Filtronic vow on strategy despite setback

MOBILE technology group Filtronic insisted its strategy of investment and diversification to tap into the next phase of mobile growth remains unchanged despite sinking to a half-year loss and being rocked by a customer’s buyout.

The group, which was spun out of the University of Leeds in the 1970s, designs and makes technology to link and upgrade mobile phone base stations.

Filtronic believes surging use of data-hungry mobile devices such as smartphones and tablets will heap pressure on congested mobile networks and force operators to upgrade their equipment to add capacity – spending more on the group’s technology in the process.

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But shares in the group shed another 14 per cent to close at 35.75p yesterday.

Its shares have fallen since a key customer, Nera Networks, was bought by a rival, Ceragon Networks, earlier this month. Filtronic believes this will dent sales to Nera, and analysts think it could knock 20 to 30 per cent from its 2012 sales.

“It was disappointing for one of our key customers to be acquired by one of our competitors, but our core strategy is being executed and we are delivering on it and delivering new product streams,” said chief executive Hemant Mardia.

Filtronic said it slipped to a £1.2m pre-tax loss in the six months to the end of November, compared with £0.1m profits a year earlier. Revenues fell £2.3m to £7.3m from the same period a year earlier, although increased from the £6m recorded in the preceding six months.

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The group warned sales of its core point-to-point (PTP) technology will be down on its £7.1m first half level as a key customer, Selex, is struggling to get hold of materials. This means some revenues will be pushed into its next financial year.

Finance director Mike Brennan said the results were broadly in line with its expectations, and include only a fraction of the potential of its new acquisition, Isotek. Filtronic was also forced to pay more for some components as a result of industry-wide shortages – also adding to the losses.

But Mr Brennan added the group has spent close to £1m on developing new technology, including a Gigabit radio, which is designed to transmit five to 10 times more data than existing radios.

It will be developed to launch into the market once fourth generation 4G high speed data is rolled out by mobile phone operators.

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“We’ve continued to invest in fixed costs to be able to develop things and position ourselves well for the future,” said Mr Brennan.

Filtronic bought Isotek, a filter firm based in Leeds, for £10.7m in cash and shares in November. The group is confident Isotek will add £15m to revenues by 2012.

The acquisition takes Filtronic back to the heart of the base station market. Isotek’s unique filters allow mobile phone operators to rapidly upgrade existing networks cheaply, increasing use of existing spectrum.

Filtronic said Isotek has made good progress in establishing itself as a key player in the base station market, winning production orders from its first major US customer for a 4G network rollout. Isotek also recently delivered trial products for two European customers to pilot third generation (3G) programmes.

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“The rate of mobile data growth is probably moving faster than many had expected,” said Dr Mardia. “We are basically seeing a doubling of data. Everyone has been surprised by how fast smart phones and tablets are taking off.

“We are very well placed for these opportunities. There are very few suppliers who have got the unique intellectual property, the manufacturing capability and the reputation that we have.

“I’m confident that we will grow our business and get the scale of our business back up.”

Analysts at Panmure Gordon said it was a “mixed statement” from Filtronic and downgraded their revenue forecasts for 2011 by another £1.5m to £18.5m on the back of the Nera uncertainty.

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Filtronic still has its registered office in Shipley but is largely based in Co Durham after the company moved production from Shipley to Durham to cut costs. The acquisition of Isotek will see Filtronic expand back into Yorkshire.

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