Rf Micro Devices, Inc. Business Information, Profile, and History

Company Perspectives:

RF Micro Devices possesses an exclusive industry license for gallium arsenide (GaAs) heterojunction bipolar transistor (HBT) technology, a state-of-the-art process technology originally developed for high-level military applications. RF Micro Devices' GaAs HBT components combine quality, reliability, performance and competitive pricing—placing RFMD at the forefront of the RFIC (radio frequency integrated circuits) market. RFMD operates the largest GaAs HBT production facility in the world, and the Company continues to add capacity. By the end of calendar year 2000, it is anticipated that the Company's fabrication facilities will be capable of producing 60,000 wafers annually. Finally, by continuing to recruit design expertise (e.g., high-demand RF engineers and technicians) at its headquarters and remote design centers, the Company is well positioned to leverage new design activity into additional volume production programs. RFMD's design talent encompasses a variety of technologies, including GaAs HBT, Silicon bipolar and BiCMOS, Silicon Germanium and GaAs MESFET.

History of Rf Micro Devices, Inc.

RF Micro Devices, Inc. (RFMD) designs, develops, manufactures, and markets radio frequency integrated circuits (RFICs), for wireless communications products and applications. The company's products are included in PCS (personal communications services) or wireless phones, cordless phones, wireless local area networks, wireless local loop handsets, industrial radios, wireless security systems, and remote meter readers. The company designs products using four semiconductor process technologies, two of which are silicon-based and two of which use gallium arsenide (GaAs). Generally, GaAs products offer better electrical performance, while silicon-based products are less expensive. Through the company's registered Optimum Technology Matching, RFMD offers customers a trade-off between performance and cost.

Developing RFIC Products for Wireless: 1991–96

RFMD was founded in 1991 in Greensboro, North Carolina. The three cofounders were Jerry Neal, the firm's marketing executive; William Pratt, the company's first CEO and later chief technology officer; and Powell Seymour, vice-president of operations. All three were former employees of Analog Devices, Inc., a semiconductor manufacturer based in Norwood, Massachusetts. Pratt and Seymour were laid off in 1991 when ADI closed down the new products division they had set up in Greensboro. The two men asked Neal, who was still working for ADI, to help them raise capital for the new venture. Realizing that Pratt's strength was in technology and not management, they hired David Norbury as president and CEO in September 1992. Norbury had 10 years of experience in the semiconductor industry, most recently as president and CEO of Polylythics, Inc., in Santa Clara, California.

From the beginning, the company was focused on designing RFIC products for the commercial wireless market. Within that market RFMD would develop products for a wide range of applications, including cellular and PCS, cordless telephony, industrial radios, wireless local area networks (LANs), wireless local loop (WLL) systems, wireless security, and wireless utility meter reading. The company's products included amplifiers, mixers, attenuators, switches, modulators, demodulators, oscillators, and frequency synthesizers. These would convert, switch, process, and amplify the high-frequency signals that carry information to be transmitted or received by devices for wireless personal communications.

In 1992 TRW Inc., a Cleveland-based space and defense contractor, wanted to license a semiconductor technology called GaAs HBT (gallium arsenide heterojunction bipolar transistor) that it had developed for the federal government. TRW didn't have the resources to commercialize the technology and was looking for a partner. It became interested in RFMD. By 1993 RFMD had produced 16 designs for chips based on TRW's GaAs HBT technology. From 1993 until RFMD built its wafer fabrication plant in 1998, TRW would be a contract manufacturer for RFMD. In 1996 TRW would invest $5 million in RFMD stock for a 10 percent ownership interest in the company.

During the 1990s GaAs semiconductor technology would emerge as an effective alternative or complement to silicon technology in many high-performance RF (radio frequency) applications. Devices with GaAs technology typically operate at much higher speeds than silicon devices, or at the same speeds with lower power consumption. RFMD's GaAs HBT products included power amplifiers and small signal devices that were used in advanced subscriber handsets manufactured by leading original equipment manufacturers (OEMs), including Nokia, LG International Corp., Samsung Co. Ltd., Motorola Inc., Robert Bosch GmbH, NEC Inc., Kyocera International Inc., and LM Ericsson Telephone Co.

In 1993 RFMD was selected by Qualcomm Inc. to provide four integrated circuits (IC) for its new digital cell phones. Over the next four years TRW would have to expand its plant three times in order to keep up with demand, tripling its GaAs HBT production. RFMD's second-largest customer in fiscal 1996 was Cincinnati Microwave, Inc., which was experiencing financial difficulties that eventually led to its bankruptcy. In fiscal 1997 Samsung accounted for 23 percent of RFMD's sales, and Qualcomm was its largest customer, accounting for about 33 percent of RFMD's revenue. When Qualcomm demanded everything RFMD could produce, RFMD balked at the idea of being locked into one customer. As a result, it lost most of Qualcomm's business in fiscal 1998. Other cell phone makers were getting interested in RFMD, and the company picked up Samsung, Nokia, and LG International Corp. as customers.

In June 1996 RFMD expanded its strategic relationship with TRW Inc. TRW provided $25 million in equity and debt financing, including $5 million for 10 percent of RFMD's stock, and became a significant shareholder in RFMD. TRW granted RFMD a technology license to develop products using TRW's patented GaAs HBT technology for commercial wireless communications applications. The alliance with TRW enabled RFMD to realize its goal of constructing a wafer fabrication facility to manufacture products using GaAs HBT technologies developed by TRW. Prior to the completion of the facility in September 1998, TRW supplied RFMD with GaAs wafer products. In June 1998 an additional technology license was granted for MBE process patent rights.

