RF Micro Devices Update BUY

RFMD : NASDAQ :

15.01 BUY 
Target: US$20.00

COMPANY DESCRIPTION:
RF Micro Devices is a leading supplier of power
amplifiers, front end modules and other RF components
for mobile devices (handsets, smartphones, tablets) and
communications infrastructure.
All amounts in US$ unless otherwise noted.

Technology — Communications Technology — Semiconductors
WELL POSITIONED TO BENEFIT FROM STRONG 2014-16 RFICTAM GROWTH AND MARGIN EXPANSION POST MERGER
Investment recommendation

Based on our analysis of global LTE
network deployments and the improving LTE subscriber growth trends,
we forecast a 20% handset RFIC TAM CAGR from 2014-2016. We believe
this strong RFIC TAM growth will be driven by a 40% LTE smartphone
unit growth CAGR with stable RF $-content/handset in LTE smartphones
during this period combined with a modest 3.8% growth in 3G
smartphones due to share shifts from 2G/EDGE feature phones to 3G
smartphones. Following the final China MOFCOM approval, we believe the
merger between TriQuint and RFMD remains on track to close by
December 31, 2014. We believe the combined company, Qorvo, will have a
broad mobile device related RFIC portfolio and is well positioned to benefit
from the strong RF TAM growth. Further, we believe Qorvo can leverage
significant cost synergies through consolidating fab facilities, optimizing
R&D expenditures, and eliminating duplicate costs. We reiterate our BUY
rating and increase our PT to $20.
Investment highlights
Anticipate 20% handset RFTAM CAGR from C’14-C’16 due to ramping LTE growth and 2G to 3G
migration; Avago, Skyworks, Qorvo and Qualcomm should benefit’  on the RFIC handset market TAM growth drivers
and technology trends.
 We believe Qorvo is well positioned to benefit from this strong RFIC
TAM growth. We also believe Qorvo could benefit from potential RF $-
content increases in Apple’s next-gen iPhone products and also grow
$-content at Samsung as this OEM focuses on fewer handset SKUs but
potentially higher RF $-content per SKU. Further, the increasing mix
of affordable LTE smartphones from Chinese OEMs could help Qorvo
grow RF $-content and improve margins as it ships higher-margin
integrated products into this base.
 We believe these trends combined with execution on the $150M cost
synergies target should result in expanding LT margins and solid EPS
growth through 2016. This in turn could drive potential multiple
expansion for Qorvo to levels more in-line with higher multiple analog
semiconductor companies trading currently at 15x C’16 EPS estimates.
Valuation

Our $20 price target is based on shares trading at roughly 14x
our C2016 pro forma EPS estimate of $1.42 for the combined company
and then assigning 50% of the value to RFMD.

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Akamai Technologies

AKAM : NASDAQ :

US$56.21

BUY 
Target: US$68.00 

COMPANY DESCRIPTION:
Akamai provides content delivery and cloud
infrastructure services for accelerating and improving the
delivery of content and applications over the Internet,
ranging from live and on-demand streaming videos to
conventional web content, to c-commerce tools. The
company is headquartered in Cambridge, Massachusetts

Telecommunications
3Q14 ABOVE EXPECTATIONS, 4Q14 GUIDANCE IN LINE; BUY
Investment recommendation
Akamai reported 3Q14 results after the close that once again exceeded
expectations even though the quarter appeared to lack of a meaningful
benefit from the company’s largest customer who released a new
software application in the quarter that was responsible for such strong
volume and revenue growth in 3Q13. Once again Akamai has managed
to defy logic and manage the transition of traffic from large scale
customers who decided for the do-it-yourself option. Akamai again
demonstrated its ability to participate in the dramatic growth of Internet
volumes and increasingly important security applications at a time when
large volumes of traffic are being redirected to direct-connect paid
peering arrangements between content providers and ISPs. We believe
growth will remain strong for Akamai, especially in its media segment.
We retain our BUY rating and $68 price target.

Investment highlights

 Solid quarter and outlook – We believe the 3Q14 report that was
above expectations is the direct result of the demand for the
company’s industry-leading services in the face of intense
competition. We expect it will continue in 2015.
 Outlook in line with expectations – Despite the better-than-expected
3Q14, guidance for 4Q14 is essentially in line with expectations
which might imply that we have not fully worked through the
aforementioned large customer transition.
 Solid valuation – With continued strong double-digit growth
expected with the secular tailwinds, we believe our $68 target
remains reasonable.

