APPLE Target $600


NASDAQ : US$526.24
BUY  Target: US$600.00

COMPANY DESCRIPTION: Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.
All amounts in US$ unless otherwise noted.

Technology — Communications Technology — Wireless Equipment MWC MEETINGS AND FEBRUARY WIRELESS SURVEYS:


Investment recommendation:

While a host of new Android LTE smartphones for C2014 were introduced at MWC, our meetings suggested the maturity of the high-end smartphone market with the lack of innovation in the new high- end Android models. Given the lack of differentiated Android smartphones, we believe Apple could gain market share of the high-end smartphone and tablet markets during 2H/2014 based on our belief new iPhones and iPads with larger screen sizes could create a strong upgrade cycle among Apple’s loyal base. In fact, our February wireless store surveys indicated the iPhone 5s was still the most aspirational smartphone and the top selling device in the U.S. and in many international markets despite seasonally slower sales trends. Given these trends, we increase our F’14/F’15 iPhone and iPad unit estimates. We maintain our BUY rating and raise our price target to $600.  Investment highlights  Following our MWC meetings and after evaluating feature sets for a host of new Android LTE smartphones introduced during the show, we believe Android OEMs have only added incremental improvements to their prior generation smartphones. For example, the announced Galaxy S5 is another solid product from Samsung but more incremental to the Galaxy S4 than a compelling upgrade. Please see our separate MWC report published today, titled ‘MWC Meetings focus on Internet of Things, China TD-LTE, smartphone innovation and IP licensing’ for additional details.  Our Feb U.S. surveys indicated the iPhone 5s was the top selling U.S. smartphone. However, our surveys indicated certain carrier upgrade policies were more strictly enforced and adversely impacted the near-term uptake of the increasingly popular early upgrade or smartphone leasing type of plans. Based on our surveys, we anticipate stronger take-up rates for these plans once current subscribers reach the end of their 24-month contracts. Given strong iPhone and iPad customer loyalty, we believe a new larger screen iPhone and iPad should create a very strong upgrade cycle in North America, especially given the timing of grandfathering in 2 year plans and globally given the popularity of larger screen smartphones and tablets.   Given these trends, we slightly increase our F2014/F2015 iPhone and iPad estimates resulting in our F’14/F’15 EPS estimates from $42.86/$47.56 to $42.92/$49.96. Valuation: Our $600 (was $570) price target is based on shares trading at 12x our F2015 EPS estimate.

Apple Update

AAPL : NASDAQ : US$550.50
Target: US$570.00

Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.

Technology — Communications Technology — Wireless Equipment
Investment recommendation:

Apple reported December quarter sales at the high-end of its previous guidance range with EPS above its implied guidance. However, total sales were below our expectations due to softer than anticipated iPhone sales of 51M versus our 54M estimate. While we anticipated softer Q2/F14 sales with seasonally lower iPhone and iPad product sales post the Holiday quarter, Q2/F14 guidance was below our expectations. Specifically, while our estimates anticipated a sharp Q/Q decline in iPhone sales during Q2/F14 consistent with Apple’s implied guidance, we anticipated this decline from our 54M December quarter estimate versus the 51M reported. Given the anticipated sell-off in the shares tomorrow combined with our belief Apple has a stronger pipeline of new products for C2014 versus C2013, we maintain our BUY rating. We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating but lower our price target to $570.
Investment highlights
 Apple reported December quarter sales of $57.6B and EPS of $14.50 versus our $58.4B/$14.27 and StreetAccount consensus estimate of $57.5B/$14.09. While iPad and Mac sales exceeded our expectations, iPhone and iPod sales were below our estimates.
 We believe Apple’s soft Q2/F14 guidance is consistent with our expectations for a roughly 25% sequential decline in iPhone units post the Holiday season. We also note on a year-over-year basis, Apple’s guidance does not include inventory builds for iPhones or iPads, includes greater revenue deferrals and unfavorable F/X to create tougher year-over-year comparisons for growth. We were impressed with stronger gross margin results and guidance than our estimates.
 Primarily due to our lower iPhone unit estimates and somewhat due to a sharper decline in our iPod sales expectations, we lower our F2014 EPS estimate from $44.85 to $42.86 and our F2015 estimate from $50.24 to $47.56.
Valuation: Our $570 price target is based on shares trading at roughly 12x our F2015 EPS estimate

