Zacks_Analysts' Blog : Neutral on ANADIGICS - Analyst Blog

We recently reiterated our Neutral recommendation on ANADIGICS, Inc. (ANAD).  

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 of wireless connectivity in a growing number of consumer devices, including smart phones, datacards, netbooks, notebooks and tablets, provide substantial opportunities for growth to ANADIGICS. By the end of 2010, the 3G market is expected to be roughly 25% of the handset market with a forecasted compound annual growth rate of 30% through 2014.

ANADIGICS currently designs chips for third-generation smartphones for Samsung, LG, RIM and Palm, who are well positioned in the rapidly growing 3G market. The rapid growth of smartphones will continue to benefit ANADIGICS in the wireless market.

In the wireless market, the company is attempting to capitalize on the trend of consumers replacing wireline connections with wireless cell phones. Growth in the unit shipments of wireless handsets that are capable of operating in EDGE, W-CDMA/HSPA, CDMA/EVDO and other 3G and 4G standards is expected to significantly outpace the growth in the overall market over the next several years. 

ANADIGICS’ strategy is to forge close partnerships with industry-leading chipset providers and Tier-1 customers, including Intel, RIM, LG Electronics and Samsung. Such relationships should lead to future growth and market share gains.

Estimates for 2010 have inched up in the last sixty days as ANADIGICS reported better-than-expected results for the third quarter. Estimates for 2011 have inched up as well.  ANADIGICS, which competes with TriQuint Semiconductor, Inc. (TQNT), expects 2011 to be a positive year for the company fueled by strong market unit growth based on solid strength for wireless handsets.

We are impressed by management’s efforts to turnaround ANADIGICS and expect the company to return to profitability in 2011. The key initiatives for 2011 will be to capitalize on the growth of 3G and 4G markets by introducing new superior products and improving operational efficiency, thereby achieving profitability.

However, the outlook for the December quarter was weak, so we prefer to be on the sidelines as of now.

ANADIGICS projects sales of around $57 million in the fourth quarter of 2010, down from $61.3 million reported in the previous quarter. The decline is due to a pause in orders caused by inventory rebalancing by most broadband customers following the robust 20% sequential growth reported in the third quarter. Broadband revenue is projected to decline 25% sequentially.

Our Neutral recommendation on ANADIGICS is supported by Zacks #3 Rank.