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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 29, 2003
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-22511
RF MICRO DEVICES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1733461
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7628 THORNDIKE ROAD
GREENSBORO, NORTH CAROLINA 27409-9421
(Address of principal executive offices) (Zip code)
(336) 664-1233
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant was approximately $1,053,214,367 as of
September 28, 2002. For purposes of such calculation, shares of common stock
held by persons who hold more than 10% of the outstanding shares of common stock
and shares held by directors and officers of the registrant and their immediate
family members have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily conclusive. There were
184,241,106 shares of the registrant's common stock outstanding as of May 30,
2003.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part II of this report
portions of its annual report to shareholders for the fiscal year ended March
31, 2003 and has incorporated by reference into Part III of this report portions
of its annual report to shareholders for the fiscal year ended March 31, 2003
and portions of its proxy statement for its 2003 annual meeting of shareholders.
This Annual Report on Form 10-K contains forward-looking statements that relate
to our plans, objectives, estimates and goals. Words such as "expect,"
"anticipate," "intend," "plan," "believe" and "estimate," and variations of such
words and similar expressions, identify such forward-looking statements. OUR
BUSINESS IS SUBJECT TO NUMEROUS RISKS AND UNCERTAINTIES, INCLUDING THE
FOLLOWING:
o VARIABILITY IN OPERATING RESULTS;
o THE RATE OF GROWTH AND DEVELOPMENT OF WIRELESS MARKETS;
o THE RISKS ASSOCIATED WITH THE OPERATION OF OUR MOLECULAR BEAM EPITAXY
(MBE) FACILITY, THE OPERATION OF OUR TEST AND TAPE AND REEL
FACILITIES, BOTH FOREIGN AND DOMESTIC, AND THE OPERATION OF OUR WAFER
FABRICATION FACILITIES;
o OUR ABILITY TO MANAGE RAPID GROWTH AND TO ATTRACT AND RETAIN SKILLED
PERSONNEL;
o VARIABILITY IN PRODUCTION YIELDS, RAW MATERIAL COSTS AND AVAILABILITY;
o DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS;
o DEPENDENCE ON OUR GALLIUM ARSENIDE (GAAS) HETEROJUNCTION BIPOLAR
TRANSISTOR (HBT) PRODUCTS;
o ABILITY TO REDUCE COSTS AND IMPROVE MARGINS BY CONVERTING OUR SECOND
FOUR-INCH GAAS HBT WAFER FABRICATION FACILITY INTO A SIX-INCH
FACILITY, IMPROVING YIELDS, IMPLEMENTING INNOVATIVE TECHNOLOGIES AND
INCREASING CAPACITY UTILIZATION;
o DEPENDENCE ON THIRD PARTIES;
o OUR ABILITY TO BRING NEW PRODUCTS TO MARKET IN RESPONSE TO MARKET
SHIFTS AND USE TECHNOLOGICAL INNOVATION TO LEAD THE INDUSTRY IN
TIME-TO-MARKET FOR OUR PRODUCTS;
o CURRENCY FLUCTUATIONS, TARIFFS, TRADE BARRIERS, TAXES AND EXPORT
LICENSE REQUIREMENTS ASSOCIATED WITH OUR FOREIGN OPERATIONS; AND
o OUR ABILITY TO INTEGRATE ACQUIRED COMPANIES, INCLUDING THE RISK THAT
WE MAY NOT REALIZE EXPECTED SYNERGIES FROM OUR BUSINESS COMBINATIONS.
THESE AND OTHER RISKS AND UNCERTAINTIES, WHICH ARE ADDRESSED IN MORE DETAIL
BELOW IN THE SECTION ENTITLED "BUSINESS - ADDITIONAL FACTORS THAT MAY AFFECT
FUTURE RESULTS" AND IN OUR ANNUAL REPORT TO SHAREHOLDERS IN THE SECTION ENTITLED
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," COULD CAUSE OUR ACTUAL RESULTS AND DEVELOPMENTS TO BE MATERIALLY
DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY ANY OF THESE FORWARD-LOOKING
STATEMENTS.
WE USE A 52- OR 53-WEEK FISCAL YEAR ENDING ON THE SATURDAY CLOSEST TO MARCH 31
OF EACH YEAR. FISCAL 2003 AND 2002 WERE 52-WEEK YEARS, AND FISCAL 2001 WAS A
53-WEEK YEAR. OUR OTHER FISCAL QUARTERS END ON THE SATURDAY CLOSEST TO JUNE 30,
SEPTEMBER 30 AND DECEMBER 31 OF EACH YEAR. FOR PURPOSES OF THIS ANNUAL REPORT ON
FORM 10-K, WE DESCRIBE EACH FISCAL YEAR AS HAVING ENDED ON MARCH 31 AND THE
FIRST THREE QUARTERS OF EACH FISCAL YEAR ARE DESCRIBED AS HAVING ENDED ON JUNE
30, SEPTEMBER 30 AND DECEMBER 31.
PART I
ITEM 1. BUSINESS
INTRODUCTION
RF Micro Devices, Inc. was incorporated under the laws of North Carolina in
1991. We design, develop, manufacture and market proprietary radio frequency
integrated circuits (RFICs) primarily for wireless communications products and
applications. As such, we operate as a single business segment. We are a leading
supplier of power amplifiers, one of the most critical radio frequency (RF)
components in cellular phones. We are also the leading GaAs HBT manufacturer,
which offers distinct advantages over other technologies for the manufacture of
current and next-generation power amplifiers. Our products are included
primarily in cellular phones, base stations, wireless local area networks
(WLANs), cable television modems, and global positioning systems (GPS). The
majority of our revenue is derived from sales of RFICs designed for cellular
phones. We offer a broad array of products including amplifiers, mixers,
modulators/demodulators and single chip transmitters, receivers and transceivers
that represent a substantial majority of the RFICs required in wireless
subscriber equipment. These integrated circuits perform the transmit and receive
functions that are critical to the performance of wireless devices.
We design and manufacture products that are fabricated using multiple
semiconductor process technologies. These technologies include aluminum gallium
arsenide (AlGaAs) (also referred to as gallium arsenide (GaAs)), heterojunction
bipolar transistor (HBT), GaAs metal-semiconductor field-effect transistor
(MESFET), indium gallium phosphide (InGaP) HBT, silicon bipolar transistor,
silicon complementary metal-oxide-semiconductor (CMOS), silicon BiCMOS
(integration of bi-polar transistors and CMOS), and silicon germanium (SiGe)
BiCMOS. We are also actively developing integrated circuits utilizing gallium
nitride (GaN) and GaAs pseudomorphic high electron mobility transistor (pHEMT)
process technologies. Handset manufacturers try to maximize tradeoffs between
performance and cost. Our approach to using multiple semiconductor process
technologies allows us to offer customers products that fulfill their
performance, cost and time-to-market requirements. We call this approach to
business OPTIMUM TECHNOLOGY MATCHING(R).
Over the last two years, we have actively transitioned a large portion of our
business from the manufacture of single chip PA microwave monolithic integrated
circuits (MMICs) to more complex, highly integrated, multi-chip PA module
products. During fiscal 2003, 59% of our revenue was derived from multi-chip
power amplifier modules. Many of our module products combine integrated circuits
fabricated under different process technologies. We believe our multi-chip
modules provide the following advantages:
o GREATER FUNCTIONALITY: Multi-chip modules enable us to combine
integrated circuits fabricated under different semiconductor process
technologies into a single product that performs more of the functions
in a wireless device.
o LOWER COSTS: Due to the integration of components within a single
multi-chip module, our customers can reduce the size of their devices
and simplify their manufacturing processes, which leads to reduced
costs.
o HIGHER PERFORMANCE: Multi-chip modules provide a system-on-chip
solution, which optimizes interfaces between components.
Our products are purchased by leading original equipment manufacturers (OEMs)
such as Nokia Mobile Phones, Ltd., Motorola, Inc., Samsung Electronics Co., Ltd,
Sagem, LG Electronics, Inc., Siemens, A.G., SKC Co., LTD, and Sony Ericsson
Mobile Communications. In addition, our products are purchased by leading
original design manufactures (ODMs) such as BenQ Corporation, Wavecom, S.A.,
Arima Communications Corporation, Curitel Communications, Inc. and its affliate
Pantech, Inc., Compal Electronics, Inc. and Quanta Computer Inc. ODMs have
emerged in recent years, particularly in Asian markets, and offer lower-cost
wireless devices for resale by OEMs.
Our original GaAs HBT process technology was licensed to us by Northrup Grumman
Space Technology (formerly TRW Space & Electronics, Inc.) (TRW) in 1996 to
design and manufacture products for commercial wireless applications. The GaAs
HBT and MBE patent rights expressly referenced in the license agreement expire
at various times between March 2007 and July 2016. The license agreement
provides that TRW will offer to us, on the same terms as are offered to third
parties, certain future non-HBT related technologies that it develops for a
period of 10 years following June 15, 1998. We have agreed to share with TRW any
modifications or improvements that we make in the technology or the products
developed therefrom, and to grant TRW a non-exclusive, royalty-free license to
use any of these modifications or improvements in applications outside our field
of use. Upon any termination of the license agreement because of a default by
either party, our
rights to TRW's technologies would cease. We are continually improving our GaAs
HBT processes and manufacture substantially all of our own GaAs HBT products at
our wafer fabrication facilities.
During fiscal 2003, we entered into a strategic relationship with Jazz
Semiconductor, Inc. (Jazz). Under the arrangement, we obtained a committed,
lower cost source of supply for wafers fabricated utilizing Jazz's silicon
manufacturing processes. In addition, we are collaborating with Jazz on joint
process development and the optimization of these processes for fabrication of
next-generation silicon RFICs. The arrangement is expected to help us develop
proprietary mixed-mode silicon technologies for our system-on-chip (SOC)
integration roadmap.
INDUSTRY OVERVIEW
The wireless communications industry has grown rapidly over the past 20 years as
a result of technological advances, changes in telecommunications regulations
and the allocation and licensing of additional radio spectrum. These factors
have led to the emergence of competing wireless communications businesses, the
expansion of wireless services into new markets such as China and India and the
continuing development of new wireless applications and services. Higher data
access speeds, multimedia capabilities, simultaneous access to multiple services
and global roaming are now common features on wireless devices.
The wireless communications industry growth is being fueled by several sources.