TTM Technologies BUY Target Price $ 11

Target: US$11.00

TTMI is a leading global supplier of printed circuit boards focused on advanced technologies including advanced HDI, rigid flex PCB, and substrate. Headquartered in Costa Mesa, CA, TTMI has approximately 18,000 employees worldwide and is listed on the Nasdaq. TTMI operates 15 specialized factories in the US and China.

Technology — Hardware — Semiconductor Devices and Related
Investment recommendation

Management continues to expect higher utilization rates to drive near term improvements to gross margin, while divestiture and plant closure should structurally improve margins for the long term. For Q1, we expect upside to estimates on iPad Air strength and a conservative reserve, while Networking weakness was captured in guidance despite recent concerns stemming from Cisco’s outlook. We are reiterating a BUY rating and $11 price target.
Strong iPad Air boosting PCB suppliers
For Q4, supply chain conversations indicate strong demand for iPad Air is resulting in upward revisions to forecasts for PCB suppliers. Further, we believe production for the retina version of the iPad Mini is likely to pick up in Q1, following constrained production levels in Q4, potentially offsetting some of TTMI’s normal negative Q1 seasonality.
Cautious Cisco commentary not incremental to TTMI’s outlook

We believe TTMI captured Networking weakness in its Q4 guidance. The company has very little exposure to set top boxes and is still seeing good demand in the high end of networking (advanced routers and data center). TTMI doesn’t participate in federal so it is not seeing any impact from the government shutdown, while the guide from the earnings call captured a softer Asia wireless infrastructure, with Networking overall guided down for Q4.
Inventory reserves look conservative
We believe upside to margin expectations is possible if the $3M of the warranty claim taken as reserves against future claims turns out to be high. Most of the products these boards shipped into were sold last

Apple : Rumours Re : Purchase of PrimeSense

Apple (AAPL : NASDAQ : US$519.00)
iBuy? Apple is in talks to acquire Israeli 3D sensor technology firm PrimeSense, according to AllThingsD. The report comes in response to a story in the Calcalist Israeli financial newspaper that Apple had acquired the firm for $345 million. AllThingsD said the deal is close to completion with PrimeSense’s investors hashing out the final details.

PrimeSense’s technology uses cameras and sensors to understand depth of objects in a three-dimensional space. The cameras help to identify people and their movements and gestures. The technology can be used to create a device that can serve as an alternative to a controller for video games or a remote control for televisions. An Apple spokesman declined to comment on the reports.

In a statement, PrimeSense said, “We are focused on building a prosperous company while bringing 3D sensing and natural interaction to the mass market in a variety of markets such as interactive living room and mobile devices. We do not comment on what any of our partners, customers or potential customers are doing and we do not relate to rumours or recycled rumours.”

Calcalist had reported in July that Apple was in talks to acquire the company with a price tag of $280 million.


Apple Update

AAPL : NASDAQ : US$520.63
Target: US$580.00

Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.

