Executives at Anadigics Inc. thought they got it right the first time. And for a while there, they did.When the chip maker finally settled into the commercial market eight years ago, the company enjoyed a seven-year stretch of profitability. But times eventually changed.
For Anadigics, a gallium arsenide (GaAs) broadband and wireless communication-IC supplier, 1998 was particularly brutal. Like most companies, its bottom line was dragged down by the lethargic market conditions that enveloped the global semiconductor industry. On top of the difficult business climate, Anadigics had some internal problems that added to its woes.
But after struggling through what was perhaps the most trying period in the company's 14-year history, Anadigics has lifted itself up by its bootstraps, pushed aside the obstacles that caused it to stumble, and set forth on an aggressive track toward what industry observers anticipate will be a solid position in an increasingly competitive market.
The trouble started when a substantial drop in demand from Ericsson-which provides Anadigics with the majority of its revenue in the wireless-handset market-compounded with production problems and growing overhead costs, began to weigh heavily on the Warren, N.J.-based company. In 1998, Anadigics posted a net loss of $9.6 million on sales that slid 19.2%, to $86 million. Excluding one-time charges, the company's net loss was about $217,000.
In addition to its financial troubles, Anadigics found itself dealing with a growing number of class-action lawsuits filed by shareholders who claimed that management did not disclose assembly and packaging problems the company was having, thus artificially inflating its share prices from July 17, 1997, through Jan. 30, 1998.
And as the numbers on the company's earnings statement descended, so did the value of its stock. Investors punished Anadigics' shares, which plunged to just under $5 last October from around $30 at the outset of 1998.
"There was a segment of the market that had significantly discounted Anadigics' capability to perform, in large part because of its previous management, but in greater part due to its product," said Pete Peterson, an analyst at Volpe Brown Whalen & Co., San Francisco.
"What's happened since then is that the market for their existing product has grown tremendously, and that's given a lot of breathing room for the new management team to come in and set a course that can get them to where they want to go," Peterson added.
Enter the company's newly minted chief executive.
Last October, Anadigics tapped Bami Bastani to steer the company back onto its growth path. Bastani, a 20-year Silicon Valley veteran who has held positions at Intel, National Semiconductor, and most recently, Fujitsu Microelectronics, where he was executive vice president for its System LSI Group, replaced Anadigics co-founder Ronald Rosenzweig, who is now chairman.
Since Bastani joined the company, its fortunes have taken a turn for the better. Earlier this month, Anadigics reported its second consecutive quarter of revenue growth, showing particular strength in the wireless and fiber-optic segments. Executives also recently agreed to settle the lawsuits against the company, for which it recorded a $6.9 million charge.
Anadigics' stock has also bounced back, rising out of the trough it fell into last October to trade above $30 per share last week.
Analysts said that the market value of virtually all of the companies that compete in the wireless- and broadband-IC space has improved over the past several months, but Anadigics' performance has been exceptionally noteworthy.
Part of what has set Anadigics apart is its aggressive new-product strategy as well as its shifting focus on developing the technology needed to move in tandem with the rapidly evolving markets for its products, noted Rick Faust, an analyst at Adams, Harkness & Hill Inc., Boston.
Toward that end, Anadigics accelerated the qualification of a new 6-inch wafer fab adjacent to its headquarters, and an older fab in Warren, and began shipping product from it recently.
The new fab is being used for MESFET and PHEMT, types of GaAs processing technologies. Executives also announced recently that Anadigics is developing HBT (heterojunction bipolar transistor) processing capabilities for that fab, and they plan to begin running HBT wafers through it next year. Chips produced on an HBT process have an advantage over those that are built on both MESFET and PHEMT processes because they can draw their power directly from a battery and do not require a negative charge to operate.
"That fab significantly increases the company's manufacturing efficiency as well as providing ample capacity to support its growth over the next several years," Faust said. "Gross margins have risen sharply over the last quarter, due to the higher revenue run-rate. As that fab is ramped, we anticipate that gross margins could continue to move up toward 47% in the [upcoming third] quarter," compared with 31.2% during last year's third quarter.
Bastani's turnaround plan for Anadigics also involves paring down the company's manufacturing costs by farming its assembly and testing operations out to offshore contractors and bolstering the company's marketing effort.
But perhaps the biggest change has been in the company's focus on emerging process technologies, according to Charles Huang, Anadigics executive vice president and chief technical officer.
"In the past, most of our products were based on our core competencies in gallium arsenide, MESFET and, starting this year, in PHEMT," Huang said. "But I think the main change since [Bastani's] arrival is that we are now more product driven and marketing driven."
It was Anadigics' disposition to stick with the technology it already had, and not develop the GaAs HBT process, that led the company to play catch-up with some of its competitors, Volpe Brown Whalen's Peterson said.
Even so, Wall Street is again looking favorably on Anadigics' prospects. Analysts polled by First Call Corp. are expecting Anadigics to finish 1999 with earnings of 44 cents per share, 78 cents per share in 2000, and $1 per share in 2001.