probably something you can hang your hat on.
And, you know, given the lack of information this early in the first
quarter of the calendar year, I would suspect that the numbers would be
growth year over year certainly more than 10%. It may struggle to get north
of 20%, but that's just really one opinion based upon hazy early input from
December.
Jeremy Bunting: Okay, thank you very much.
David Aldrich: You're welcome.
Operator: And moving on to Mark Roberts with Wachovia Securities. Please go
ahead.
Mark Roberts: Thank you. Good afternoon. First question, could you talk a
little bit about any recent design wins that you've had with your InGap PA
module where you were competing against an alternative design using an
(Algas) HBT module?
David Aldrich: Well the - that's a great question. The designs that we have
- - that we're currently - the products that we're currently designed into,
geez, I believe all of the competitors were using (Algas). I'm not sure
with one, but they were all using (Algas).
So I would say all of the design wins to date have been against (Algas)
solutions. And as we've stated in the past, the product technology of InGap
really performs extraordinarily well, particularly in certain duty cycles
and certain operating modes. So we're getting better ruggedness, better
linearity, better power-added efficiency. So we're - boy, we're betting on
the right horse here.
The design activity also has been strong for the incorporation of the power
amplifier module with some of the switch front-end products. And in fact,
we have our first product there that's an early stage design win.
But the interest among our customers is extraordinarily high for taking a
high-quality PHEMT switch, some of the filtering in passive products, along
with an InGap fully matched transmit line up, incorporating them in one
module. And we see that as being a real strength for Alpha and a lot of
interest for that product lineup.
There will be life after the PA module.
Mark Roberts: Okay, and could you give us a breakdown on the handset piece
of the business sort of by technology -- GSM, TDMA, CDMA?
David Aldrich: For our switch and our passes and our discretes we are
ubiquitous with respect to air interface standards. So roughly - though I
don't have the numbers in front of me, they would be roughly equal to the
overall split of the world market.
With respect to amplifiers, as we've said in the past, we have focused on
GSM and DCS 1800 PCS, GSM, as well as a migration to GPRS ultimately to
wide-band CDMA. So our product there has been GSM driven.
So overall, it reflects the market with the exception of the power
amplifier which is GSM based, now GPRS and moving towards wide-band CDMA.
Having said that, we've got a new design center in Chicago, and we've got
ongoing initiatives in other locations working on CDMA. But that has not
been our strength, CDMA PAs.
Mark Roberts: Okay, and during the quarter for your switches and passes,
did you see any particular weakness or particular strength in - I know you
talk about geographically, but by technology? Was one of the technology
interfaces relatively stronger or weaker than the others?
David Aldrich: You know, I don't have that at my fingertips. I would have
to say that I don't - I didn't see any dramatic difference across standard.
But I don't know in detail right now.
Mark Roberts: Okay, thank you very much.
David Aldrich: You're welcome.
Operator: And we'll go ahead and move to Michael Bertz with Morgan Keagan.
Please go ahead.
Michael Bertz: Yeah, hi guys. I just have a couple quick questions. First,
I mean we talked about inventory and, you know, getting it burned off in
March. But have you gotten any sense from your customers about, you know,
sort of a number or anything in mind like number of weeks of inventory or
anything like that?
David Aldrich: Well not yet. We've gotten some indications that there are
handsets - that the December numbers didn't come in at exactly the level
that they had hoped, and therefore, they overproduced a bit. But we've also
- - and so they're kind of going through that analysis now.
But I will say that as we talk to our customer, the level of inventory
throughout the channel is very, very much on their radar screen right now.
They burned off a tremendous amount of inventory in calendar '01. They're
watching inventory very, very closely.
And I've got to believe that they will flush whatever excess inventory
there is at the end of the December quarter out in the March quarter.
They're just not going to have a repeat of last year.
And the numbers were talking about I believe would be single digits of
millions, and it's nothing like it was last year. And I think they'll get
it behind them right away.
Michael Bertz: Okay, in terms of some of the ramps that are going on in
March, I mean would you consider or expect product ramps to be like of a
similar level in terms of similar number of ramps in the June quarter
versus March?