Technology — Communications Technology — Wireless Equipment
Investment recommendation:

October/November U.S. carrier and global surveys indicated very strong iPhone 5s sales with improving levels of supply, steady iPhone 5c sales, and very strong initial sales of the new iPad Air. However, our global supply chain analysis and surveys post the iPad mini with retina display launch on November 12 indicated the new iPad mini is supply constrained and is expected to remain so throughout the December quarter. Given these trends, we anticipate a more favorable Dec Q iPhone/iPad mix for Apple towards the higher-ASP iPhone 5s and iPad Air versus iPhone 5c and iPad mini. For F2014/15, we believe a TD-LTE iPhone launch with the world’s largest carrier China Mobile could bolster March quarter sales and offset some of the post-holiday seasonal trends in western markets. We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating and $580 PT.
Investment highlights
 Our Oct./Nov. surveys indicated strong iPhone 5s sales, as it was by far the top selling smartphone globally and at all four tier-1 U.S. carriers. Further, while the Gold iPhone 5s SKU was still supply constrained with long wait times, the other iPhone 5s SKUs showed marked improved availability versus last month. Please see our industry report published today, titled “Q3/13 handset market summary and Oct./Nov. survey: Apple poised for Q4/13 smartphone and tablet share gains; introducing 2015 global handset estimates” for details. Given these trends, we slightly increase our Q4/F’14 iPhone unit estimates and ASPs from 51.5M/$620 to 52M/$624 due to stronger iPhone 5s sales versus the iPhone 5c.
 Our November surveys also indicated very strong initial iPad Air sales. However, our global supply chain analysis and surveys indicate the iPad mini with retina display, launched Nov. 12, is supply constrained and could remain so throughout Q1/F’14. Given these trends, we change our Q1/F’14 iPad/iPad mini unit estimates and blended iPad ASPs slightly from 12.8M/11.5M/$454 units to 13.5M/11.2M/$465.
 Primarily due to these changes, we raise our F2014 and F2015 EPS estimates from $42.75/$48.23 to $43.48/$48.78.
Valuation: Our $580 price target is based on shares trading at roughly 12x our F2015 EPS estimate

BlackBerry Hold ( only if you must)

Target: US$6.00

BlackBerry Ltd. is a designer, manufacturer and marketer of wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, the company provides solutions for access to information including email, messaging, Internet and intranet-based applications.

Technology — Communications Technology — Wireless Equipment
Investment recommendation:

Following very disappointing August quarter results, our Oct./Nov. handset sales survey work indicated very weak sales trends with falling BlackBerry 10 prices and continued high levels of inventory. Following the unsuccessful funding of Fairfax Financial’s $9/share bid, we believe a sale of BlackBerry is no longer imminent and few – if any – candidates remain to purchase the company in its entirety. While we maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, we now believe a breakup is more likely than an outright sale and fundamentals will continue to deteriorate over a now longer public sale process under new management. Despite lowering estimates, we maintain our $6 price target based on our unchanged sum-of-parts analysis.
Investment highlights
 Given BlackBerry’s announced exit of the consumer smartphone market and increasing competition from ever-more-capable low-cost Android smartphones in emerging markets, our surveys indicated rapid BB7 share losses. In fact, we believe consumer BlackBerry sales are down more than 50% Y/Y. In addition, our surveys indicate continued soft BB10 enterprise sales, driven by upgrade delays from legacy BB7 enterprise customers given the uncertainty around BlackBerry’s future and increasing competition from BYOD devices, from Apple and Samsung in particular.
 Therefore, we are lowering our F2014 BlackBerry unit estimates from 19.7M to 19.0M, or down 33% Y/Y. In fact, as summarized in our global handset survey and Q3/13 global handset market report published today titled “Q3/13 handset market summary and Oct./Nov. surveys: Apple poised for Q4/13 smartphone and tablet share gains; introducing 2015 global handset estimates”, we now estimate BlackBerry has only 1.4% smartphone market share, down from 4.2% in Q3/12 and from 15% in Q3/10.
 Despite BlackBerry’s significant restructuring to lower operating costs, our forward estimates remain below break-even levels. With our lower unit sales estimates, we are lowering our F2014 pro forma LPS estimate from $(0.82) to $(1.09) and our F2015 estimate from $(1.24) to $(1.28).
Valuation: Our $6 price target is based on our unchanged sum-of-parts valuation

GT Advanced Technologies

Target: US$13.00

GT Advanced Technologies is a manufacturer of capital equipment for the solar and LED market. Specifically, its CVD reactors and DSS furnaces have enhanced and enabled many of the world’s largest solar companies in the field of polysilicon production and ingot casting. The company has also entered the sapphire ingot and furnace business to expand the LED substrate market.


