As a technology investor, it's hard not to feel like Wile E. Coyote. Every time there's a glimmer of hope that the road underneath the poor coyote as he chases the Road Runner isn't an illusion, he falls into the abyss.

An uptick in tech spending remains as elusive as solid road is to Wile E. The wireless sector was supposed to fare better than the rest of the tech sector, but reality again hasn't met expectations. TriQuint Semiconductor illustrates the uncertain times in which the wireless industry finds itself.

TriQuint (TQNT--Nasdaq) makes high-performance semiconductors for communication products, both wireless and wireline. Products for wireless handsets include power amplifiers, transceivers, and filters, which increasingly are bundled into modules. This segment accounted for 35% of TriQuint's revenue last year. Semiconductors for optical network equipment accounted for 18% of 2001 revenue, but the continued decline in demand for optical communication equipment led to the segment accounting for just 10% of revenue in the first quarter of this year.

TriQuint's broadband and microwave segment (37% of 2001 revenue) serves several markets. The most important subsegment is defense, where TriQuint is a supplier to subcontractors. Other markets include point-to-point wireless systems and wireless LANs. TriQuint's last business segment is wireless base stations, which accounted for 10% of revenue in 2001. Historically, most revenue in the base station segment has been generated by manufacturing high-performance semiconductors for other companies. A significant portion of revenue now comes from surface acoustic wave filters, due to the acquisition of SawTek last year.

The wireless world is full of incompatible standards. TriQuint's business mix is skewed toward CDMA products, with 48% of first-quarter wireless revenue related to this standard, while 36% of wireless revenue stems from GSM applications. GSM dominates in Europe while TDMA and CDMA are used in the United States. In this country, Nextel, Sprint PCS, and Verizon Wireless use CDMA networks. Asia is a mix of CDMA and GSM.

Normally, semiconductors are manufactured using silicon through a process that has been refined over the years to yield few defects for each wafer manufactured. However, silicon isn't the fastest material for moving electrons in a chip. So TriQuint and a couple of other communications semiconductor companies use materials such as gallium arsenide, silicon germanium, and indium phosphate, which increase the speed at least fivefold. But semiconductors made with these materials are much harder to manufacture, resulting in much waste. To control costs and quality, TriQuint owns several manufacturing facilities.

TriQuint faces strong competitors such as Applied Micro Circuits, Conexant, and Motorola. It would be an understatement to say that the semiconductor industry has suffered in the economic downturn. TriQuint saw revenue decline 27% during 2001 from 2000. Meanwhile, the company went from being profitable to operating at a loss due to writing down the value of some assets. But on an operating basis, the company remained profitable. For the recently completed quarter, revenue plunged 43% from the year-ago quarter, while gross margin fell to 33.8%, well below what TriQuint can deliver in an upturn.

TriQuint's balance sheet is interesting, with $565 million in cash and $297 million in long-term debt. Cash is a nice safety net in a downturn, but it could also be used for an acquisition or buying back shares. The silver lining from the quarterly results is that demand for wireless components is showing some tentative improvement, but demand for optical components continues to be weak.

At its current price of about $10, TriQuint is starting to pique my interest, though there are still significant risks such as weaker demand for replacement cell phones, weak demand for cell phones with color screens, and continued financial problems at the telecom-carrier level. The road under Wile E. Coyote might still turn out to be an illusion.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected].