Filtronic to benefit from rising smartphone demand

The Shipley-based group reported strong orders for point-to-point microwave, aerospace and E Band radio products.

Chief executive Hemant Mardia said demand for smartphones will drive its E band radio and wireless businesses.

“There is a general increase in demand for upgrading mobile networks,” he said.

“The vast majority of new phones are smart phones. It is driving people to use the internet and video content on a mobile network – there’s really explosive growth for data capacity.

“We saw it in the US first and now we’re seeing a lot of enhancement in the rest of the world.”

In a trading update yesterday, Filtronic said the precise year-end outcome remains subject to the timing of short term orders in the wireless business, but it believes it can deliver current market estimates for the full year group revenues and profit.

Daniel Stewart has pencilled in full year turnover of £25m and a fall in pre-tax losses from £6.3m to £3.1m.

Earnings are expected to improve from a £4.6m loss to £100,000 loss.

Analyst Mike Jeremy, at Daniel Stewart, said: “Overall this is a positive statement and underpins our outlook for the 2012-13 full year. This is driven by the transition to wireless LTE (4G) deployment, notably by major carriers in the US. Our rating remains ‘buy’.”

The group had expected the drop in demand for legacy point-to-point microwave products to be followed by a further significant decline due to product substitution, but demand has been secured for longer than expected.

Product volumes are now expected to drop to residual levels during the summer and autumn.

Filtronic said its wireless division continues to make good progress and is involved in a number of new developments to underpin future growth.

The division recently increased its customer base and is supporting the introduction of a countrywide network upgrade in the US.

Whilst this rollout is at an early stage, Filtronic said the take-up of its filters and combiners remains difficult to forecast.

However, it said recent orders indicate encouraging signs of increasing demand and the wireless division will deliver further revenue and margin growth in the second half of the financial year.

Analyst George O’Connor, at Panmure Gordon, said: “Missing numbers previously have made Filtronic a bit squeamish at the third quarter interim management statement. However, today’s news is encouraging: Filtronic concludes that it is in line to deliver full year estimates.

“Also the ‘wireless’ world has moved on in the past 12 months so the operating backdrop should be more positive.”

Filtronic’s wireless business is gathering momentum as mobile phone operators upgrade over-burdened networks.

The group is expecting 15 times growth in mobile data traffic by 2016.

“There’s really no alternative to upgrading their networks. It’s not an ‘if, it’s a when’,” said Dr Mardia.

Filtronic’s wireless arm helps mobile phone operators upgrade base stations to cope with greater data volumes.

Dr Mardia said the US, an “early adopter” of this technology, is already seeing a “data crunch”, where networks do not have enough capacity to transmit mobile data.

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