Investment recommendation
We maintain our BUY rating on GTAT shares as the company ramps its new Apple business.
Investment highlights
 In spite of a weak Q and 2013 outlook, GTAT signed a supply agreement with Apple that may be transformative for handsets and transitions a portion of its business to recurring from cyclical.
 Under the agreement, for which details were very limited, GT will supply sapphire material (and not equipment) directly to Apple, to be produced in Apple’s facility in Arizona with GT’s equipment.
 While Apple has locked up GTAT in the near term, we believe this deal could result in a more competitive sapphire furnace due to the increased R&D. We believe this has been the major challenge for GT sapphire LED customers.
 Initial reactions in the after-market are positive as approximate 2014- 2016 guidance plus a large $578M prepayment from Apple are leading us to believe that this agreement is rather significant and possibly transformative. Our initial view is that it could result in $500M+ in annual revenues over a 5+ year time frame.
 Longer term, GT still has many other interesting technologies in development. While visibility is limited on these opportunities, in the near term the Apple agreement likely adds what should be accretive and stable revenues to GT’s model.


INTC : NASDAQ : US$22.86
Target: US$20.00

Intel Corporation is the world’s largest semiconductor chip maker, in terms of revenue. The company develops advanced integrated digital technology platforms and components, primarily integrated circuits (ICs), targeted at the computing and communications industries.

Semiconductor Devices and Related Technologies
Investment recommendation
We are lowering our estimates for Intel and reiterate a HOLD rating based on weakness in the electronics supply chain that points to a steepening decline for PCs in 2013. Display suppliers, notebook ODMs and distributors all point to 2H weakness, especially for notebooks, whose units drive roughly two-thirds of the PC market. Notebook weakness stems from competition from iPad and other tablets, and with new launches from Apple and others, we expect the cannibalization trend to continue.
Strong iPad5 push to accelerate PC Cannibalization
We believe tablet refreshes by Apple and the proliferation of low cost tablets in China point to continuing and perhaps accelerating cannibalization of notebooks. We expect the PC market to decline by 10% in 2013 and another 4% in 2014. The iPad5 (launching mid-October) appears to be a true redesign with a thinner form factor and we note that build forecasts for this device have edged higher for Q3 and Q4. While changes to mix could be driving the forecasts higher, we believe a thinner design could serve to divert demand from higher end consumer notebooks. Meanwhile, at the low end of the price spectrum, the China white-box tablet market is seeing strong demand, growing from roughly 50 million units in 2012 to nearly 100 million in 2013. Most of these tablets are for the consumer market with prices ranging from $50-$100 USD.
INTC’s price target of $20 is 11x our C2014 EPS estimate of $1.79 plus net cash of $0.83/share.

Avago Technologies Limited – Tailgate Profits with Apple iPhone

AVGO : NASDAQ : US$41.62
Target: US$53.00

Avago Technologies Limited is a designer, developer and global supplier of analog semiconductor devices. Avago offers products in three primary target markets: wireless communications, wired infrastructure, and industrial and automotive electronics. Applications for Avago products include smartphones, connected tablets, consumer appliances, data networking and telecom equipment, and enterprise storage and servers.
All amounts in US$ unless otherwise noted

