RFMD : NASDAQ : US$4.89
RF Micro Devices is a leading supplier of power
amplifiers, front end modules and other RF components
for mobile devices (handsets, smartphones, tablets) and
All amounts in US$ unless otherwise noted.
Technology — Communications Technology — Semiconductors
STRONG GROSS MARGIN EXECUTION DESPITE
SOFTER Q3/F’14 SALES; RAISING PT TO $7.25
Investment recommendation: RFMD reported Q3/F’14 sales well below but
pro forma EPS in line with our estimates as a solid 350 bps sequential
improvement in pro forma gross margin exceeded our estimates. While
Q4/F’14 sales guidance was well below our and consensus estimates, RFMD
guided to a strong 40% gross margin for the quarter. Given RFMD’s strong
relationship with Samsung, leading position with the Chinese smartphone
OEMs combined with our expectations for RFMD to further grow RF $-
content in Apple’s next-gen iPhone products, we believe RFMD has now
secured strong market share with all the three major constituents of the
smartphone ecosystem and is well positioned for continued solid growth
trends. Further, as evidenced by three consecutive quarters of strong gross
margin improvement, we believe the sale of the UK fab, improving capacity
utilization, additional assembly capacity in Beijing, ramping volume of new
ultra low-cost CMOS PAs, and an overall improving new product mix
ramping with leading smartphone platforms is driving sustainable margin
leverage. We reiterate our BUY rating and raise our PT to $7.25.
Q3/F’14 sales of $288.5M was below our $319.5M estimate but pro
forma EPS of $0.13 was inline with our $0.13 estimate due to strong
39.7% pro forma gross margin that exceeded our 37.4% estimate.
RFMD guided to Q4/F’14 sales of $255M at the range mid-point, also
well below our $297M estimate. We believe a sharp sales decline into
Apple’s seasonally soft March Q was partially offset by improving sales
into Samsung’s next-gen smartphones and RFMD’s Chinese OEM base.
Despite the guidance for an 11% Q/Q sales decline, RFMD guided to a
strong 40% gross margin. Further, RFMD anticipates 10%+ Y/Y sales
growth and 40%+ gross margin during F2015 driven by strong design
wins in key smartphones and tablets expected to ramp in 2H/C2014.
With Q4/F’14 sales guidance well below our estimate, we lower our
F2014 pro forma EPS estimate from $0.44 to $0.42. However, with our
expectations GM are sustainable at 40%, we raise our F2015 estimate
from $0.55 to $0.59 and our F2016 estimate from $0.60 to $0.67.
Valuation: Our $7.25 price target is based on shares trading at roughly 10-
11x our F2016 pro forma EPS estimate.