Broadcom Update :BUY Target Price $46

BRCM : NASDAQ : US$37.33
BUY 
Target: US$46.00

Technology — Hardware — Semiconductors and Related Technologies
STRONG QUARTER DRIVEN BY CONNECTIVITY GROWTH AND RESILIENT SERVICE PROVIDER
RESULTS; ALL EYES TOWARD ANALYST DAY

Investment recommendation:

Broadcom posted strong Q3/14 results with sales above our estimate driven by strong 20% Q/Q growth in Connectivity
sales with the inclusion of new 802.11ac WiFi solutions in key smartphone
launches including iPhone 6. Further, service provider sales were down only
roughly 2.5% Q/Q, better than feared given recent market commentary.
Finally, faster operating expense reductions post the decision to shut down
the cellular baseband business helped drive a solid beat on the bottom line.
We believe the stock will likely rebound post the recent sell-off in the group
and all eyes will then turn to Broadcom’s December 9 analyst day for future
growth strategy and increased capital returns commentary. We reiterate our
BUY rating and raise our target to $46 from $45 on increased estimates.

Investment highlights

 Q3/14 revenue of $2.26B was above our and consensus estimates of
$2.18B (see Figure 1) driven by a surprising rebound in baseband sales,
20% Q/Q Connectivity growth, and only a roughly 2.5% Q/Q service
provider sales decline in ING versus. Non-GAAP gross margin of 54.3%
was a bit below 55% guidance midpoint, but was very strong
considering the unexpected increase in baseband sales (roughly a 170
basis point gross margin headwind in total) and a greater mix of
Connectivity sales to large customers. We believe additional upside
exists to gross margin into 2015 for Q4/14 guidance of 55%. Non-GAAP
operating expenses were $10M below our estimate at $646M, and
management expects another $50M reduction in Q4/14 as baseband
costs continue to be wound down. Non-GAAP EPS was $0.91, $0.07
above our estimates and consensus.
 Given these significant cost savings of the baseband exit, we believe
gross margin can remain in the mid-to-high 50s and operating margin
will expand into the mid-to-high-20s during 2015. We maintain our
belief Broadcom’s core Home and Infrastructure businesses are well
positioned for solid growth and will benefit further from increased
management attention and investment post the baseband exit.

Valuation:

Our $46 price target is based on shares trading at roughly 14x
our 2015 pro forma non-GAAP EPS estimate.

CalAmp Update Target price $28

MP : NASDAQ : US$16.50
BUY 
Target: US$28.00

COMPANY DESCRIPTION:
CalAmp supplies tightly integrated M2M hardware with its
COLT M2M Application Enablement Platform (AEP) cloud
to add cellular and GPS connectivity solutions into
several M2M verticals including: fleet management,
asset/trailer tracking, vehicle finance/recovery/remote
start, rail, and smart energy. In its legacy business,
CalAmp supplies outdoor reception/amplification and
indoor network products for DBS satellite TV application

Technology — Communications Technology — Wireless Equipment
SOLID Q2/F’15 RESULTS AND H2/F’15 GUIDANCE
Investment recommendation:

 

CalAmp reported solid Q2/F2015 results, with
sales consistent with and pro forma EPS above our estimates. Consistent
with our expectations for stronger H2/F2015 Wireless DatacCom sales
versus H1/F2015 levels, CalAmp issued H2/F2015 guidance basically
consistent with our estimates. We believe CalAmp’s Wireless DataCom
business is well positioned to drive strong H2/F2015 and F2016 sales and
earnings growth trends driven by strong initial sales to Caterpillar that
started in September, growing insurance telematics opportunities, improving
international sales, increasing product offerings and customers in the
pipeline, and anticipated steady growth of higher-margin recurring revenue
sales. We maintain our BUY rating and $28 price target.
Investment highlights
 Q2/F’15 sales of $59.2M were consistent with our $59.2M estimate, with
CalAmp reporting Wireless DataCom sales of $50.2M and Satellite
division sales of $9.0M versus our $50.9M/$8.4M estimates. Stronger
gross margin and slightly lower operating expenses resulted in pro
forma EPS of $0.21 versus our $0.18 estimate.
 Q3/F’15 guidance of $63M in revenue and pro forma EPS of $0.23 at the
range midpoints were slightly below our $65.7M/ $0.25 estimates.
However, full-year F2015 were in line with our estimates. Consistent
with our expectations for stronger overall H2/F’15 trends due to strong
initial sales to Caterpillar ($10M+ in H2/F’15E), solid core MRM trends
with international growth and steady UBI hardware sales, management
guided F2015 sales of $253M and pro forma EPS of $0.91 at the range
mid-points. This guidance was basically consistent with our
$256M/$0.91 estimate. We anticipate the strong H2/F’15 trends should
create a foundation to drive steady long-term sales and earnings growth
in F2016 and beyond.
 With H2/F2015 guidance basically consistent with our estimates, we
maintain our F2015 pro-forma EPS estimate of $0.91 and slightly
increase our F2016 pro forma EPS estimate from $1.11 to $1.12.
Valuation:

