01—Abstract
Summary
Summary of the 10-K filed July 1, 2002. Cited figures are marked; the original filing is the authoritative source.
Alpha Industries, Inc., a Delaware corporation, manufactures radio frequency and microwave integrated circuits, discrete semiconductors, modules and ceramic components, primarily for wireless handsets, wireless base stations, and wireless LAN, WAN and local loop applications.
Fiscal 2002 (ended March 31, 2002) was a sharp downturn: net sales fell 53.4% to $126.5 milliona from $271.6 million, the company posted a net loss of $18.3 million ($0.42 per share) versus net income of $33.4 million in fiscal 2001, and gross margin dropped to 29.2% from 44.2%. Research and development expenses rose to $41.6 million (32.9% of sales), including a $2.5 million in-process R&D charge tied to the March 2002 Aimta acquisition. Motorola accounted for 31.1% of net sales, and cash, cash equivalents and short-term investments totaled $114.1 million, with working capital of $136.3 million.
The filing is dominated by a pending merger with the wireless business of Conexant Systems, Inc., completed on June 25, 2002, after which the company changed its name to Skyworks Solutions, Inc. Immediately after the merger, Alpha shareholders were expected to own about 33% of roughly 140 million fully diluted shares, with Conexant shareholders owning about 67%; the transaction is to be accounted for as a reverse acquisition with Conexant's wireless business treated as the acquirer. As part of the deal, the company bought Conexant's Mexicali, Mexico facility for $150 millionb, paid with short-term promissory notes due in March and June 2003, and Conexant committed a $100 million revolving loan facility. The company estimates merger-related cash costs of $80 million to $90 million and expects a charge of $20 million to $30 million in the quarter ended June 28, 2002.
Investors should weigh the fiscal 2002 operating downturn and the substantial near-term debt and financing obligations from the merger, along with the company's stated dependence on obtaining suitable financing. A trademark infringement lawsuit filed June 6, 2002 by Skyworks Technologies, Inc. seeks to stop use of the "Skyworks" name, which the company believes is without merit.
02—Key points
Key Highlights
- Net sales fell 53.4% to $126.5 million in fiscal 2002 from $271.6 million in fiscal 2001, driven by the wireless handset, infrastructure and broadband downturn.
- Net loss of $18.3 million ($0.42 per share) in fiscal 2002, compared with net income of $33.4 million ($0.75 diluted per share) in fiscal 2001.
- Gross margin fell to 29.2% from 44.2%, and R&D expenses rose to $41.6 million, or 32.9% of net sales.
- Motorola accounted for 31.1% of fiscal 2002 net sales, and one customer represented approximately 25% of gross accounts receivable at March 31, 2002.
- Merger with Conexant's wireless business completed June 25, 2002; the company was renamed Skyworks Solutions, Inc., with Conexant shareholders expected to own about 67% of the combined company on a fully diluted basis.
- Purchased Conexant's Mexicali facility for $150 million via short-term promissory notes due March 24, 2003 and June 24, 2003, plus a $100 million Conexant revolving loan facility; estimated merger-related cash costs of $80 million to $90 million.
- Cash, cash equivalents and short-term investments of $114.1 million and working capital of $136.3 million at March 31, 2002; the company states it has no significant long-term debt ($235 thousand).
03—Questions
Frequently Asked Questions
How did the company perform financially in fiscal 2002?
Sales declined 53.4% to $126.5 million and the company reported a net loss of $18.3 million, or $0.42 per share, compared with net income of $33.4 million in fiscal 2001. Operating loss was $32.8 million, and gross margin declined to 29.2% from 44.2% as manufacturing capacity was underutilized.
What is the Conexant wireless business merger, and how does it change the company?
The merger combined Conexant Systems' wireless business, including its Newbury Park, California gallium arsenide wafer fab, into the company, which was renamed Skyworks Solutions, Inc. Conexant shareholders are expected to own about 67% of the combined company and the transaction is accounted for as a reverse acquisition, with Conexant's wireless business treated as the acquirer. The filing states the historical carrying values of assets and liabilities may be revised significantly.
What financing obligations does the company face after the merger?
The company purchased Conexant's Mexicali operations for $150 million using short-term promissory notes secured by all company assets, with half due March 24, 2003 and half due June 24, 2003. Conexant also committed a $100 million short-term revolving loan, with $75 million available on or after July 10, 2002 and $25 million subject to eligible domestic receivables above $150 million. The company states that meeting these obligations depends on its ability to obtain suitable financing, which is not assured.
How concentrated is the company's customer base?
The company is highly dependent on a few customers. In fiscal 2002, one customer (Motorola) accounted for 31% of net sales and the 15 largest customers accounted for 67%. The filing notes that loss of a major customer or a significant decrease in orders would materially and adversely affect the business.
Are there any pending legal matters or other risks investors should note?
On June 6, 2002, Skyworks Technologies, Inc. sued the company and its subsidiary Skyworks Solutions, Inc. for trademark infringement, seeking to stop use of the "Skyworks" name and seeking damages; the company believes the claim is without merit and intends to vigorously defend it. The filing also cites risks including cyclical industry downturns, intense competition, dependence on a single fabrication process for gallium arsenide products, and an expected $20 million to $30 million merger-related charge in the quarter ended June 28, 2002.
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