Shifting trends in cell phones hurt RF Micro

RF Micro Devices is a cornerstone of Greensboro's economic future.

It's a homegrown company that makes high-tech microchips for cell phones. It will soon employ nearly 2,000 people in well-paying, advanced manufacturing jobs and has been promised $15 million in state and local incentives for various expansions.

But its future may depend on global fashionistas who barely know what a microchip looks like.

RFMD, which sells its chips to such major phone makers as Nokia and Motorola, rattled investors last week when it said earnings will drop because a top customer is experiencing a slowdown. Its stock price has dropped more than 10 percent since Wednesday to close around $6.23 Friday.

Officials with RFMD did not return calls seeking comment. But in a news release, Bob Bruggeworth, president and chief executive officer, said, "There are certainly challenges in the near term as we navigate through product cycles both at RFMD and at our leading customers in the coming quarters."

Analysts immediately pointed to Motorola, which said just a week earlier that it will lose money in its next quarter.

Could it be that Motorola's ultra-thin Razr phone is now in the shadow of a new species of even thinner "slider" phones?

Analyst Tero Kuittinen certainly thinks so.

Motorola has a huge backlog of phones it hasn't sold, he said. "You've seen those Verizon ads on TV with 50 percent off Razr phones?" said Kuittinen, a senior product specialist for Nordic Partners, a brokerage firm.

"It damages the brand. It's possible that the RFMD warning is simply to the fact that Motorola may have canceled huge chunks of orders left and right. You sometimes see this massive shift in market share that really leaves the companies scrambling."

That may be a sobering fact to economic developers in the Triad, who are just recovering from the implosion of the textile and apparel business here.

But Rob Bencini, director of community and economic development for Guilford County, believes an industry that is relentlessly innovative, as RFMD is considered to be, is going to stay ahead of technology and fashion.

"If you keep thinking the marketplace is going to stop with you, it's not," Bencini said. "It's going to keep moving. They can't afford to stop innovating."

Kuittinen says, though, that companies such as RFMD can suffer at the whims of the average buyer.

If RFMD's chips aren't in the hottest cell phone styles, it could be out in the cold -- until trends turn again.

"It's a fashion business," he said. "People have said that it's a commodity business, but you don't see these huge shifts in consumer preference in a commodity business. Over the past two years the phone has become more and more a fashion item."

And global preferences, not necessarily those of U.S. consumers, shape the market that RFMD is serving.

It's proof to Bencini that the global economy is permanently woven into the Triad economy. Cheap labor in Asia and Mexico killed the textile business here. Trends in other nations will affect advanced manufacturing here as well.

But advanced manufacturing -- jobs that require refined skills and pay well -- is the best and most likely future for Triad workers.

RFMD represents that and technology, an industry that Greensboro economic developers are investing time and money into nurturing, Bencini says.

"People talk a lot about advanced manufacturing. That term's almost become pass? because all new manufacturing will become advanced manufacturing or it won't occur," he said.

Meanwhile, RFMD and its investors await the quarter's financial results from Nokia, its biggest customer, which will be released April 19. If it's a good report, all will be well, Kuittinen says. If not, the market may be in a slump and RFMD will have something to worry about.

"You need engineering to design the phone," he said. "What's driving demand is the look of the phone, not what it can do. They're just really looking for the hot-looking phones."

Contact Richard M. Barron at 373-7371 or dbarron@news-record.com