The availability and mass deployment of additional telecommunications standards
(such as General Packet Radio Service (GPRS), Enhanced Data rates for GSM
Evolution (EDGE), CDMA Next Generation (CDMA-1X), Wideband Code Division
Multiple Access (WCDMA), IEEE 802.11 for WLANs and Bluetooth(R)) have increased
the overall size of the market. New wireless products with improved features
(such as phones with cameras, Bluetooth(R) peripherals, personal digital
assistants (PDAs), Radio Personal Computer Memory Card International Association
(PCMCIA) cards, and GPS) have contributed to the industry growth. In addition,
the development of new communications services, such as public area "hot spots"
that facilitate wireless internet connectivity through the use of WLANs has
increased the demand for products. Moreover, technological advances throughout
the entire supply chain have reduced barriers to entry and enabled broad access
to entry level voice-only cellular phones. Although voice-only cellular phones
initially were the primary end-use application for our products, we now supply
products to rapidly growing segments in the wireless communications industry
focused on data communication, including WLANs and 2.5G and 3G cellular
handsets. The total available market for wireless terminals is anticipated to
expand, as the industry moves to data-intensive applications such as multimedia
messaging service (MMS), gaming and video. Higher data rate standards require
higher functionality phones and in some cases the convergence of multiple
standards, thereby promoting the development and manufacturing of new
feature-enhanced personal wireless terminals. At the same time, lower-tier
voice-only phones require low-cost, less complex optimized terminals that can be
quickly brought to market.
The industry trend is to develop new wireless communications devices for
operation under air interface standards with higher data rates. Classic analog
and digital communication standards used primarily for voice such as Advanced
Mobile Phone Service (AMPS), Global System for Cellular Communications (GSM),
Time Division Multiple Access (TDMA) and Code Division Multiple Access (CDMA)
are being replaced in the design cycle by the emergence and deployment of
additional telecommunications standards including GSM/GPRS, EDGE, CDMA-1X and
WCDMA. The handsets designed for each air interface standard generally require
unique radio frequency and baseband integrated circuit solutions and these
solutions become more complex and technically challenging as data rates
increase. Similarly, WLANs, which function under the IEEE802.11 standards, are
migrating to higher data transmission rates and higher frequencies. Additional
communications standards make it more difficult for OEMs of subscriber equipment
to develop and supply all the required components in a timely and cost-effective
manner. For this reason, some OEMs have begun to rely on third party value-added
technology providers that have the component- and systems-level expertise to
design, and the production capacity to supply, these solutions. This
technology-outsourcing trend is particularly evident in the radio frequency
segment of the equipment due to the scarcity of RFIC engineers and the design
complexity of the radio technologies. Technology outsourcing has materialized
both in OEM's reliance on RFIC suppliers to provide more integrated RF solutions
and in a marked shift in production to value-added design and manufacturing
companies, or ODMs.
While brand name recognition remains a key differentiator in the cellular
handset market, the ability to offer low-cost solutions to the consumer market
remains a critical factor in the success of a cellular phone marketing
operation. The increase in complexity (due to new features and new interface
standards) and competitive landscape for mid- and high-tier cellular phones have
resulted in a redistribution of development resources at the OEMs away from
low-tier cellular handsets. The impact of these market conditions has fostered
an outsourcing trend of cellular handset solutions to ODMs. ODM output accounted
for approximately 10% of the total worldwide handset production volume in 2002
and is expected to increase to approximately 13% in 2003. Similarly, ODM's
accounted for approximately 80% of non-embedded WLAN PC cards and USB adaptors.
The largest and most successful ODMs started out as companies with a strong
background in consumer
electronics manufacturing with relatively limited RF expertise. In a trend
similar to the personal computer manufacturing model of the 1990s, the classic
supply chains are being transformed from vertical or integrated supply chains to
horizontal or modular supply chains in order to support this outsourcing to
ODMs. This move shifts the technical expertise and support requirements to the
component suppliers, which allows the ODMs to focus on wireless terminal
production.
The emergence of technological advances has led to the rapid growth of the
wireless communication industry, and the industry continues to evolve at a fast
pace. As this market changes, new communications standards emerge, new
competitors enter the market, new products, applications and services become the
primary forces for growth and new risks are presented. We believe this dynamic
market presents us with significant opportunities to accomplish our business
objectives.
STRATEGY
Our goal is to be the premier supplier of low-cost, high-performance integrated
circuits and solutions for applications that enable wireless connectivity. To
meet this goal, we have developed a focused strategy. The key elements are:
o ESTABLISH SOLID CUSTOMER RELATIONSHIPS. We have established solid
customer relationships with many of the leading OEMs. We believe our
OEM relationships are based on our design capability and manufacturing
capacity and our ability to provide comprehensive sales, technical,
and manufacturing support. To attract and support the OEMs, we have
strategically invested in sales offices and customer support centers
all over the world. We have sales offices in Japan, Sweden, and
Germany; and sales and customer support centers in the United States,
England, Finland, South Korea, Taiwan and China. We are focusing our
efforts on building the staffing and capabilities of our existing
sales infrastructure and believe our existing sales offices and
customer support centers provide the geographic coverage necessary to
address our product markets and customer base.
Increasingly, OEMs are relying on ODMs to design and manufacture
devices to be sold under the OEM's brand. In response to this shift in
the industry, we have sharpened our focus on ODMs and expanded our
sales and customer support centers in Asian markets to attract and
support ODM customers. As a result of this focus, sales to ODM
customers for handsets and WLAN products increased by 135% in fiscal
2003 over fiscal 2002, representing $84.1 million of revenue and $35.9
million of revenue in fiscal 2003 and 2002, respectively. We are
committed to strengthening our relationships with both OEM and ODM
customers and will continue to invest in these relationships by
maintaining an exceptional level of service and support.
o MAINTAIN DIVERSIFICATION IN PROCESS TECHNOLOGIES. We believe that we
are the only provider of RFICs in commercial volumes that is able to
design products in seven distinct process technologies -- GaAs HBT,
silicon bipolar, silicon CMOS, silicon BiCMOS, SiGe BiCMOS, GaAs
MESFET, and InGaP HBT. While leveraging our GaAs HBT capabilities, we
also intend to continue to expand our line of silicon-based RFICs. On
October 15, 2002, we entered into a strategic relationship with Jazz,
a privately-held RF and mixed-signal silicon wafer foundry, for
silicon manufacturing and development. Under the arrangement, we
obtained a committed, lower cost source of supply for wafers
fabricated utilizing Jazz's silicon manufacturing processes. In
addition, we are collaborating with Jazz on joint process development
and the optimization of these processes for fabrication of
next-generation silicon RFICs.
o FOCUS ON SUPPLY CHAIN MANAGEMENT AND REDUCED CYCLE TIME. We focus on
supply chain management and reducing cycle time through dual sourcing,
continued deployment of E-Commerce tools, and enhanced information
management of our suppliers. We believe this strategy enables us to
respond more rapidly to product demand changes and reduces execution
risk. We believe this strategy also helps us produce lower cost
devices by using dual sourcing to maximize price leveraging with our
suppliers, improving our product development processes to focus on
cycle times and supply channels early in the process, continuing
development of strategic supplier relationships, and streamlining the
supply chain to minimize movement of product. Pursuant to this
strategy, we obtained a committed, lower cost source of supply for
wafers from Jazz in fiscal 2003; we built our test and tape and reel
facility in Beijing, China, which became operational in the second
quarter of fiscal 2003; we are pursuing agreements with external
suppliers to provide a guaranteed source of supply and favorable
pricing for assembly services; and we are transitioning our four-inch
wafer fabrication facility into a six-inch wafer fabrication facility.
o INCREASE INTEGRATION OF PRODUCTS AND OFFER A WIDE RANGE OF RADIO
FREQUENCY PRODUCTS. We offer a full line of products that include
power amplifiers, low noise amplifiers/mixers, quadrature
modulators/demodulators, and single chip transceivers. For cellular
applications, we offer products addressing virtually all of the analog
and digital air interface standards. Our design engineering staff has
developed proprietary design and fabrication modeling techniques and
tools to enable us to deliver state-of-the-art integrated circuit
designs that meet our customers' stringent technical specifications.
In response to customer requests, we are also offering RFICs in a
module package that, in addition to one or more RFMD-designed
integrated circuits, includes passive components, such as capacitors,
inductors and resistors, which are commonly incorporated into end-user
devices. We continuously work to expand our range of radio frequency
products. As a result, we developed and continue to develop integrated
products that perform all functions associated with the RF section of
a cellular phone and provide OEMs and ODMs the benefits of reduced
component count, flexible baseband interfaces and lower cost of
implementation. We are evolving from a discrete MMIC supplier for
handsets into a supplier of low-cost, high-performance multi-chip
modules and other highly integrated solutions for multiple wireless
markets.
o FOCUS PRIMARILY ON WIRELESS MARKETS AND INCREASE MARKET SHARE. Since
RF Micro Device's formation in 1991, we have focused our efforts
almost exclusively on the design, development, manufacture and sale of
RFICs to participants in the commercial wireless markets. We have
developed and sold integrated circuits for a broad range of
applications within these markets, including cellular, base stations,
cordless telephony, industrial radios, WLANs, local loop, security,
Bluetooth(R) and utility meter reading. We believe our recent
acquisition of Resonext Communications, Inc. (Resonext), which
provides highly integrated silicon CMOS WLAN solutions for 802.11a and
multi-band (802.11a/b/g) platforms, expands our total addressable
market and is expected to complement our growing presence in WLAN
products. Resonext provides highly integrated two-chip CMOS solutions
for 5GHz and dual band WLAN platforms. On May 20, 2003, we entered
into a strategic relationship with Silicon Wave, Inc. (Silicon Wave),
a privately held supplier of integrated circuits for Wireless Personal
Area Networks (WPAN) for Bluetooth(R) solutions. We believe this
strategic relationship uniquely positions us to become the leading
solutions provider of multi-standard radios for handsets and mobile
appliances of the future. As part of the strategic relationship,
Silicon Wave granted manufacturing licenses to us for its single-chip
UltimateBlueTM 3000 radio processor and stand-alone CMOS
Bluetooth(R)radio modem solutions. We will assume responsibility for
the supply chain of these products and will be the exclusive
distribution channel for these products.