David Aldrich: I think they'll be higher in the June - well okay, you're
talking about the number of products ramping versus the dollar revenue. The
revenue will be higher we believe in June quarter, because you won't have
the seasonality. But of course, that visibility isn't very clear right now,
as we've stated.
So I think they'll be higher - that the revenue will be sequentially
higher. And I think in March you have a unique phenomenon with respect to
the inventory we just talked about as well as the seasonality.
Michael Bertz: Okay, fair enough. Now in terms of expectations for the
wireless plans in the March quarter, I mean obviously things are looking
pretty good there. I mean do you expect that again to be - you know,
obviously sequentially higher in June. But do you have a feel for like how
much sequentially higher that could be, what kind of percentage we're
looking at?
David Aldrich: Well they were - a lot of those products were orders and not
necessarily shipments. The shipments have been pretty high starting in - a
little bit in September for 802.11b, stronger in December. So we think that
there'll be some repeat of that in the March quarter.
The 802.11a product has just been released. And we think that'll be in the
September December quarter timeframe.
And of course the revenue content per platform is much higher there,
because we get an amplifier, we get a switch, we get a low-noise amplifier,
we get the entire front-end. So we get multiple dollars, maybe even ten,
versus less than a dollar for selling even a complex PHEMT multi-throw
switch into an 802.11b.
So I think the second half of the year will be much higher than the first
half of the year. And I'm not sure exactly to what extent we could see
March versus December. I'm just not sure.
Michael Bertz: Okay, fair enough. Last question, on the infrastructure
side. I guess in one of the comments earlier you had hinted about, you
know, sort of a mid-year bump seen there. Can you give any more detail
about that, any sense of from the customers that you have on ramps for
those?
I mean obviously, you know, visibility has come down some. But just in
terms of rollout of some of these new networks.
David Aldrich: Well the 2 G overlay and the 2-1/2 - there are a couple of
things that are happening right now. There's a 2 G upgrade, there are
multi-channel power amplifiers, more linear amplifiers being deployed.
And you may recall in prior quarters we've talked about products,
multi-chip modules called vector modulators. They have multiple dollars,
complex products. And they're designed into many sockets that would
accompany a more linear amplifier upgrade.
And there's a lot of that that has been designed into these 2 G retrofits.
Hasn't been a lot revenue right now, but there've been carriers placing
some bets and we think that they've got to do that. That's a capacity
play...
Michael Bentz: Sure.
David Aldrich: ...and they've got to do that.
As far as the 2-1/2 and the 3 G, the content there is also -- particularly
3 G -- much higher than we had in 2G, even these redesigned architectures.
And again, 2-1/2 G you're seeing some overlay in Europe in particular. And
now I think 3 G is out there a bit.
So it's a mixed bag. But they are retrofitting or have plans to retrofit an
awful lot of (A) stations later in the year.
Michael Bentz: Okay but you still think that's more of a second half
phenomenon versus like a June quarter kind of thing?
David Aldrich: Well, you know, it's tough because the visibility there
isn't very good. They're getting very short lead times. And of course
they're watching these handset sales, and they're doing their own
assessment.
Michael Bentz: Sure.
David Aldrich: So I would say, you know, in collective wisdom the second
half of the year. But we saw infrastructure uptick this quarter, and the
design activity has been rather intense. So we could be pleasantly
surprised.
Operator: And we'll go ahead and move to Joseph To with Lehman Brothers.
Please go ahead.
Joseph To: Hi Dave. Hi Paul. Two quick questions -- number one, what was
the utilization at the - at your (fab)?
And then secondly, you guys shipped - something shipped a bunch of modules
towards the end of the quarter. And I'm just wondering in the March quarter
should we expect the same level of - you know, of shipments of modules? Or
should that increase by some multiple? Thanks.
Paul Vincent: In the utilization part of it, on a fixed basis which
includes not only the capital structure, but I include in there the - those
direct - those people that are needed fundamentally regardless of what -
whether you ship 1 wafer or you ship 100,000 wafers, was less than 50%,
probably closer to 40%.
On the other hand, the direct labor piece of it and things of that nature,
or the variable expenses I should say, related to the factory were probably
closer to 60%.
So in aggregate I would say it's less than 50% utilization.