Our $28 price target is based on shares trading at roughly
25x our F2016 pro forma EPS estimate.

Avago Technologies Limited iPhone Upgrade Target price $97

AVGO : NASDAQ : US$83.47
BUY 
Target: US$97.00

COMPANY DESCRIPTION:
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.

Technology — Communications Technology — Semiconductors
RAISING ESTIMATES BASED ON STRONG IPHONE 6 CONTENT SHARE AND INCREASED IPHONE 6 ESTIMATES
Investment recommendation: Based on our analysis, industry
conversations, and recent iPhone 6 teardown reports, we believe Avago has
roughly doubled its dollar content in the recently launched iPhone 6/6 Plus
smartphones versus the iPhone 5s/5c models and has the highest RF dollar
content share among the RF suppliers. With our recent surveys indicating
extremely strong demand for the new iPhone 6 products, we anticipate very
strong Q4/14 iPhone sales and high-end smartphone market share gains for
Apple versus high-tier Android OEMs, particularly Samsung. Given Avago’s
strong dollar content in the new iPhones and our recently raised iPhone
estimates, we are raising our Avago estimates. We reiterate our BUY rating
and raise our PT to $97.
Investment highlights
 Our recent surveys and analysis indicate very strong iPhone 6 demand,
and we anticipate a record iPhone 6 upgrade cycle. Please see our
separate Apple note, published Sept. 22, titled “Monthly surveys
indicate record iPhone 6 upgrade cycle, strong market share gains,” for
our updated iPhone estimates.
 We estimate the RF front-end content in the iPhone 6/6 Plus increased
to roughly $15.25-15.50 per device versus $11.25-11.50 in the iPhone
5s/5c models due to increased LTE band support and features such as
envelope tracking and carrier aggregation. Due to the increased
number of higher-frequency bands supported that require FBAR filters,
we believe Avago increased its RF dollar content to roughly $6/iPhone 6
models versus roughly $3 in the iPhone 5s/5c.
 While we believe Avago has growing dollar content in other flagship
Android smartphones such as Galaxy Note 4, Avago has stronger dollar
content share in the iPhone 6 devices given Android smartphones tend
to support more regional LTE SKUs. Therefore, we believe Avago will
benefit from strong iPhone 6/6 Plus sales despite our recently lowered
Android estimates due to share losses to the iPhone 6 products.
 Given these trends, we raise our F2014/15 Wireless business sales
estimates, resulting in our F2014/15 pro forma EPS estimates
increasing from $4.63/$6.35 to $4.65/$6.45
Valuation:

Our $97 price target (was $95) is based on shares trading at
roughly 15x our F2015 pro forma EPS estimate.