Investment recommendation: Teardown analysis of the iPhone 5S and 5C by iFixit suggests Avago has maintained very strong RF dollar content share. We believe these trends are consistent with our long-term thesis that Avago is well positioned to benefit from the rapidly growing demand for FBAR/BAW filters needed to support the growing mix of
LTE smartphones. We also believe Avago’s proprietary technologies, strong IP portfolio, and diverse customer base in several growth markets position the company for strong long-term growth trends with industry leading margins. We reiterate our BUY rating and raise our price target to $53 from $45.
Investment highlights
 Teardowns from iFixit and other sources for the new iPhone 5S and 5C indicate Avago with its leading FBAR filtering technology has maintained very strong dollar content share. Avago has two LTE RFICs in each of the Australian versions of the iPhone 5S and 5C smartphones with the Avago A790720 and the A7900 modules.
 Further, we anticipate a significant ramp in high- and mid-tier LTE smartphones over the next three years and believe Avago is best positioned to benefit from the rapidly growing demand for FBAR/BAW filters neede
Leading LTE smartphone suppliers Qualcomm, Avago and TriQuint should benefit from ramping global LTE network rollouts and LTE smartphone demand”  - should significantly increase the TAM for Avago’s FBAR filters.
 With Avago’s strong RF dollar content in the new LTE iPhones a further validation of our thesis that ramping LTE smartphone demand will drive strong long-term earnings growth for Avago, we introduce our F2015 pro forma EPS estimate of $3.93.
Valuation: Our $53 price target is based on shares trading at roughly 13x to 14x our F2015 pro forma EPS estimate.

ARM Holdings plc Raising Target Price

ARMH : NASDAQ : US$48.35
Target: US$60.00

ARM is a leading semiconductor IP supplier to the diverse global semiconductor market. ARM’s revenues are driven through a licensing and royalty business model, with a majority of the royalty sales driven by the mobile market including handsets,
smartphones, and tablets. ARM also supplies semiconductor IP to the server, PC, and embedded markets and physical
implementation libraries and IP to semiconductor foundries.

Investment recommendation: Last week, Apple announced the iPhone 5S model featuring a 64-bit A7 SoC, the first 64-bit ARM processor featured in a smartphone or tablet. Samsung executives have been quoted in the press confirming 64-bit SoCs on their mobile roadmap, and we believe other prominent ARM licensees will be forced to follow. In this report, we discuss the drivers, technological benefits, and financial impact of 64-bit penetration into all tiers of the mobile market. We maintain our belief ARM is well positioned to exceed consensus estimates in the medium term driven by an expanding royalty rate in ARM’s key mobile markets as newer Cortex-A, big.LITTLE, and ARMv8 chip volumes increase and by market share gains in underpenetrated markets including digital TVs, networking, embedded, and M2M. We reiterate our BUY
rating and increase our price target to $60.
Investment highlights
 Given 2x CPU and GPU performance gains cited by Apple for the 64-bit A7 versus its 32-bit A6 chip, we believe Apple raised the table stakes for the high tier smartphone and tablet markets. We believe the 64-bit design provides Apple advantages in memory bandwidth and gaming application performance versus competing 32-bit designs.
 We believe ARM partners including Samsung, Qualcomm, NVIDIA, Broadcom, and MediaTek will need to follow Apple’s move to 64-bit to remain competitive. While broad 64-bit penetration adoption will remain in debate, we believe its ubiquitous adoption in the high-tier smartphone/tablet markets will yield ~$100M in annual incremental PD royalty revenue
starting in 2016, yielding $1.7B in post-tax NPV.
 Further, we see no compelling reasons why 64-bit ARM cores should not become ubiquitous across all tiers of the smartphone/tablet markets longer term. We believe the benefits of a consistent 64-bit kernel across all handset, tablet, and other device tiers including potentially smartTV, set-top boxes, netbooks, and laptops/PCs far outweighs the incremental code/data size, die area, and BOM overheads of including 64-bit in low-tier devices. We estimate an additional $100M in annual incremental ARMv8 PD royalties from these markets post 2017, yielding $1.6B NPV.
 Finally, we believe the maturation of ARMv8 will dull points of differentiation for Intel across the ARM vs. x86 competitive continuum. Valuation: Our $60 price target is based on shares trading at roughly 45x our
2014 normalized EPS/ADS estimate and our royalty stream DCF


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