Joseph To: Okay thanks.
Paul Vincent: You're welcome.
Operator: And we'll go ahead move to Kalpesh Kapadia with CE Unterberg
Towbin. Please go ahead.
Kalpesh Kapadia: Paul, could you refresh my memory? How much was the turns
business in December quarter and how much do you expect it to be in March?
Paul Vincent: It was around 32% in the - in that particular month - in that
quarter.
Kalpesh Kapadia: And in March about same amount?
Paul Vincent: Again, as Dave articulated, somebody asked the question. And
it depends on how you reflect on what backlog is. In the hard case with
backlog, it is very limited.
But on the basis of when we think most people are counting that is looking
at the forecast or the schedule sharing that are being given by customers
and things of that nature, and also extrapolating what the run rate or the
burn rate is in the hub, even though those are not hard orders on the books
until they actually happen.
Then we think we're probably about 80% visibility to our end goal of
remaining comparable to last quarter. If you look on hard books, it's less
than it was, we need more turns than we did last quarter.
Kalpesh Kapadia: All right. And, Dave, you know, there's a lot of
discussion about cycle times and OEMs trying to shrink lead times. Now I
know that you are historically the best cycle time in the industry.
Including the ((inaudible)), how are you at cycle times tracking right now?
David Aldrich: Well Paul mentioned that we were able to get our
semiconductor inventory turns up to 12. And that is fully better than 2x
our nearest competitor.
And inventory turns is simply a function of cycle time. Right? If you're
turning your inventory, it's because you have short lead time, short
manufacturing cycle time, you're moving closer and closer to the
theoretical production capability of your manufacturing line.
So our cycle times are short. They've gotten shorter. And we work that as
part of our operational philosophy. So we think it's a competitive weapon.
We're getting better at it, and we will continue to get better at it going
forward.
Kalpesh Kapadia: And then lastly, Paul, you know, you had mentioned that
when infrastructure spending comes back it's going to be more like a
watershed event than a trickle down. And I saw your infrastructure revenues
go over 10% or so.
You know, I believe the question was earlier about when you see that kind
of a snapback or is it - is still the view that you'll see some snapback in
infrastructure revenue?
Paul Vincent: Well again, I don't think it was a comment made here today
about that perspective, though in prior conference calls and things of that
nature we have made the observation that when carriers begin to deploy -
you know, nobody wants to be first. But on the other hand, nobody can
afford to be last.
But I don't think we're seeing that phenomenon right now. What we're seeing
is pockets right now where capacities are really constrained or individual
carriers. But we haven't seen or detected though. What gave the little bump
this quarter I think in infrastructure is either inventory outages or in
fact some pockets of deployments.
But I don't think that - we still believe in that philosophy. We just don't
know when that will happen.
But it is a belief at least from prior experience that when the bulk of the
carriers decide that - or when major carriers decide that there must be a
major deployment, the whole group will get on the bandwagon and deploy so
as not to be left out in the cold. That's sort of our belief.
Kalpesh Kapadia: Thank you very much.
Man: Thanks.
Operator: And we'll move to Louis Gerhardy with Morgan Stanley. Please go
ahead.
Louis Gerhardy: Good afternoon. Most of my questions have been answered.
But I just wanted to follow up on your handset channel checks. Did you
ascertain which regions and air interfaces you're seeing some of the extra
inventory? Thank you.
David Aldrich: Not to any great extent. I think we've seen it in Europe.
We've seen some GSM, a little bit of GPRS, though not much. And quite
frankly, I'm not exactly up to speed as to what occurred in Asia yet. We're
still sort of compiling those numbers.
But it seemed to be fairly broad based, but not terribly significant I
don't think. Again, I don't think it's 10 million phones.
Louis Gerhardy: Thank you.
Operator: And we'll go ahead and move next to Doug Rudisch with Brookside
Capital. Please go ahead.
Doug Rudisch: Hi guys. Two quick questions, one on the (STM) announcement
this week about (C moss) power amplifiers. What do you think is going on
there?
And then number two, just on your comments about being 80% booked for the
quarter. You know, with all due respect to Motorola who is clearly a good
company, it seems like it's pretty tough for these guys to know right now
exactly how much stuff is out there.