Oracle : Analyst Day Update

ORCL : NASDAQ : US$38.27

BUY 
Target: US$48.00

COMPANY DESCRIPTION:
Oracle develops, licenses and services database and
middleware software, applications software, and
hardware systems worldwide. The firm is the world’s
second largest application software firm, and a top five
systems vendor. Oracle was founded in 1977 and is
headquartered in Redwood City, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Infrastructure
A MYTHBUSTER-THEMED ORACLE ANALYST DAY
Investment thesis
Our view on Oracle is simple: the company is not as troubled as the stock’s
valuation reflects. There are enough good things – new products, new
markets, new business models – coming down the pipe that we expect ORCL
shares to see a 1-2 multiple point expansion over the next year, which implies
10-20% upside from here. For a large cap stock, that is more than sufficient to
justify our BUY rating.
Investment highlights
  Oracle’s analyst day as part of its OpenWorld
User Conference. A couple hundred financial types were in the room.
 Incremental takeaways. The firm outlined and explained multiple
attributes that are better than consensus opinion – in other words, Oracle
was busting myths. The firm’s near-term ARR cloud pipeline tops $2
billion and is growing 30%+, meaningful upgrades in the firm’s core,
highly profitable database are on tap, and financial engineering in terms
of share count repurchases will remain material and fairly aggressive.
 Why the stock works. One way to make money in stocks is to buy shares
of companies on which investors soften too bearish opinions. This is the
crux of our BUY rating on ORCL. Yes, Oracle has vibrant competition, but
the firm simply is not as endangered, at least in the next year or so, as
hyperventilating cloud competitors assert. We have seen meaningful
rallies for Microsoft and HP as investor perception went from dire to at
least neutral. We believe a similar transformation awaits ORCL shares.
Valuation and price target
Our unchanged $48 price target is based on a 13x multiple applied to our
F2016 non-GAAP EPS estimate of $3.26 plus approximately $5.00 in
prospective net cash per share

T-Mobile US BUY Target Price $39

TMUS : NYSE : US$28.49
BUY 
Target: US$39.00

COMPANY DESCRIPTION:
The fourth largest wireless carrier in the US by
subscribers, T-Mobile US was established with the merger
between MetroPCS and T-Mobile USA, formerly a unit of
Deutsche Telekom. The company is majority owned by
Deutsche Telekom and is headquartered in Bellevue,
Washington.
All amounts in US$ unless otherwise noted.

Telecommunications
ON THE ROAD WITH MANAGEMENT;
ADD MOMENTUM CONTINUES; BUY
Investment recommendation
Our two-day non-deal roadshow in the Midwest served to solidify our
view that the company’s dynamic, aggressive pricing strategy is
continuing to drive postpaid add share. While the focus on the margin
seems to have shifted from lowering prices as part of the Un-carrier
strategy to offering more data at the same prices with targeted
promotional activity highlighting network quality, strong momentum
continues as evidenced by management’s disclosure earlier this month
of 552k postpaid and 208k prepaid net adds in August alone. These
results suggest upside to our Q3/14 estimates of 580k and 106k,
respectively. Management also discussed a number of key industry
issues, including upcoming spectrum auctions, competitors’ network
build plans and the potential for large-scale M&A. Maintain BUY.
Investment highlights
 More targeted promotions continues to lead the industry in terms of aggressive pricing, the
magnitude of disruption has been lower. Recent promotional activity
– i.e., four lines for $100, slated to end this month – appears to be
more limited, with a longer-term intent to offer more data and
ancillary services at comparable price points.
Network goals – The company has been accumulating low-band
spectrum throughout the year in the secondary market and
discussed the possibility of expanding coverage to 300M POPs. Such
a move, however, would likely be contingent on the results of the
upcoming AWS and broadcast auctions.
 Maintain BUY, $39 target – Management’s aggressive strategy is
enabling market share gains and, though we believe the absence of
a credible, immediate-term acquirer eliminates some M&A upside
potential, we continue to recommend T-Mobile US

Broadcom

 

BRCM : NASDAQ : US$38.26

BUY 
Target: US$46.00

Technology — Hardware — Semiconductors and Related Technologies
INCREASINGLY CONFIDENT IN EXPEDITED
CELLULAR BASEBAND EXIT; CONCLUSIONS FROM MANAGEMENT MEETINGS