We also believe our focus on product innovation has strengthened our
market share and we expect this to continue. Our product innovation
includes the expansion of our PowerStar (TM) family of power amplifier
modules and the development of our POLARIS (TM) TOTAL RADIO (TM)
solution. The POLARIS (TM) TOTAL RADIO (TM) solution is a multi-band
chipset that performs the major functions of the radio section of the
handset and provides handset makers with the benefits of reduced
component count, flexible baseband interfaces and lower cost of
implementation. We have worked with Intel Corporation to offer a
complete communications system that integrates POLARIS (TM) with the
Intel(R) PXA800F cellular processor. Included in the POLARIS (TM)
TOTAL RADIO (TM) are PowerStar (TM) power amplifier modules that
provide customers the benefits of reduced component count, improved
production yield, simplified phone calibration and faster
time-to-market.
Despite our focus on wireless markets, we also evaluate other markets
and may attempt to enter them as opportunities present themselves.
MARKETS
We design, develop, manufacture and market our products to both domestic and
international OEMs and ODMs for commercial applications primarily for wireless
markets such as cellular handsets, base stations and WLAN equipment.
CELLULAR
In cellular applications, calls are placed through handheld subscriber devices
by making a connection with a base station via radio frequency channels.
BASE STATIONS
Base stations installed across an area create a wireless telecommunications
network that enables cell phones to communicate with one another or with wired
telephones. Each base station is equipped to receive and send radio frequency
signals through an antenna, as well as amplify outgoing signals to ensure the
transmission reaches its destination without fading. For both existing and
future generation wireless technologies, these base stations provide the system
backbone and must be in place before cell phones can be used.
WIRELESS NETWORKS
Wireless networking involves the transmission and reception of data such as
e-mail, faxes, computer files and Internet content by desktop and portable
computers via wireless radio frequency links rather than wired lines. Network
coverage ranges from WLANs, which might be found within a business or single
building, to metropolitan area networks, which would be limited to a defined
metropolitan or geographic area, to wide area networks, which connect
individuals and work groups over larger geographic areas.
OTHER MARKETS
We also supply custom components for other applications. In the wireless market,
we supply components for local loop systems, cordless telephony, industrial
radios, satellite radio, global positioning system, security systems, utility
meter reading systems, two-way paging, monitoring devices, interactive toys,
home networking, PC modem cards, keyless entry and handheld devices used for
point-of-sale, bar coding and other applications. In other markets, we supply
components for set-top converter boxes and cable modems and for optical
transceivers and transponders. We also market various components for satellite
and microwave communications applications, and certain of our components, such
as gain blocks and attenuators, which are used for instruments and in other
wired applications.
MANUFACTURING, PACKAGING AND TESTING
We are an ISO 9001 and ISO 14001 certified manufacturer. Our production process
begins with GaAs, silicon or other substrate materials, called wafers. GaAs
products incorporate a transistor layer which is grown on the wafer using an MBE
process in our MBE facility. These wafers are sent to our wafer fabrication
facility where we isolate the transistor layer and interconnect the transistors
according to the circuit design. The wafers are then singulated into individual
die. The die must be assembled, or packaged, and tested. After testing, the
RFICs are prepared for shipment through a tape and reel process.
We have one MBE facility and two wafer fabrication facilities located in
Greensboro, North Carolina. We began manufacturing our own GaAs HBT products in
September 1998 in our first wafer fabrication facility, and our second wafer
fabrication facility qualified for production in the third quarter of fiscal
2002. During fiscal 2003, we manufactured substantially all of our products at
these fabrication facilities. We began transitioning our second wafer
fabrication facility from a four-inch wafer production into a six-inch wafer
production in fiscal 2003. The conversion currently is expected to be complete
in the second quarter of fiscal 2004.
We currently use five independent foundries to supply our silicon-based product
requirements and our GaAs MESFET devices. Use of independent foundries involves
a number of risks, including the possibility of material disruptions in the
supply of key RFICs and the lack of control over delivery schedules,
manufacturing yields, quality and fabrication costs. During fiscal 2003, we
entered into a strategic relationship with Jazz, a privately-held RF and
mixed-signal silicon wafer foundry, for silicon manufacturing and development.
Under the arrangement, we obtained a committed, lower cost source of supply for
wafers fabricated utilizing Jazz's silicon manufacturing processes. In addition,
we will collaborate with Jazz on joint process development and the optimization
of these processes for fabrication of next-generation silicon RFICs.
We currently use eight assembly suppliers located outside the United States and
one located in the United States to package and assemble our products. All of
these vendors are compliant to applicable ISO 9000 or QS 9000 series
specifications, which means that their operations have in each case been
determined by auditors to comply with certain internationally developed quality
control standards. We qualify and monitor assembly contractors based on cost and
quality. These contractors typically provide us with per-unit pricing.
The majority of the tape and reel function is performed internally, and we
outsource the balance of our requirements to two domestic outside suppliers and
two suppliers located in Asia. We use two independent test suppliers in Asia to
test our products. In September 2000, we opened a new internal test facility
located in Greensboro, North Carolina. During fiscal 2003, we completed
construction of a test and tape and reel facility near a handset assembly
facility operated by Nokia in Beijing, China. The tape and reel portion of the
facility has increased our in-house capacity for this function by 100%. The test
portion of the facility increased our module test capacity by 77%.
We maintain an inventory of certain standard products based on our internal
forecasts of expected demand for these products. For custom-designed products,
designs of our products are verified both by us and by the customer before
orders for production wafers are placed. Upon receipt of orders, we schedule
production based on order size, customer delivery requirements, production
schedules and other production considerations.
We typically experience lower yields on new products compared to yields on our
mature products. Due to the complexity of our new module products, we have
encountered significant technical challenges with respect to module assembly and
testing that have also contributed to lower yields. These lower yields, combined
with higher costs, have negatively impacted our gross margins. We continue to
focus on improving our gross margins through the following initiatives:
converting our second four-inch GaAs GBT wafer fabrication facility into a
six-inch facility; entering into a strategic relationship with Jazz to obtain a
committed, lower-cost source of supply for silicon wafers; achieving higher
levels of product integration; implementing test yield and assembly improvement
plans; lowering assembly costs and other supply chain savings; and increasing
our capacity utilization.
PRODUCTS AND APPLICATIONS
We offer a broad range of standard and custom-designed RFICs. Custom-designed
products are usually developed for volume production orders from large OEMs.
Custom orders are normally manufactured on an exclusive basis for a negotiated
period. Once exclusivity periods expire, we attempt to convert custom products
into standard products to broaden our customer base and leverage our design and
product expenditures. At March 31, 2003, we offered over 482 products in the
following categories:
POWER AMPLIFIERS
Power amplifiers are our largest product class, representing approximately 41%
of our products offered during fiscal 2003. Power amplifiers provide signal
amplification in the transmitter section of a wireless system in order to boost
a signal through the antenna. Power amplifiers operate at different frequencies,
power levels and air interface standards and generally are classified either as
linear amplifiers, which add a minimum amount of distortion to the shape of the
input signal, or non-linear amplifiers, which are used in analog devices. Power
amplifiers are often the most critical radio frequency component for a number of
reasons. They frequently are the most expensive RF component and are difficult
to design and implement. In addition, power amplifiers normally use the greatest
amount of battery power in a handset, which impacts talk time, and they
generally dissipate the greatest amount of heat.
GAIN BLOCKS (GENERAL PURPOSE AMPLIFIERS)
Gain blocks are simple general-purpose amplifiers that boost signals over a
broad frequency range. They are used for amplifier applications whenever noise
is not a concern and whenever a signal's strength has been diminished by
processing through a filter or other component. Gain blocks accounted for
approximately 23% of our products offered in fiscal 2003.
LOW NOISE AMPLIFIERS/MIXERS (FRONT-ENDS AND MIXERS)
Low noise amplifiers/mixers accounted for approximately 15% of our products
offered in fiscal 2003. A low noise amplifier is a device in the receiver
section of a wireless system that receives signals from an antenna at extremely
low microvolt levels and amplifies the signals by a factor of approximately 10
to 1,000 with the addition of as little interference as possible. Low noise
amplifiers are commonly integrated into circuits with mixers (also referred to
as "down-mixers" or "down converters"), and this combination generally is
referred to as a "receiver front end." Mixers accept the filtered output from
the low noise
amplifiers, which is typically at a high frequency and difficult to process, and
mix it with a local oscillator signal to produce a lower intermediate frequency
(IF) signal, which is easier to process.
QUADRATURE MODULATORS/DEMODULATORS
Quadrature modulators are devices in the transmitter section of a wireless
system that combine digital information with a radio frequency signal by varying
the phase and amplitude of the signal so that the resulting signal can be
transmitted. Quadrature demodulators reverse this process in the receiver
section by taking received radio frequency signals and recovering the embedded
digital information for further processing. Approximately 7% of our products
offered in fiscal 2003 were quadrature modulators/demodulators.
TRANSMITTERS, RECEIVERS AND TRANSCEIVERS
Single chip transmitters and receivers send and receive wireless signals.
Transceivers are highly integrated circuits that combine transmitters with
receivers into a single device. This category accounted for approximately 5% of
our products offered during fiscal 2003.
GLOBAL POSITIONING SYSTEM RECEIVER/CHIPSET
A GPS receiver processes signals from visible GPS satellites broadcasting radio
frequency navigation information. The GPS receiver works with a wide variety of
end products including handheld, marine and in-vehicle automotive devices. A GPS
chipset enables systems to receive signals from visible GPS satellites using
signal-processing techniques that produce highly accurate, smoothed navigation
data. The chipset is suited to a broad range of applications including
in-vehicle systems, recreational navigation and asset location services. This
category accounted for approximately 2% of our products offered during fiscal
2003.
INTERMEDIATE FREQUENCY COMPONENTS
In the receive function of a typical handset, high frequency RF signals are
converted into lower frequency IF signals by the low noise amplifier/mixer and
then to baseband outputs (e.g., voice). In the transmit function, baseband
inputs are converted from analog to digital form and processed through the
intermediate frequency range to the higher radio frequency before transmission
through the antenna. Our IF devices include digitally controlled intermediate
frequency amplifiers, which amplify baseband signals after they have been
converted from analog to digital form, and IF amplifiers with automatic gain
control and received signal strength indicators, which are used for intermediate
frequency-to-baseband conversion in the receive mode. IF components accounted
for approximately 2% of our products offered during fiscal 2003.
OTHER
The remaining 5% of products offered in fiscal 2003 include such products as
attenuators and switches, voltage controlled oscillators (VCOs), and linear
cable television (CATV) amplifiers.