Rapid Growth as a Public Company: 1997–2000

At the end of fiscal 1997, RFMD had 133 employees. Revenue was $28.8 million, and the company reported net income of $1.7 million, compared to fiscal 1996 revenue of $9.5 million and a net loss of $5.2 million. The company's IPO in June 1997 raised $38 million. The money was needed to finance construction of RFMD's wafer fabrication facility. Revenue for fiscal 1998 rose to $45.4 million, with a net loss of $500,000.

As part of RFMD's strategy to expand its line of silicon-based RFICs and maintain or increase the portion of overall revenue attributable to silicon-based products, the company entered into a multiyear agreement with IBM Corp. to use its advanced Blue Logic silicon process technology. RFMD's fiscal 1998 revenue from the sale of silicon-based products was $5.2 million. That figure would increase to $15.0 million in fiscal 1999 and $27.2 million in fiscal 2000. In January 1999 RFMD expanded its relationship with IBM to include access to IBM's silicon germanium foundry services. RFMD subsequently designed and sold products using that technology.

RFMD completed construction of its 64,000-square-foot wafer fabrication facility in Greensboro, North Carolina, in June 1998, and began fabricating its own GaAs HBT wafers there in September. By fiscal 2000 the Greensboro facility would account for $180.5 million in sales, or 62.5 percent of total revenue. The company used two independent foundries to supply silicon-based products and another independent foundry to supply GaAs MESFET devices. RFMD also purchased some GaAs HBT wafers from TRW. Six vendors in Asia and one in the United States were used to package and assemble RFMD's products.

With the company's wafer fabrication facility going into production in September 1998, revenue for fiscal 1999 ending March 27 more than tripled to $152.9 million, and net income was a healthy $19.6 million. Wall Street pushed RFMD's stock price from a high of $13 a share in August 1998 to a high around $95 a share in March 1999. In January the company raised about $116 million through a secondary stock offering. It declared a two-for-one stock split payable on March 31, 1999. Another two-for-one stock split was declared later in the year, payable on August 18, 1999.

During calendar 1999 RFMD opened two design centers, one in Cedar Rapids, Iowa, and one in Scotts Valley, California. In June 1999 it opened a small sales office in the United Kingdom to help serve European customers. RFMD's products were sold through 17 U.S. sales representative firms and 14 firms based outside the United States. In April 2000 the company established a sales and support team in Taiwan.

In June 1999 RFMD created four internal organizations: Digital Cellular, Power Amplifier Products, Silicon Systems, and Custom Products. Each organization would have its own design engineering, marketing, applications engineering, product engineering, production/inventory control, and financial management functions. The reorganization was intended to improve new product development, reduce bureaucracy, and improve service to the company's principal wireless customers, and was necessary to control the company's rapid growth.

RFMD also established an integrated MCM (multichip module) assembly facility in Greensboro to complement its wafer fabrication and testing capability. It was responding to demand from its customers that it develop products that combine one or more integrated circuits with one or more passive components, such as capacitors, inductors, and resistors, into a stand-alone package, or module. Previously, RFMD had relied on outside vendors for assembling and packaging of these modules. The new MCM assembly facility represented a vertical expansion that required an expertise substantially different from its RFIC fabrication processes.

In September 1999 RFMD began construction of a second, 128,000-square-foot fab facility, dubbed Greensboro II, at a site near its first facility. Maintaining and expanding manufacturing capacity was seen as an important element in the company's continuing success.

As part of RFMD's effort to evaluate markets other than wireless communications, the company expanded its GaAs HBT license arrangement with TRW to include products for commercial coaxial and other nonfiber wire applications. RFMD would begin designing products for those markets, including applications such as cable modems, set-top converter boxes, television tuners, and products for the digital subscriber line (DSL) market.

Revenue for fiscal 2000 ending March 25 rose 89 percent to $289.0 million. Net income increased by about 250 percent to $50.1 million. During the previous 12 months the company's stock had split twice and increased more than fivefold in value. For fiscal 2000 sales to Nokia, the world's largest cell phone maker, were about $169 million, or 59 percent of RFMD's revenue.

The company announced it would expand its original Greensboro fab facility to increase capacity from 35,000 wafers per year to a potential 60,000 wafers per year. In February 2000 RFMD entered into another alliance with Qualcomm Inc. to provide advanced power amplifiers for the CDMA (code-division multiple access) market, one of three wireless telephone transmission technologies.

RFMD grew rapidly, from only 133 employees at the end of fiscal 1997 to 817 employees at the end of fiscal 2000. It faced significant challenges in managing that growth effectively. The company was also in the process of expanding its manufacturing capacity, with a second facility expected to begin production before the end of calendar 2000.

TRW's ownership interest in RFMD, which has fluctuated between 10 percent and 30 percent, has kept RFMD from being a takeover target, among other benefits. Saddled with a huge amount of debt from its $6.6 billion acquisition of a European auto parts maker, TRW has had to sell some of its RFMD stock to raise cash. At the end of fiscal 2000 TRW owned about 18 percent of RFMD's stock.

Principal Divisions:Digital Cellular; Power Amplifier Products; Silicon Systems; Broadband Products; Custom Products.

Principal Competitors:Conexant Systems, Inc.; Fujitsu Ltd.; Hitachi Ltd.; Matsushita Communication Industrial Co.; Philips N.V.; Anadigics; TriQuint Semiconductor Inc.

Chronology

• Key Dates:
• 1991: RF Micro Devices, Inc. (RFMD) is founded.
• 1996: TRW Inc. invests in RFMD.
• 1997: RFMD goes public with an IPO on the NASDAQ.
• 1998: RFMD completes construction of its wafer fabrication facility in Greensboro, North Carolina.