It may not be a blue-chip stock, but semiconductor maker RF Micro Devices (RFMD) has strong earnings potential, said Sam Dedio, portfolio manager of the Julius Baer U.S. Smallcap Fund.

Dedio’s company, Artio Global Investors (formerly known as Julius Baer Investment Management), holds RF Micro in all four of its U.S. equity funds.

The stock is cheap after coming off a difficult quarter during its seasonally slow period in January and dealing with excess inventory in China, said Dedio.

RF Micro manufactures mobile-communications components. Its radio-frequency chips are found in everything from cell phones to GPS devices, enabling connectivity in wireless devices. Dedio’s fund has held the Greensboro, N.C.-based tech company for several months now.

At the beginning of the company’s fiscal year, RF Micro announced major restructuring plans that included cost-cutting and the discontinuation of its investments in cellular transceivers and GPS products, which should bode well for the stock, Dedio said.

In addition, the company’s business historically has been heavily tied to Motorola (MOT), which hurt RF Micro as Motorola lost market share. Now, however, Motorola makes up less than 10% of RF Micro’s business, which Dedio said should help improve the company over the long haul. Because of the seasonal nature of the business, Dedio said it’s important to consider the company a long-term investment.

RF Micro's quarterly results "are volatile and they’re seasonal,” he said. “They definitely do better in the second and third quarters…and the stock actually performs better then too.”

Now that RF Micro is heading into its seasonally strong period and is introducing new models into the marketplace, Dedio is hopeful there will be good sales of the new products.

“The overall fundamentals are really improving,” he said. “If you take out the seasonality and look at it from a go-forward annual perspective they’re really in a position to improve results.”

Dedio also thinks the company is in a position to gain market share against smaller competitor Anadigics (ANAD). Anadigics recently lowered its outlook below analysts’ expectations. Dedio thinks both RF Micro and competitor Skyworks Solutions (SWKS) will benefit from industry consolidation.

Dedio sees the potential for a lot of green in the company’s future. He said the free cash flow metrics will improve with RF Micro potentially able to have 35 to 45 cents in annual earnings power over the next two years. He said the stock could reach $4.50, more than 21% higher than its current price.  

“I guess what it comes down to is that they’re restructuring their business and they’re taking cost out; we like that,” he said.