PRODUCTS BY TECHNOLOGY
By technology, approximately 63% of our products offered during fiscal 2003 were
fabricated with GaAs HBT. Approximately 18% of our products offered used
conventional silicon technology. SiGe and GaAs MESFET technologies were used in
approximately 15% and 4%, respectively, of our products offered.
RAW MATERIALS
Given the number of component parts used in module production, we may experience
shortages of raw materials. As a result, we are designing into our semiconductor
die the functionality formerly fulfilled by many of the surface mount devices,
thus reducing our reliance on external raw materials and assemblers.
CUSTOMERS
Sales to our largest customers, Nokia and Motorola, were approximately $228.0
million and $70.3 million in fiscal 2003, representing approximately 45% and
14%, respectively, of our revenue for that year. No other customers accounted
for 10% or more of revenue during fiscal 2003.
We have agreed to provide Nokia with access to certain RFIC technologies and to
our GaAs HBT wafer fabrication facilities, and Nokia has agreed to provide us
with rights to bid for and supply Nokia's requirements for certain RFICs. This
arrangement does not obligate Nokia to purchase any additional products from us,
and there can be no assurance that Nokia will remain a significant customer of
ours or that this relationship will continue.
SALES AND MARKETING
We sell our products worldwide directly to customers as well as through a
network of 14 domestic sales representative firms and 10 foreign sales
representative firms. No sales representative firm accounted for more that 10%
of total revenues in fiscal 2003. We select our domestic and foreign
representatives based on technical skills and sales experience, as well as the
presence of complementary product lines and the customer base served. We provide
ongoing training to our representatives to keep them knowledgeable of our
products. We maintain an internal marketing organization that is responsible for
key account management, application engineering support to customers, developing
sales and advertising literature, such as product announcements, catalogs,
brochures and magazine articles in trade and other publications, and preparing
technical presentations for industry conferences. We have sales and customer
support centers in Greensboro, North Carolina; San Diego, California; Reading,
England; Oulu, Finland; Seoul, South Korea; Taipei, Taiwan; and Beijing, China
and sales offices in Tokyo, Japan; Malmo, Sweden; and Munich, Germany.
We believe that maintaining a close relationship with customers and providing
customers with ongoing technical support is essential to customer satisfaction
in the wireless communications industry. Our marketing application staff
interacts with customers during all stages of design and production, provides
customers with current product application notes and engineering data, maintains
regular contact with customer engineers and assists in the resolution of
technical problems. We assign to our largest customers a contract account
manager who maintains regular contact with the customer to determine its product
needs and concerns. Members of senior management also are involved in managing
relationships with significant customers. We believe that maintaining close
contact with customers improves their level of satisfaction and enables us to
anticipate their future product needs.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused primarily on developing new
integrated circuit products and improving manufacturing processes and yields. At
March 31, 2003, there were 548 employees in our research and development
organization. We have design centers in Scotts Valley, Irvine, and San Jose,
California; Cedar Rapids, Iowa; Chandler, Arizona; Boston, Massachusetts;
Pandrup, Denmark; Calgary, Canada; Charlotte, North Carolina; Leuven, Belgium;
and Moscow, Russia to accommodate our RFIC design engineers. Additionally, we
opened a new design center in Boulder, Colorado in April 2003.
Our circuit design staff is continually developing RFIC design solutions for new
and emerging wireless applications. Our research and development activities
include not only new circuit designs, but also the development and refinement of
proprietary design tools and models to facilitate new product development.
Moreover, we are continually evaluating test radio frequency circuits under
emerging semiconductor process technologies to augment our OPTIMUM TECHNOLOGY
MATCHING(R) program and to meet our customers' future wireless equipment needs.
In fiscal 2001, we established an Advanced Development Group to focus on
next-generation technology in the areas of RFIC design, packaging and
semiconductor processes. The purpose of this group is to develop technologies
that can be quickly transitioned into new state-of-the art products.
In fiscal 2003, 2002 and 2001, we incurred approximately $101.7 million, $74.4
million, and $60.3 million, respectively, in research and development expenses.
We do not separately account for RF Micro Devices-sponsored and
customer-sponsored research and development expenses.
The market for RFICs is characterized by rapid changes in product designs and
the emergence of new semiconductor technologies used to fabricate higher
performance devices. Because the demand of OEMs for continual improvements in
product performance is expected to increase, we believe that our future success
depends in part on our ability to design RFICs under emerging wafer fabrication
technologies that meet the cost and performance parameters of our customers.
Moreover, we believe we must be able to continue to attract and retain qualified
research and development personnel.
COMPETITION
Competition in the markets for our products is intense. We face competition from
several companies engaged in the business of designing, manufacturing and
selling RFICs, as well as suppliers of discrete products such as transistors,
capacitors and
resistors. We also experience competition for products manufactured using the
GaAs HBT process technology from companies that have or may develop GaAs HBT or
other fabrication processes. In addition, our current and potential competitors
include OEMs that have or may develop the ability to produce RFICs or discrete
products internally for their own requirements. Our primary competitors are
Skyworks Solutions, Inc. and Hitachi Ltd. In WLAN product markets, we encounter
additional competitors such as Broadcom Corporation, Atheros Communications,
Agere Systems, Inc. and Intersil Corporation.
We believe that competition within the markets for our products is driven
primarily by the ability to design and deliver high-performance and
price-competitive products in sufficient quantities and in a timely manner.
Competition is also affected by the quality of customer service and technical
support and the ability to design customized products that address each
customer's particular requirements and cost limitations. Many of our current and
potential competitors have entrenched market positions, established patents,
copyrights, trade names, trademarks and intellectual property rights and
substantial technological capabilities. Further, many of our competitors may
have significantly greater financial, technical, manufacturing and marketing
resources than we do. Increased competition could adversely affect our revenue
and profitability by causing us to reduce prices or by reducing demand for our
products.
INTELLECTUAL PROPERTY
It is our practice to seek United States patent and copyright protection on our
products and developments, where appropriate, and to protect our proprietary
technology under United States and foreign laws affording protection for trade
secrets and for integrated circuit designs. We own several United States patents
bearing on radio frequency communications and related circuits and semiconductor
processes, the earliest of which will likely expire in 2015. Numerous additional
patent applications are pending, although it is possible that the inventions
referenced in patent applications will not mature to issued patents or will
infringe upon intellectual property rights of others. It is also possible that a
court will find the issued patents invalid or unenforceable under numerous legal
principles relating to prior art disclosures or inequitable conduct before the
United States Patent and Trademark Office.
We have numerous trademark registrations and applications pending in the United
States and throughout the world. We seek registrations for our primary
trademarks, servicemarks and trade names; however, others may have trademark
rights superior to ours in certain jurisdictions, and in some instances our
designations may not be viewed as sufficiently distinctive to warrant exclusive
trademark protection. We believe that we have the right to use our selected
designations, and that these designations are distinctive and capable of
trademark protection. Nevertheless, if our marks are successfully challenged on
this basis, it is possible that we will not be permitted to operate in a
jurisdiction under our trademark, servicemark or trade name or that we will not
have the exclusive right to use these designations.
We rely also upon trade secrets, technical know-how and other unpatented
proprietary information relating to our product development and manufacturing
activities. To protect our trade secrets, technical know-how and other
proprietary information, our employees are required to enter into agreements
providing for maintenance of confidentiality and the assignment of rights to
inventions made by them while in our employ. We also have entered into
non-disclosure agreements to protect our confidential information delivered to
third parties in conjunction with possible corporate collaborations and for
other purposes. However, we cannot be sure that these types of agreements will
effectively prevent unauthorized disclosure of our confidential information,
that these agreements will not be breached, that we would have adequate remedies
for any breach or that our trade secrets and proprietary know-how will not
otherwise become known or independently discovered by others.
RF Micro Devices has been named a defendant in a patent infringement lawsuit
filed on August 3, 2001 in the United States District Court for the District of
Arizona by Lemelson Medical, Education and Research Foundation, LP. The suit
alleges that we have infringed claims of a total of at least 17 and possibly 18
patents, including "machine vision" claims of 12 patents, "bar code" claims of
four patents and "integrated circuit" claims of three or four patents, and seeks
injunctive relief, damages for the alleged infringements and payment of the
plaintiff's attorneys' fees. The suit has been stayed pending resolution of one
of two related actions to which we are not a party. This case was stayed before
any discovery and is in its very preliminary stages. Therefore, we cannot
predict the ultimate outcome of this litigation. We cannot be sure that third
parties will not assert additional claims against us, our customers or our
licensors with respect to existing and future products. Any litigation to
determine the validity of any third party's claims could result in significant
expense to us and divert the efforts of our technical and management personnel,
whether or not the litigation is determined in our favor. The wireless industry
is subject to frequent litigation regarding patent and other intellectual
property rights. Leading companies and organizations in the wireless industry
have numerous patents that protect their intellectual property rights in these
areas. In the event of an adverse result of any intellectual property rights
litigation, we could be required to expend significant resources to develop
non-infringing technology or to obtain licenses to the technology, which is the
subject of the litigation.
We cannot be sure that we would be successful in such development or that any
such license would be available on commercially reasonable terms. We have on
occasion been made aware that aspects of our technology may overlap technology
discussed or claimed in issued United States patents. On these occasions, we
have attempted to investigate thoroughly the underlying issues and determine
whether design changes or patent licenses were appropriate.
BACKLOG
At March 31, 2003, our backlog was approximately $139.2 million, compared to
approximately $100.7 million at the end of fiscal 2003. We include in backlog
all accepted product purchase orders for which delivery has been specified
within one year. Product orders in our backlog are subject to changes in
delivery schedules or to cancellation at the option of the purchaser without
significant penalty. Our backlog may vary significantly from time to time
depending upon the level of capacity available to satisfy unfilled orders.
Accordingly, although useful for scheduling production, backlog as of any
particular date may not be a reliable indicator of sales for any future period.
EMPLOYEES
At March 31, 2003, we had 1,794 employees. We believe that our future prospects
will depend, in part, on our ability to continue to attract and retain skilled
technical, marketing and management personnel. Competition for such personnel is
intense, and the number of persons with relevant experience, particularly in
engineering, RFIC design and technical marketing, is limited. None of our
employees is represented by a labor union, and we have never experienced any
work stoppage. We believe that our employee relations are good.
GEOGRAPHIC FINANCIAL SUMMARY
A summary of our operations by geographic area is as follows (in thousands):
YEAR ENDED MARCH 31,
2003 2002 2001
----------- ------------ -----------
SALES:
United States $102,152 $107,037 $160,975
International 405,667 262,271 174,389
LONG-LIVED ASSETS: (IN THOUSANDS)
United States $297,728 $219,151 $207,741
International 14,285 2,528 830
Sales, for geographic disclosure purposes, are based on the "bill to" address of
the customer. The "bill to" address is not always an accurate representation of
the location of final consumption of our products by either the OEM or the OEM's
customer. Long-lived assets include property and equipment.
ENVIRONMENTAL MATTERS
By virtue of operating our MBE and wafer fabrication facilities, we are subject
to a variety of extensive and changing federal, state and local governmental
laws, regulations and ordinances related to the use, storage, discharge and
disposal of toxic, volatile or otherwise hazardous chemicals used in the RFIC
manufacturing process. Any failure to comply with such requirements currently in
effect or subsequently adopted could result in the imposition of fines on us,
the suspension of production or a cessation of operations. In addition, such
requirements could restrict our ability to expand our facilities or require us
to acquire costly equipment or incur other significant expenses to comply with
environmental regulations or clean up discharges. We believe that costs arising
from existing environmental laws will not have a material adverse effect on our
financial position or results of operations. There can be no assurance, however,
that the environmental laws will not become more stringent in the future or that
we will not incur significant costs in the future in order to comply with these
laws.
ACCESS TO PUBLIC INFORMATION
We make available, free of charge through our website (http://www.rfmd.com), our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we electronically file
these reports with, or furnish them to, the Securities and Exchange Commission
(SEC). The public may also request a copy of our forms filed with the SEC,
without charge upon written request, directed to:
Investor Relations Department
RF Micro Devices, Inc.
7628 Thorndike Road
Greensboro, NC 27409-9421
In addition, the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
IN ADDITION TO THE OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K, READERS
SHOULD CAREFULLY CONSIDER THE FOLLOWING IMPORTANT FACTORS. THESE FACTORS, AMONG
OTHERS, IN SOME CASES HAVE AFFECTED, AND IN THE FUTURE COULD AFFECT, OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND COULD CAUSE OUR FUTURE RESULTS
TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING
STATEMENTS THAT APPEAR IN THIS ANNUAL REPORT ON FORM 10-K OR THAT WE HAVE MADE
OR WILL MAKE ELSEWHERE.
OUR OPERATING RESULTS FLUCTUATE.
Our revenue, earnings and other operating results have fluctuated significantly
in the past and may fluctuate significantly in the future. Our future operating
results will depend on many factors, including the following:
o our ability to design, manufacture and deliver our products in large
enough volumes to satisfy our customers' requirements;
o the ability of third party foundries, assembly, and test, tape and
reel partners to handle our products in a timely and cost-effective
manner that meets our customers' requirements;
o our ability to achieve cost savings and improve yields and margins on
our new products;
o our ability to respond to downward pressure on the average selling
prices of our products caused by our customers and competitors;
o unexpected poor line, assembly or test yields for our products;
o our ability to increase capacity utilization;
o our ability to successfully integrate and realize expected synergies
from our recent acquisitions; and
o our inability to predict non-recurring charges required to be taken
under generally accepted accounting principles in the United States
(GAAP) for items such as impairment of the value of long-lived assets
and goodwill and acquired in-process research and development charges
associated with business combinations.
It is likely that our future operating results will again be adversely affected
by the factors set forth above or other factors. If our future operating results
are below the expectations of stock market analysts or our investors, our stock
price may decline.
WE FACE CHALLENGES MANAGING RAPID GROWTH.
We have grown to 1,794 employees on March 31, 2003 from 133 employees on March
31, 1997. To manage our growth effectively, we must:
o expand our presence in international locations and adapt to cultural
differences in those locations, including China;
o train and manage our employee base; and
o attract and retain qualified people with experience in radio frequency
engineering, integrated circuit design, software and technical
marketing and support.
Competition for these resources is intense. We must also manage multiple
relationships with various customers, business partners and other third parties,
such as our foundry, assembly, test, tape and reel partners. Our systems,
networks, software tools, procedures or controls may not be adequate to support
our operations, and we may not be able to expand quickly enough to exploit
potential market opportunities. Our future operating results may also depend on
expanding sales and marketing, research and development and administrative
support. If we cannot attract qualified people or manage growth effectively, our
operating results will be adversely affected.
WE FACE RISKS ASSOCIATED WITH OUR MOLECULAR BEAM EPITAXY AND WAFER FABRICATION
FACILITIES.
Our production process starts with GaAs substrates called wafers. A transistor
layer is grown on the wafer using an MBE process in our MBE facility. These
wafers are then sent to our wafer fabrication facilities for further processing.
We have operated our first wafer fabrication facility since 1998, and in fiscal
2002, we qualified our second wafer fabrication facility for production. We
began transitioning our second wafer fabrication facility from a four-inch wafer
production into a six-inch wafer production in fiscal 2003. The conversion
currently is expected to be complete in the second quarter of fiscal 2004. As we
initiate production from our six-inch facility, we must qualify each new
integrated circuit design with our
customers. As parts are brought into production, we must continue to maintain
our cycle times and our line, assembly and test yields in order to reach our
manufacturing goals.
A number of factors will affect the future success of our facilities,
including the following:
o demand for our products;
o our ability to generate revenues in amounts that cover the significant
fixed costs of operating the facilities;
o our ability to qualify new products in a timely manner at our wafer
fabrication facilities;
o availability of raw materials, including GaAs substrates, and high
purity source materials such as gallium, aluminum, arsenic, indium,
silicon and beryllium in our MBE facility;
o our wafer fabrication manufacturing cycle times;
o our production yields;
o our ability to hire, train and manage qualified production personnel;
o our compliance with applicable environmental and other laws and
regulations; and
o our inability to use all or any significant portion of our facilities
for prolonged periods of time for any reason.
Converting our second wafer fabrication facility from a four-inch facility to a
six-inch facility has required us to make significant investments in equipment.
Before production of six-inch wafers can commence, wafers have to be qualified
by individual customers on a component-by-component basis, even for products
previously qualified at our four-inch wafer facility.
We cannot be sure that we will be able to successfully continue to produce
wafers using the GaAs HBT process technology at acceptable manufacturing yields
or in a manner that allows us to offer GaAs HBT products from our facilities at
competitive prices. A failure or delay in our efforts to fabricate GaAs HBT
wafers at acceptable manufacturing cycle times, yields, costs and quality and in
volumes sufficient to satisfy customer demands could have a material adverse
effect on our business, financial condition and results of operations.
WE DEPEND ON A FEW LARGE CUSTOMERS.
Historically, a substantial portion of our revenue has come from large purchases
by a small number of customers. We expect that trend to continue; however, our
focus in fiscal 2003 on diversification of our products and customer base has
decreased our reliance on our top five customers. In fiscal 2003, our top five
customers accounted for 73% of total revenue compared to 80% in fiscal 2002. For
fiscal 2003, our top ten customers accounted for 80% of our total revenues.
Nokia was our largest customer during fiscal 2003, accounting for 45% of our
total revenue, and Motorola, our second largest customer, accounted for 14% of
our total revenue. Our future operating results depend on both the success of
our largest customers and on our success in diversifying our products and
customer base.
We typically manufacture custom products on an exclusive basis for one customer
for a negotiated period of time. This factor makes it difficult for us to
diversify our customer base. The concentration of our revenue with a few large
customers makes us particularly dependent on factors affecting those customers.
For example, if demand for their products decreases, they may stop purchasing
our products and our operating results would suffer. Most of our customers can
cease incorporating our products into their products with little notice to us
and with little or no penalty. The loss of a large customer and failure to add
new customers to replace lost revenue would have a material adverse effect on
our business, financial condition and results of operations.
IF WE EXPERIENCE POOR PRODUCTION YIELDS, OUR OPERATING RESULTS MAY SUFFER.
Our integrated circuit products, especially our products manufactured using the
GaAs HBT process technology, are very complex. Each product has a unique design
and is fabricated using semiconductor process technologies that are highly
complex. In many cases, the products are assembled in customized packages. Our
module products, which consist of multiple components in a single package,
feature enhanced levels of integration and complexity. Our customers insist that
our products meet their exact specifications for quality, performance and
reliability.
Our products are manufactured on gallium arsenide or silicon substrates, called
wafers. Before our customers can use our products, the wafers must be processed
and singulated into individual die. A die is a rectangular piece of
semiconductor material upon which electronic circuitry has been created. The
circuitry determines the specific function the die is intended to perform and is
connected to the outside world by means of a microelectronic package and small
wires. Semiconductor die are manufactured while still part of a round piece of
semiconductor called a wafer, ranging in diameter from 100-300mm. The circuitry
is printed on the wafers using microscopic imaging technology and thin films of
deposited materials. Upon completion of the manufacturing process, die are cut
individually from the wafer and must be assembled, or packaged, and then the
final product must be tested. Our manufacturing yield is a combination of:
o line yield, which is the number of usable wafers that result from our
fabrication process;
o assembly yield, which is the number of assembled parts we actually
receive from the packaging house divided by the number of die
available on the wafer; and
o test yield, which is the number of assembled parts that pass all
component level testing divided by the total number of parts tested.
Due to the complexity of RFICs, we periodically experience difficulties in
achieving acceptable yields on certain new products.
Our customers also test our RFICs once they have been assembled into their
products. The number of usable RFICs that result from our production process can
fluctuate as a result of many factors, including the following:
o design errors;
o defects in photomasks used to print circuits on a wafer;
o minute impurities in materials used;
o contamination of the manufacturing environment;
o equipment failure or variations in the fabrication process;
o losses from broken wafers or other human error; and
o defects in packaging.
Because average selling prices for our products tend to decline over time and
because many of our manufacturing costs are fixed, we are constantly trying to
improve our manufacturing yields. For a given level of sales, when our yields
improve, our gross margins improve, and when our yields decrease, our unit costs
are higher, our margins are lower, and our operating results are adversely
affected.
OUR OPERATING RESULTS ARE DEPENDENT ON OUR GAAS HBT PROCESS TECHNOLOGY AND
DEMAND FOR OUR GAAS HBT PRODUCTS .
