RF Micro Devices, Inc. (NASDAQ:RFMD), a Risky Stock to Buy
RF Micro Devices, Inc. (NASDAQ:RFMD) seems to be on the go. The company has been performing remarkably well in all different aspects. The revenue generated by RMFD for the past two years is phenomenal and RF Micro Devices, (NASDAQ:RFMD) has outperformed all the analyst estimates in all the sectors. The stock of RMFD has been moving positively and is up by nearly 160% .The Company seems to be the best buy for now but there are risks involved which we are going to discuss here.
First of all we will discuss upon the current high margins of RF (NASDAQ:RFMD). In the most recent quarter of the year RF (NASDAQ:RFMD) had a record profitability and had a gross profit margin of 46.2% which is quiet high compared to its usual values between 25 % and 35% over the last ten years whereas the operating profit margin went beyond 20% during this time which is significant progress compared to its single digit figures in the previous years.
This increment took place partly due to a large sale of the iPhone 6 and because of a cut of $ 150 million in the costs. The management expects the Gross profit Margin to rise up to 50 % the next year. At this stage all of it seems good but RF (NASDAQ:RFMD) has a fluctuating record in terms of profitability as it incurred losses in four of the last ten years. Its profits reached top levels during the year 2007 and 2011 although after it there were sharp declines and RF (NASDAQ:RFMD) faced loses.
Its profitability is therefore unpredictable even at this point of time. Secondly (NASDAQ:RFMD) is about to merge with Tri Quint Semiconductor (NASDAQ:TQNT) by the end of this year and RMFD expects to save $150 million in costs in just two years of the merged business. However Triquint has the same fluctuations in profit as RMFD. Triquint faced losses in 5 out of last 10 years and it doesn’t have sustained profitability as well.
To add up to this problem the competitors are performing much better, such as Skyworks solution which has been profitable throughout the last decade and it even had a double figure net profit margin in 5 out of the last ten years. The firm with which RMFD is merging has the same track record as RMFD and so the success of the merged business is doubtable. Thirdly, the increasing use of the Internet and the longing of connecting everything wirelessly through the Internet seems to be a great opportunity for RF (NASDAQ:RFMD).
It is predicted that 50 billion objects will be connected to the internet by 2020, however the initiative is still in its initial stages and nothing can be said for sure. The insertion of wireless chips in all kind of devices would pose a lot of problems but the security issue would be the major concern and therefore people might not buy the Internet empowered devices and if this happens then RF (NASDAQ:RFMD) would surely be in trouble.