So what's your sense at what the likelihood of potential cancellations
there could be on the ((inaudible)) of those guys or some of your other
large customers? Because, you know, my sense is just no one knows for
another couple weeks how much stuff is really sitting out there. Thanks.
David Aldrich: I think those are two great questions. Let me start with the
latter. I agree with you. One of the reasons why Alpha has always talked
about firm orders and been conservative with respect to backlog is for that
exact reason. You know, the only thing that is firm is what they are
contractually committed to take.
However, you know, we're living in an environment with short lead times,
more and more consignment, and hubbed inventory. That's a fact of life. So
you keep your cycle time short and you service your customers, and you look
to take share, and you deal with the little bumps in the road that occur as
the forecast fluctuates.
But that's a fact of life. And I agree with you completely. And we've
attempted to factor that into our guidance and our forecast.
As far as the ST and the power amplifier discussion, you know, this sounds
a little bit like the IBM announcements of a few years ago with (cillic)
and (Germanium) with respect to power.
Remember that this is a bipolar process. But it's a complex one. It's about
20 layers. And when you - and it has some fundamental disadvantages at the
moment.
One is it has much lower power added efficiency and a much lower thing
called breakdown voltage. What that all means is that in order to make an
amplifier using this technology, the chip gets very big, power added
efficiency gets low - is low, and there are other technical hurdles.
And the reason why (gallium) (arsonide) PHEMT HBT and the like has been so
much better for the transmit chain power amplifier solution, once you get a
lot of power, you need efficiency and you need ruggedness. And you just
don't get there at these voltages with a bipolar process.
It's okay for high power in a base station application, but not a handset.
So it's an interesting technical development that we'll watch. But it's a
long ways away if it ever happens.
Doug Rudish: Great. Thanks guys. Good luck with stuff.
David Aldrich: Thank you.
Operator: And we'll go ahead and move to Chris Versace with FBR. Please go
ahead.
Chris Versace: Hi guys. Just two quick questions for you. You know, are R
and D levels where they are now, you know, the level of the last couple
quarters, kind of sustaining over the next three, four quarters do you
think?
David Aldrich: Yes.
Chris Versace: And in terms of absolute dollars?
David Aldrich: Yes.
Chris Versace: Okay and given the revised forecast you guys have shared
with us for the March quarter, when do you expect to be breakeven on the
operating profit line?
Paul Vincent: Well as we noted that at the current level - that we are now
between 39 and $40 million for breakeven. And so the question is when does
that revenue - and again, depends on visibility and lack thereof. So...
But the cost structure is in place and we just have to continue to keep
pressure on it. Because as in everything, it has a way of trying to push
itself up.
Chris Versace: Okay, thanks Paul.
Paul Vincent: Yeah.
Operator: And we have time for one last question. And that is a follow up
from Dale Pfau with CIBC World Markets. Please go ahead.
Man: Hi. This is ((inaudible)) for Dale. Just one last question following
up on the order activity. Have you seen - what have you seen so far in
January?
David Aldrich: Well as you'd expect, I think in January you - in the early
January, with only a couple of weeks into it, you get a bit of a pause. And
what we see right now is a scramble.
And we've had - I will share with you, in the last couple of weeks we've
had very high-level discussions with several OEMs. And, you know, I'll tell
you as recently as a couple of days ago, they're compiling information as
we speak. So what they do is they maintain the existing schedule share or
rolling forecast, and they're subject to be updated in mid January.
So at the moment we haven't seen much of any change, but that is being -
they're looking at the impact of what occurred in December and what they
consider to be likely in March. And we'll hear about that quickly.
But that's what we've factored in. That's what we mean by low visibility
and why we factored in this change in our guidance.
Man: All right, thank you.
David Aldrich: You're welcome.
Operator: And that does conclude today's question and answer session. Mr.
Aldrich, I will turn the conference back to you for any additional remarks.
David Aldrich: Okay well thank you very much. Thank you for listening. We
look forward to giving you ongoing updates with respect to the merger and
also our business moving forward. Thank you very much.
Operator: That does conclude today's conference. We thank you for your
participation.
END