Although we design products using multiple distinct process technologies, a
substantial portion of our revenue comes from the sale of products manufactured
using GaAs HBT process technology. During fiscal 2003, 87% of our revenue came
from the sale of GaAs HBT products manufactured using GaAs HBT process
technology, of which substantially all was attributable to products produced at
our facility. We currently expect that this process concentration will continue
in the near term. Our dependence on GaAs HBT products could ultimately hurt our
operating results in the future. Competitors have begun to enter the market and
offer their own GaAs products, and direct competition with competitors with GaAs
HBT process technology could adversely affect our selling prices. Also, new
process technologies are constantly being developed, and one or more of these
processes could have characteristics that are superior to GaAs HBT. If we are
unable to access these technologies through licenses or foundry service
arrangements, we will be competitively disadvantaged. These and other factors
could reduce the demand for GaAs HBT components or otherwise adversely affect
our operating results.
We depend on our exclusive license from TRW for its GaAs HBT technology. If the
license is terminated or if it were determined that this technology infringed on
a third party's intellectual property rights, our operating results would be
adversely affected. TRW made no representation to us about whether the licensed
technology infringed on the intellectual property rights of anyone else.
OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON DEVELOPMENT OF NEW
PRODUCTS.
Our future success will depend on our ability to develop new RFIC solutions for
existing and new markets. We must introduce new products in a timely and
cost-effective manner and secure production orders from our customers. The
development of new RFICs is a highly complex process, and we have experienced
delays in completing the development and introduction of new products at times
in the past, including during fiscal 2003. Our successful product development
depends on a number of factors, including the following:
o the accuracy of our prediction of market requirements and evolving
standards;
o acceptance of our new product designs;
o the availability of qualified RFIC designers;
o our timely completion and execution of product designs; and
o acceptance of our customers' products by the market.
We may not be able to design and introduce new products in a timely or
cost-efficient manner, and our new products may fail to meet the requirements of
the market or our customers. In that case, we will not likely reach the expected
level of production orders, which could adversely affect our operating results.
Even when a design win is achieved, our success is not assured. Design wins
require significant expenditures by us and typically precede volume revenues by
six to nine months or more. The actual value of a design win to us will
ultimately depend on the commercial success of our customers' products.
OUR INDUSTRY'S TECHNOLOGY CHANGES RAPIDLY, AND WE DEPEND ON THE DEVELOPMENT AND
GROWTH OF WIRELESS MARKETS.
We depend on the development and growth of markets for wireless communications
products and services. We cannot be sure about the rate at which markets for
these products will develop or our ability to produce competitive products for
these markets as they develop.
We supply RFICs almost exclusively for wireless applications. The wireless
markets are characterized by frequent introduction of new products and services
in response to evolving product and process technologies and consumer demand for
greater functionality, lower costs, smaller products and better performance. As
a result, we have experienced and will continue to experience some product
design obsolescence. We expect our customers' demands for improvements in
product performance to increase, which means that we must continue to improve
our product designs and develop new products using new wafer fabrication
technologies. It is likely that a competing process technology will emerge that
permits the fabrication of integrated circuits that are superior to the RFICs we
make under existing processes. If that happens and we cannot design products
using that technology or develop competitive products, our operating results
will be adversely affected.
WE DEPEND HEAVILY ON OUR RELATIONSHIP WITH NOKIA.
We have agreed to provide Nokia with access to certain radio frequency
integrated circuit technologies and to our GaAs HBT wafer fabrication
facilities, and Nokia has agreed to provide us with rights to bid for and supply
Nokia's requirements for certain RFICs. This arrangement does not obligate Nokia
to purchase any additional products from us, and there can be no assurance that
Nokia will remain a significant customer of ours or that this relationship will
continue. In fiscal 2003, sales to Nokia were 45% of our revenue. The loss of
Nokia as a customer for any reason would have a material adverse effect on our
operating results.
WE DEPEND HEAVILY ON THIRD PARTIES.
We use five independent foundries to manufacture our silicon-based products. In
fiscal 2003, we entered into a strategic relationship with Jazz, a radio
frequency and mixed-signal silicon wafer foundry, for silicon manufacturing and
development. Under the arrangement, we obtained a committed, lower cost source
of supply for wafers fabricated utilizing Jazz's silicon manufacturing
processes. We will still remain dependent on a small number of independent
foundries to manufacture our
products on a timely basis, to achieve acceptable manufacturing yields and to
offer us competitive pricing. The inability of these independent foundries to
deliver our products on a timely basis, allocate sufficient manufacturing
capacity to us, achieve acceptable yields or offer us competitive pricing would
have a material adverse effect on our operating results.
We use eight independent suppliers outside the United States and one supplier
within the United States to assemble and package all of our integrated circuits,
two independent suppliers to test our products and two independent suppliers to
tape and reel our products. We have had packaging quality problems with some of
our suppliers, especially with products manufactured using our GaAs HBT process
technology, and it is possible that we may have more packaging problems in the
future. However, we have taken steps to improve the reliability of packaging
quality, including the hiring of a Vice President of Quality, the expansion of
our in-house package testing and qualification line and the hiring of additional
packaging engineers to engage in both package testing and the development of new
packaging designs. In addition, we will continue to monitor our suppliers. A
delay or reduction in product shipments or unexpected product returns because of
these problems could have an adverse effect on our operating results.
Given the shift to module production, we also rely on suppliers of passive
component parts. A delay in the receipt of these raw materials could delay
product shipments and have an adverse effect on our operating results.
WE OPERATE IN A VERY COMPETITIVE INDUSTRY.
Competition in the markets for our products is intense. We compete with several
companies primarily engaged in the business of designing, manufacturing and
selling RFICs, as well as suppliers of discrete products such as transistors,
capacitors and resistors. Several of our competitors either have GaAs HBT
process technology or are developing GaAs HBT or new fabrication processes. In
addition, many of our existing and potential customers manufacture or assemble
wireless communications devices and have substantial in-house technological
capabilities. Any of them could develop products that compete with or replace
ours. A decision by any of our large customers to design and manufacture
integrated circuits internally could have an adverse effect on our operating
results. Increased competition could mean lower prices for our products, reduced
demand for our products and a corresponding reduction in our ability to recover
development, engineering and manufacturing costs. Any of these developments
would have an adverse effect on our operating results.
Many of our existing and potential competitors have entrenched market positions,
considerable internal manufacturing capacity, established intellectual property
rights and substantial technological capabilities. Many of our existing and
potential competitors, including Skyworks Solutions, Inc., Hitachi, Broadcom
Corporation, Intersil Corporation, Agere Systems, Inc. and Atheros
Communications, may have greater financial, technical, manufacturing and
marketing resources than we do. We cannot be sure that we will be able to
compete successfully with our competitors.
WE DEPEND HEAVILY ON KEY PERSONNEL.
Our success depends in part on keeping key technical, marketing, sales and
management personnel. We do not have employment agreements with the substantial
majority of our employees. We must also continue to attract qualified personnel.
The competition for qualified personnel is intense, and the number of people
with experience, particularly in radio frequency engineering, integrated circuit
design, and technical marketing and support, is limited. We cannot be sure that
we will be able to attract and retain other skilled personnel in the future.
WE ARE SUBJECT TO RISKS FROM INTERNATIONAL SALES AND OPERATIONS.
We operate globally with sales offices and research and development activities
as well as manufacturing, assembly and testing facilities in several countries;
as a result, we are subject to risks and factors associated with doing business
outside the United States. Global operations involve inherent risks that include
currency controls and fluctuations, tariff, import and other related
restrictions and regulations.
Sales to customers located outside the United States accounted for about 80% of
our revenue in fiscal 2003. We expect that revenue from international sales will
continue to be a significant part of our total revenue. Because the majority of
our foreign sales are denominated in United States dollars, our products become
less price-competitive in countries with currencies that are low or are
declining in value against the United States dollar. Also, we cannot be sure
that our international customers will continue to accept orders denominated in
United States dollars. If they do not, our reported revenue and earnings will
become more directly subject to foreign exchange fluctuations.
All but one of our circuit assembly vendors and both of our test vendors are
located outside the United States. Also, we have a test and tape and reel
facility in Beijing, China. This subjects us to regulatory, geopolitical and
other risks of conducting business outside the United States. We do business
with our foreign assemblers in United States dollars. Our assembly costs
increase in countries with currencies that are increasing in value against the
United States dollar. Also, we cannot be sure that our international assemblers
will continue to accept orders denominated in United States dollars. If they do
not, our costs will become more directly subject to foreign exchange
fluctuations.
In addition, if terrorist activity, armed conflict, civil or military unrest or
political instability occurs in the United States or other locations, such
events may disrupt manufacturing, assembly, logistics, security and
communications, and could also result in reduced demand for our products. Major
health concerns, such as the spread of the SARS illness, could also adversely
affect our business and our customer order patterns. We could also be affected
if labor issues disrupt our transportation arrangements or those of our
customers or suppliers. On a worldwide basis, we regularly review our key
infrastructure, systems, services and suppliers, both internally and externally,
to seek to identify significant vulnerabilities as well as areas of potential
business impact if a disruptive event were to occur. Once identified, we assess
the risks, and as we consider it to be appropriate, we initiate actions intended
to minimize the risks and their potential impact. However, there can be no
assurance that we have identified all significant risks or that we can mitigate
all identified risks with reasonable effort.
WE RELY ON INTELLECTUAL PROPERTY AND FACE ACTUAL AND POTENTIAL CLAIMS OF
INFRINGEMENT.
Our success depends in part on our ability to obtain patents, trademarks and
copyrights, maintain trade secret protection and operate our business without
infringing on the proprietary rights of other parties. Although we do not
believe this to be the case, it could be determined in the future that we are
infringing a third party's intellectual property rights. We cannot be sure that
we could obtain licenses on commercially reasonable terms or that litigation
would not occur if there were any infringements. If we were unable to obtain
necessary licenses or if litigation arose out of infringement claims, our
operating results could be adversely affected.
RF Micro Devices has been named a defendant in a patent infringement lawsuit
filed on August 3, 2001 in the United States District Court for the District of
Arizona by Lemelson Medical, Education and Research Foundation, LP. The suit
alleges that we have infringed claims of a total of at least 17 and possibly 18
patents, including "machine vision" claims of 12 patents, "bar code" claims of
four patents and "integrated circuit" claims of three or four patents and seeks
injunctive relief, damages for the alleged infringements and payment of the
plaintiff's attorneys' fees. The suit has been stayed pending resolution of one
of two related actions to which we are not a party. This case was stayed before
any discovery, and is in its very preliminary stages. Therefore, we cannot
predict the ultimate outcome of this litigation.
