RF Monolithics Inc. (RFMI) announced the acceleration of the restructuring plan for its components business. This restructuring includes completing the process of outsourcing all Dallas, TX manufacturing and becoming fabless. The company expects to increase the profitability of the components business, by leveraging existing lower-cost contract manufacturing relationships. This action will enable the company to increase its focus on the wireless solutions business.
The restructuring of the legacy component business includes a cost-reduction initiative that is expected to result in net savings to the company of over $5,000,000 in fiscal 2008, as well as continuing positive cash flow. Due to the time necessary to make the transition, the savings in fiscal year 2007, ending August 31, 2007, are expected to be approximately $650,000, most of which will occur in the fourth quarter. The cost reductions will result in reduced headcount of approximately 90 people. This will be accomplished through a combination of normal attrition, reduction-in-force and a release of contract workers. Individuals affected are employed primarily in the company's components operations and manufacturing support. One-time costs associated with this initiative will total approximately $3,500,000, consisting of approximately $2,700,000 non-cash costs and $800,000 in cash. Most of the one-time costs will be recorded in the second quarter of fiscal 2007, with some costs in the third and fourth quarters of fiscal 2007. The company expects to have sufficient cash and availability under its existing credit facility to fund this initiative. Other than one time charges, the prior guidance given for the company's second quarter 2007 should not be significantly impacted.
"This initiative represents an acceleration of our strategy to reduce component costs and improve our competitive position in that part of our business. We are accelerating the process of transferring the remainder of our Dallas production and assembly to be handled by our contract manufacturers overseas. Becoming fabless will increase the profitability of our business and improve our overall operating cash flow," said David M. Kirk, president and chief executive officer. "We ensured success in our initial transition to contract manufacturers overseas and verified the support and quality they were able to deliver. We are now able to shift the balance of our components business, the front-end wafer fabrication and pilot line, to our contract manufacturers who can replicate what Dallas provided for us, except at a lower cost."
The company has positioned itself to offer comprehensive wireless solutions with a broad range of radios, modules and protocols along with a value-added application and services platform. The company's expanded offerings allow it to explore opportunities in the rapidly emerging wireless connectivity market as a solutions provider in Machine-to-Machine ("M2M") applications enabling the pervasive Internet. The company recently completed acquisitions, now operated under its Cirronet and Aleier subsidiaries, of portfolios of wireless modules, box products and asset management software platforms and services that significantly accelerated its progress in executing its wireless solutions strategy.