CEO Scott McGregor at
Broadcom’s HQ. – with stronger conviction that an exit
of the cellular baseband business will happen quickly and therefore are
more confident in our 2015 pro forma estimates excluding the baseband
business. We discuss drivers of solid growth for Broadcom’s retained
businesses and areas for incremental investment with cash recouped
from prior cellular baseband investments. We reiterate our BUY rating
and raise our price target to $46, as we assume our pro forma EPS
estimates post the baseband exit as the basis for our price target.
Investment highlights
 We assume a baseband business exit before the end of 2014. Given
the much lower gross margin of the baseband business likely lost
during this transition and the significant operating cost savings, we
believe gross margin can expand into the mid-50s and operating
margin will expand into the mid-to-high-20s exiting 2015.
 We believe Broadcom’s core Home and Infrastructure businesses are
well positioned for growth and could benefit further from increased
management attention and investment post the baseband exit. In
fact, we believe Broadcom’s Home business should grow in the mid-
to high-single digits with solid mid-20s operating margins. Further,
we believe the Infrastructure business is positioned to exceed 10%
top-line CAGR over the next several years, with operating margins
moving toward 40%.
 With our increasing confidence in an expeditious cellular baseband
exit, we are adopting our 2014/15 pro forma revenue and non-GAAP
EPS estimates of $8.4B/$2.58 and $8.3B/$3.28. Our estimates largely
exclude any additional initiatives that could be funded with
incremental investments from the baseband business exit.
Valuation: Our $46 price target is based on shares trading at roughly 14x
our 2015 pro forma non-GAAP EPS estimate of $3.28.

MiX Telematics Limited

MIXT : NYSE : US$9.90
MIX : JSE
BUY 
Target: US$19.00

COMPANY DESCRIPTION:
MiX Telematics is a leading global provider of fleet and mobile
asset management solutions delivered as SaaS to customers in
over 100 countries. The company’s products and services provide
enterprise fleets, small fleets and consumers with solutions for
safety, efficiency and security.

Technology — Communications Technology — Software
STRONG Q4/F14 RESULTS AND F2015 GUIDANCE;
WELL POSITIONED FOR LONG-TERM GROWTH WITH ATTRACTIVE VALUATION
Investment recommendation:

MiX Telematics reported Q4/F2014
results with subscription revenue and adjusted EBITDA ahead of our
estimates. Further, MiX issued F2015 guidance with subscription
revenue slightly above our estimates but adjusted EBITDA slightly below
due to ramping investments to drive longer-term growth. Given its
strong balance sheet, we believe MiX is investing to drive growth in
markets such as North America and South America to drive accelerated
recurring revenue subscription growth exiting F2015 and beyond. We
believe MiX has a strong solution for its targeted customers and has
strong long-term growth drivers. Therefore, we believe MiX’s current
valuation versus its competitors represents an attractive entry point. We
reiterate our BUY rating and $19 price target.
Investment highlights
 MiX reported Q4/F2014 results with a subscriber base of 451k and
subscription revenue of R233M ahead of our 448k/R222M
estimates. Subscriptions grew 25.3% Y/Y and subscription revenue
grew 24.9% Y/Y.
 Given MiX’s strong base of fotune 500 companies -

Valuation: Our $19 price target is based on shares trading at a multiple
of roughly 14x EV/adjusted EBITDA based on our F2016 estimates

 

Akamai Technologies BUY

AKAM : NASDAQ : US$54.53
BUY 
Target: US$68.00

COMPANY DESCRIPTION:
Akamai provides content delivery and cloud
infrastructure services for accelerating and improving the
delivery of content and applications over the Internet,
ranging from live and on-demand streaming videos to
conventional web content, to c-commerce tools. The
company is headquartered in Cambridge, Massachusetts

Telecommunications — Telecommunications
STRONG Q1/14; INCREASING ESTIMATES; REITERATE BUY
Investment recommendation
Akamai once again managed to produce yet
another quarter of above-expectations growth and margins with a
solid outlook for Q2/14. Even though the company has reiterated
its H2/14 margin guidance for 40%-42%, we note they have
consistently beat their margin forecast for the past six quarters.
Strong volume growth and reported traction in the security
business should continue to provide investors with confidence that
the company will continue to produce solid double-digit top-line
growth with improving margins.
Investment highlights
 Managing expectations – delivering results – As has been the
case with the company for the past six quarters, guidance
beyond the next quarter was once again muted with the
expectation for margins to return to 40%-42%. Q2/14 revenue
estimates call for $464-478mm with slightly lower margins.
 Volumes trends remain strong – Although we had speculated
that recent traffic trends were supported by continued Internet
video growth, the strength appeared equally strong from
software downloads as well as gaming.
 Reasonable valuation relative to history – Currently priced at
8.8x 2015E EBITDA, we find the stock to be attractively
valued, especially given accelerating growth trends

 

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