In addition to patent and copyright protection, we also rely on trade secrets,
technical know-how and other unpatented proprietary information relating to our
product development and manufacturing activities. We try to protect this
information with confidentiality agreements with our employees and other
parties. We cannot be sure that these agreements will not be breached, that we
would have adequate remedies for any breach or that our trade secrets and
proprietary know-how will not otherwise become known or independently discovered
by others.
WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATION.
We are subject to a variety of federal, state and local requirements governing
the protection of the environment. These environmental regulations include those
related to the use, storage, handling, discharge and disposal of toxic or
otherwise hazardous materials used in our manufacturing processes. Failure to
comply with environmental laws could subject us to substantial liability or
force us to significantly change our manufacturing operations. In addition,
under some of these laws and regulations, we could be held financially
responsible for remedial measures if our properties are contaminated, even if we
did not cause the contamination.
OUR STOCK PRICE IS SUBJECT TO VOLATILITY.
The trading price of our common stock is subject to wide fluctuations in
response to quarterly variations in operating results, adverse business
developments, changes in financial estimates by securities analysts,
announcements of technological innovations, introduction of new products by us
or our competitors, transactions by corporate insiders and other events and
factors. In addition, the stock market has experienced extreme price and volume
fluctuations based on factors outside our control that have particularly
affected the market prices for many high technology companies. These broad
market fluctuations may materially and adversely affect the market price of our
common stock.
FUTURE SALES OF SHARES COULD HAVE AN ADVERSE EFFECT ON MARKET PRICE.
Sales of substantial amounts of common stock in the public market or the
prospect of such sales could adversely affect the market price for our common
stock and our ability to raise equity capital in the future. As of May 30, 2003
we had outstanding a total of 184.2 million shares of common stock. As of March
31, 2003, options to purchase 21.0 million shares of common stock were
outstanding under our formal stock option plans for employees and directors,
with a weighted average exercise price of $15.10 per share and a weighted
average remaining contractual life of 7.4 years. Of these, options to purchase
8.5 million shares were exercisable at March 31, 2003, at a weighted average
exercise price of $15.79 per share.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR SHAREHOLDERS, CAUSE US TO
INCUR DEBT AND ASSUME CONTINGENT LIABILITIES.
As part of our business strategy, we expect to continue to review potential
acquisitions that could complement our current product offerings, augment our
market coverage or enhance our technical capabilities, or that may otherwise
offer growth opportunities. While we currently have no definitive agreements
providing for any such acquisitions, we may acquire businesses, products or
technologies in the future. In the event of such future acquisitions, we could
issue equity securities that would dilute our current shareholders' percentage
ownership, incur substantial debt or other financial obligations or assume
contingent liabilities. Such actions by us could seriously harm our results of
operations or the price of our common stock. Acquisitions also entail numerous
other risks that could adversely affect our business, results of operations and
financial condition, including:
o unanticipated costs, capital expenditures or working capital
requirements associated with the acquisition;
o acquisition-related charges and amortization of acquired technology
and other intangibles that could negatively affect our reported
results of operation;
o diversion of management's attention from our business;
o injury to existing business relationships with suppliers and
customers; and
o failure to successfully integrate acquired businesses, operations,
products, technologies and personnel.
PROVISIONS IN OUR GOVERNING DOCUMENTS COULD DISCOURAGE TAKEOVERS AND PREVENT
SHAREHOLDERS FROM REALIZING AN INVESTMENT PREMIUM.
Certain provisions of our articles of incorporation and bylaws could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of our company.
These provisions include the ability of the board of directors to designate the
rights and preferences of preferred stock and issue such shares without
shareholder approval and the requirement of supermajority shareholder approval
of certain transactions with parties affiliated with our company. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of RF Micro Devices' common stock.
On August 10, 2001, our Board of Directors adopted a shareholder rights plan,
pursuant to which uncertificated stock purchase rights were distributed to our
shareholders at a rate of one right for each share of common stock held of
record as of August 30, 2001. The rights plan is designed to enhance the Board's
ability to prevent an acquirer from depriving shareholders of the long-term
value of their investment and to protect shareholders against attempts to
acquire RF Micro Devices by means of unfair or abusive takeover tactics.
However, the existence of the rights plan may impede a takeover of our company
not supported by the board, including a takeover that may be desired by a
majority of our shareholders or involving a premium over the prevailing stock
price.
ITEM 2. PROPERTIES
We currently lease all our facilities with the exception of our second wafer
fabrication facility and our test and tape and reel facility in Beijing, China.
During fiscal 2003, we retired a synthetic lease, which is an asset-based
financing structure, and purchased our second wafer fabrication facility. In
addition, we completed the construction of our Beijing test and tape and reel
facility.
We lease three office facilities and one storage facility in Greensboro, North
Carolina. Adjacent to our office facilities are our two wafer fabrication
facilities and our research and development packaging facility. The first wafer
facility is substantially fully utilized. The second wafer facility is
approximately 85% productively utilized and can be expanded, as demand requires
through current facility availability. We are currently in the process of
converting our second wafer fabrication facility from four-inch wafer
fabrication to six-inch wafers. The conversion currently is expected to be
complete in the second quarter of fiscal 2004 and, when completed, will
substantially increase the production capacity of this facility.
We lease two additional facilities in Greensboro, North Carolina. One facility
houses our MBE wafer starting material production operations and the other
facility comprises our RFIC testing, tape and reel operations. Productive
utilization of the MBE facility is approximately 80% and productive utilization
of the test and tape and reel facility is approximately 80%. Our productive
utilization of our test and tape and reel facility in Beijing, China is
approximately 60%.
We also lease space for our design centers in Irvine, Scotts Valley, and San
Jose, California; Boulder, Colorado; Cedar Rapids, Iowa; Boston, Massachusetts;
Chandler, Arizona; Charlotte, North Carolina; Pandrup, Denmark; Moscow, Russia;
and Leuven, Belgium; and for sales and customer support centers in Reading,
England; Oulu, Finland; Seoul, South Korea; Taipei, Taiwan; and Tokyo, Japan. In
the opinion of our management, our properties have been well maintained, are in
sound operating condition and contain all equipment and facilities necessary to
operate at present levels.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named a defendant in a patent infringement lawsuit,
captioned Lemelson Medical, Education & Research Foundation, LP v. Broadcom
Corporation; RF Micro Devices, Inc.; SanDisk Corporation; TransSwitch
Corporation; WJ Communications, Inc., filed August 3, 2001 in the United States
District Court for the District of Arizona by Lemelson Medical, Education and
Research Foundation, LP. The suit alleges that the Company has infringed claims
of a total of at least 17 and possibly 18 patients, including "machine vision"
claims of 12 patents, "bar code" claims of four patents and "integrated circuit"
claims of three or four patents and seeks injunctive relief, damages for the
alleged infringements and payment of the plaintiff's attorneys' fees. This case
was stayed pending resolution of one of two related actions to which we are not
a party. This case was stayed before any discovery, and is in its very
preliminary stages. Therefore, the Company cannot predict the ultimate outcome
of this litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq Stock Market under the symbol "RFMD."
The table below shows the high and low per-share sales prices of our common
stock for the periods indicated, as reported by the Nasdaq Stock Market. As of
May 30, 2003, there were 1,974 holders of record of our common stock.
HIGH LOW
------- -----
Year Ended March 31, 2003
First Quarter $ 20.35 $ 6.44
Second Quarter 9.55 5.19
Third Quarter 12.79 5.60
Fourth Quarter 8.57 5.74
For Fiscal Year 2003 20.35 5.19
HIGH LOW
------- -----
Year Ended March 31, 2002
First Quarter $ 37.50 $ 8.75
Second Quarter 32.53 13.80
Third Quarter 28.56 13.40
Fourth Quarter 23.40 14.88
For Fiscal Year 2002 37.50 8.75
We have never paid dividends on our capital stock. We intend to retain earnings
for use in our business and do not anticipate paying any cash dividends in the
foreseeable future. We are prohibited from paying dividends without the consent
of our lenders.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is contained in the section entitled "Selected
Financial Data" in our fiscal 2003 annual report to shareholders, which is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this Item is contained in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our fiscal 2003 annual report to shareholders, which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is contained in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our fiscal 2003 annual report to shareholders, which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Information required by this Item is contained in the section entitled
"Financial Statements and Supplemental Data" in our fiscal 2003 annual report to
shareholders, which is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is contained in our definitive proxy statement
relating to our Annual Meeting of Shareholders to be held on July 22, 2003 under
the captions "Corporate Governance," "Executive Officers," "Nominees for
Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance," which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is contained in our definitive proxy statement
relating to our Annual Meeting of Shareholders to be held on July 22, 2003 under
the caption "Executive Compensation," which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is contained in our definitive proxy statement
relating to our Annual Meeting of Shareholders to be held on July 22, 2003 under
the captions "Security Ownership of Certain Beneficial Owners and Management"
and "Executive Compensation," which are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is contained in our definitive proxy statement
relating to our Annual Meeting of Shareholders to be held on July 22, 2003 under
the caption "Certain Transactions," which is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company's Chief Executive
Officer and the Chief Financial Officer evaluated the effectiveness of the
Company's disclosure controls and procedures in accordance with Rule 13a-14
under the Exchange Act. Based on their evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the Company's disclosure controls
and procedures enable the Company to record, process, summarize and report in a
timely manner the information that the Company is required to disclose in its
Exchange Act reports.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation referred to above.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of RF Micro Devices, Inc. are
included in our fiscal 2003 annual report to shareholders and are incorporated
herein by reference:
i. Consolidated Balance Sheets as of March 31, 2003 and 2002
ii. Consolidated Statements of Operations for the fiscal years ended March
31, 2003, 2002 and 2001
iii. Consolidated Statements of Shareholders' Equity for the fiscal years
ended March 31, 2003, 2002 and 2001
iv. Consolidated Statements of Cash Flows for the fiscal years ended March
31, 2003, 2002 and 2001
v. Notes to Consolidated Financial Statements
(a)(2) Schedule II; Valuation and Qualifying Accounts -- see additional section
of this Report.
No other financial statement schedules are to be filed with this Annual Report
on Form 10-K due to the absence of the conditions under which they are required
or because the required information is included within the consolidated
financial statements or the notes thereto which are included in our fiscal 2003
annual report to shareholders and are incorporated herein by reference.
