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7 November 2007


WJ loss widens in Q3 despite cost savings

For third-quarter 2007, WJ Communications Inc of San Jose, CA, USA, which designs and supplies RF products for wireless communications, RFID and WiMAX markets, has reported revenue of $9.8m (within its updated guidance range). This is down from $12.7m in both the last quarter and a year ago.

Operating expenses have been cut to $6.3m from $7.3m last quarter and $8.7m a year ago. “We remain pleased with the positive impact of our cost savings initiatives during the last several quarters,” says president and CEO Bruce Diamond. Following the closure at the end of March of its 4” GaAs wafer fab in Milpitas, CA (acquired in WJ’s June 2004 purchase of EiC Corp’s wireless infrastructure business), which should save $7m annually in costs, and the pending completion of the transition of final test and support operations to the Philippines (currently 90% completed and well ahead of its schedule of Q2/2008), WJ is now operating under a business model that has a much lower cost structure, Diamond adds. “We believe the cost savings associated with these initiatives [$9m annually in total] will provide substantial leverage on future revenue improvements.”

Gross margin was 49%, down from 52% last quarter and 56% a year ago due to the lower revenue and higher-than-expected charges for inventory reserves of about $200,000 (which were partially offset by cost-saving initiatives).

Net loss was $1.3m, up from $416,000 last quarter but almost level with $1.2m a year ago. EBITDA was $366,000, compared to $1.3m last quarter (the first positive result in five years) and a loss of $32,000 a year ago. “We were able to deliver positive EBITDA results for the second consecutive quarter despite lower-than-expected revenue,” says Diamond.

WJ remains on track to introduce at least 15 new products in second-half 2007 (making a total of 32 in full-year 2007, compared to 21 in 2006 and just four in 2005). Diamond believes this will add to the firm’s robust design win pipeline.

Also, WJ continues to expect that the TD-SCDMA build out in China will make a meaningful contribution to its business in 2008. China Mobile rolled out 10,000 base-stations to ten Olympic cities in early 2007. Phase 2 will involve roll out to 110 more cities (in which WJ will have more involvement), including 40 cities in 2008. This comprises 40-50,000 base-stations in 2008 and 110,000-140,000 in total. Diamond says that WJ has design wins with two of the base-station suppliers (involving $100 worth of MCMs, 28V power products and small-signal products per base-station, making a potential market of $5m). However, the exact timing of the associated orders remains uncertain, although Chia Mobile is expected to make decisions in February.

For fourth-quarter 2007, WJ expects revenue of $9.3-10.3m (flat on Q3, due to some weakness in the overall market and gross margin of 49% ± 2% (flat on Q3). Diamond believes that WJ can ultimately drive towards a 60% gross margin.

See related items:

WJ’s third quarter revenue hit by operational challenges

WJ losses prolonged by delayed fab closure and product qualification

WJ completes closure of its GaAs fab

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