(a)(3) Exhibits
Exhibit
NO. DESCRIPTION
--- -----------
3.1 Amended and Restated Articles of Incorporation of RF Micro
Devices, Inc. (1)
3.2 Amendment to Articles of Incorporation dated July 26, 2000
(2)
3.3 Amendment to Articles of Incorporation dated August 10, 2001
(3)
3.4 Bylaws of RF Micro Devices, Inc. (4)
4.1 Specimen Certificate of Common Stock (4)
4.2 Rights Agreement, dated August 10, 2001, between RF Micro
Devices, Inc. and First Union National Bank, as Rights Agent
(5)
4.3 Form of Global Note for 3.75% Convertible Subordinated Notes
due August 15, 2005 (6)
4.4 Indenture, dated August 1, 2000 (6)
THE REGISTRANT HEREBY UNDERTAKES TO FURNISH TO THE
SECURITIES AND EXCHANGE COMMISSION, UPON ITS REQUEST, A COPY
OF ANY INSTRUMENT DEFINING THE RIGHTS OF HOLDERS OF
LONG-TERM DEBT OF THE REGISTRANT NOT FILED HEREWITH PURSUANT
TO ITEM 601(B)(4)(III) OF REGULATION S-K
10.1 1992 Stock Option Plan of RF Micro Devices, Inc. (4)*
10.2 Form of Stock Option Agreement (1992 Stock Option Plan) (4)*
10.3 1997 Key Employees Stock Option Plan of RF Micro Devices,
Inc., as amended (7)*
10.4 Form of Stock Option Agreement (1997 Key Employees' Stock
Option Plan) (4)*
10.5 Amended and Restated Nonemployee Directors' Stock Option
Plan of RF Micro Devices, Inc. (8) *
10.6 Form of Stock Option Agreement (Directors' Stock Option
Plan) (8) *
10.7 1999 Stock Incentive Plan of RF Micro Devices, Inc., as
amended (7)*
10.8 Stock Option Agreement, dated October 27, 1998, between RF
Micro Devices, Inc. and Walter H. Wilkinson, Jr., as amended
(7)*
10.9 Stock Option Agreement, dated October 27, 1998, between RF
Micro Devices, Inc. and Albert E. Paladino, as amended (7)*
10.10 Stock Option Agreement dated October 27, 1998, between RF
Micro Devices, Inc. and Erik H. van der Kaay, as amended
(7)*
10.11 RF Nitro Communications, Inc. 2001 Stock Incentive Plan (as
amended and restated effective October 23, 2001) (10)
10.12 Resonext Communications, Inc. 1999 Stock Plan (as amended
and restated effective December 19, 2002) (11)
10.13 License and Technical Assistance Agreement, dated June 6,
1996, between RF Micro Devices, Inc. and the Electronic
Systems & Technology Division of the Space and Electronics
Group of TRW Inc. (4)
10.14 Lease Agreement, dated October 31, 1995, between RF Micro
Devices, Inc. and Piedmont Land Company, as amended (4)
10.15 Lease Agreement, dated October 9, 1996, between RF Micro
Devices, Inc. and Highwoods/Forsyth Limited Partnership, as
amended (4)
10.16 Lease Agreement, dated February 12, 1999, between Highwoods
Realty Limited Partnership and RF Micro Devices, Inc. (8)
10.17 Lease dated May 25, 1999, between RF Micro Devices, Inc. and
CK Deep River, LLC (7)
10.18 Lease Agreement, dated November 5, 1999, between Highwoods
Realty Limited Partnership and RF Micro Devices, Inc. (7)
10.19 Summary of terms of RF Micro Devices, Inc. Executive Bonus
Plan (12)*
10.20 Change of Control Agreement, dated March 1, 2001, between RF
Micro Devices, Inc. and William J. Pratt (9)*
10.21 Change of Control Agreement, dated March 1, 2001, between RF
Micro Devices, Inc. and Jerry D. Neal (9)*
10.22 Change of Control Agreement, dated March 1, 2001, between RF
Micro Devices, Inc. and William A. Priddy, Jr. (9)*
10.23 Change of Control Agreement, dated March 1, 2001, between RF
Micro Devices, Inc. and Powell T. Seymour (9)*
10.24 Change of Control Agreement, dated March 1, 2001, between RF
Micro Devices, Inc. and Gary J. Grant (9)*
10.25 Change of Control Agreement, dated March 1, 2001, between RF
Micro Devices, Inc. and J. Forrest Moore (9)*
10.26 Amended and Restated Change in Control Agreement dated
January 10, 2003, between RF Micro Devices, Inc. and Robert
A. Bruggeworth (13)*
10.27 Amended and Restated Preferred Stock Purchase Agreement,
dated October 15, 2002, between Jazz Semiconductor, Inc. and
RF Micro Devices, Inc. (14)
13 Excerpts from Annual Report to Shareholders for the fiscal
year ended March 31, 2002
21 Subsidiaries of RF Micro Devices, Inc.
23 Consent of Ernst & Young LLP
99.1 Certification of Periodic Report by Robert A. Bruggeworth,
as Chief Executive Officer, pursuant to 18 USC. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Periodic Report by William A. Priddy, Jr.,
as Chief Financial Officer, pursuant to 18 USC. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- --------------
(1) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the quarterly period ended June 26, 1999
(2) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the quarterly period ended July 1, 2000
(3) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the quarterly period ended September 29,
2001
(4) Incorporated by reference to the exhibit filed with our
Registration Statement on Form S-1 (File No. 333-22625)
(5) Incorporated by reference to the exhibit filed with our
Registration Statement on Form 8-A filed August 14, 2001
(6) Incorporated by reference to the exhibit filed with our
Registration Statement on Form S-3 (File No. 333-49432)
(7) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the quarterly period ended December 25,
1999
(8) Incorporated by reference to the exhibit filed with our Annual
Report on Form 10-K for the fiscal year ended March 27, 1999
(9) Incorporated by reference to the exhibit filed with our Annual
Report on Form 10-K for the fiscal year ended March 31, 2001
(10) Incorporated by reference to the exhibit filed with our
Registration Statement on Form S-8 (File No. 333-74230)
(11) Incorporated by reference to the exhibit filed with our
Registration Statement on Form S-8 (File No. 333-102048)
(12) Incorporated by reference to the exhibit filed with our Annual
Report on Form 10-K for the fiscal year ended March 30, 2002
(13) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the quarterly period ended December 31,
2002
(14) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
2002
* Executive compensation plan or agreement
(b) Reports on Form 8-K filed in the 4th quarter of fiscal 2003:
During the quarter ended March 31, 2003, the Company filed the following reports
on Form 8-K:
On January 3, 2003, a Form 8-K was filed to disclose pursuant to Item 2 that on
December 19, 2002, RF Micro Devices, Inc. completed the acquisition of Resonext
Communications, Inc., a privately held company.
On February 11, 2003, a Form 8-K/A was filed to amend Item 7 to its Current
Report on Form 8-K dated December 19, 2002, in order to include the financial
statements and pro forma information required by Item 7(a), Item 7(b) and the
exhibit required by Item 7(c).
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are filed herewith and
incorporated by reference herein. The response to this portion of Item 15 is
submitted under Item 15(a)(3).
(d) Financial Statement Schedules
The response to this portion of Item 15 is submitted under Item 15(a)(2).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RF Micro Devices, Inc.
Date: June 16, 2003 /s/ Robert A. Bruggeworth
----------------------------------
By: Robert A. Bruggeworth
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on June 16, 2003.
Name: Robert A. Bruggeworth
Title: President, Chief Executive Officer
/s/ Robert A. Bruggeworth and Director (principal executive officer)
- --------------------------------
Name: William A. Priddy, Jr.
Title: Chief Financial Officer and
Corporate Vice President of Administration
/s/ William A. Priddy, Jr. (principal financial officer)
- --------------------------------
Name: Barry D. Church
Title: Vice President and Corporate
/s/ Barry D. Church Controller (principal accounting officer)
- --------------------------------
Name: Dr. Albert E. Paladino
/s/ Albert E. Paladino Title: Chairman of the Board of Directors
- --------------------------------
Name: Daniel A. DiLeo
/s/ Daniel A. DiLeo Title: Director
- --------------------------------
Name: Frederick J. Leonberger
/s/ Frederick J. Leonberger Title: Director
- --------------------------------
Name: David A. Norbury
/s/ David A. Norbury Title: Director
- --------------------------------
Name: William J. Pratt
/s/ William J. Pratt Title: Director
- --------------------------------
Name: Eric H. van der Kaay
/s/ Eric H. van der Kaay Title: Director
- --------------------------------
Name: Walter H. Wilkinson, Jr.
/s/ Walter H. Wilkinson, Jr. Title: Director
- --------------------------------
CERTIFICATIONS
I, Robert A. Bruggeworth, certify that:
1. I have reviewed this annual report on Form 10-K of RF Micro Devices, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: June 16, 2003
/S/ ROBERT A. BRUGGEWORTH
-------------------------
ROBERT A. BRUGGEWORTH
President and Chief Executive Officer
CERTIFICATIONS
I, William A. Priddy, certify that:
1. I have reviewed this annual report on Form 10-K of RF Micro Devices, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: June 16, 2003
/S/ WILLIAM A. PRIDDY, JR.
--------------------------
WILLIAM A. PRIDDY, JR.
Corporate Vice President, Finance and Administration
and Chief Financial Officer
Schedule II
Valuation and Qualifying Accounts
Years Ended March 31, 2003, 2002 and 2001
(In thousands)
Balance at Beginning Additions Charged to Deductions from Balance at End of
of Period Costs and Expenses Reserve Period
------------------------ ----------------------- --------------------- ----------------------
Year ended March 31, 2003
Allowance for doubtful accounts $ 1,134 $ 468 $ 524(1) $ 1,078
Inventory reserve 25,193 -- 7,186(2) 18,007
Year ended March 31, 2002
Allowance for doubtful accounts $ 951 $ 395 $ 212(1) $ 1,134
Inventory reserve 19,884 11,499 6,190(2) 25,193
Year ended March 31, 2001
Allowance for doubtful accounts $ 775 $ 359 $ 183(1) $ 951
Inventory reserve 11,114 13,181 4,411(2) 19,884
(1) The Company wrote-off a fully reserved balance against the related
receivable.
(2) The Company wrote-off scrap related to quality and obsolescence
against a fully reserved balance and reduced reserves based on the
Company's reserve policy.