RF Micro Devices BUY Target Price $ 7.25

RFMD : NASDAQ : US$4.89
BUY
Target: US$7.25

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
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.
Investment highlights
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.

Skyworks Solutions

The old Skyworks Logo
The old Skyworks Logo (Photo credit: Wikipedia)

SWKS : NASDAQ : US$23.64
BUY 
Target: US$30.00

COMPANY DESCRIPTION:
Skyworks is a leading supplier of power amplifiers, front end modules and other RF components for mobile devices (handsets, smartphones, and tablets) and communications infrastructure.

Investment recommendation:

While investors remain concerned regarding potentially slower high-end smartphone market growth in mature markets, we believe Skyworks growing content share and growing sales initiatives in new markets should result in 12-15% annual sales growth with expanding margins over the next couple years. Given Skyworks’ broad RFIC portfolio and customer base, we believe Skyworks growing portfolio of RF and analog solutions positions Skyworks to grow content share within its handset customer base and expand Skyworks’ content share in other markets such as wireless infrastructure, 802.11ac WiFi, and the M2M market. We reiterate our BUY rating and increase our price target $30.
Investment highlights
 We believe Skyworks is well positioned to hold strong dollar content share with leading LTE smartphone platforms and gain incremental share with its SkyOne integrated front-end solution in smartphones during F2014. Further, we believe new smartphone socket wins including power management ICs and WiFi PAs, recovered sales in wireless infrastructure, and strong growth from a diverse set of increasingly connected consumer and M2M market verticals should drive higher-margin HPA sales growth.
 In fact, we anticipate an increased mix of higher margin new products within both the Handset and HPA businesses over the next several quarters. Therefore, we are modeling steady gross margin improvement from 43.4% in F2013 to 44.5% in F2014. Our F2014 pro forma EPS estimates of $2.65 remains above consensus estimate of $2.55.
Valuation:

Our $30 price target is based on shares trading at roughly 11x-12x our F2014 pro forma EPS estimate.

RF Micro Devices

English: IBM Simon smartphone in charging station.
English: IBM Simon smartphone in charging station. (Photo credit: Wikipedia)

RFMD : NASDAQ : US$5.44
BUY 
Target: US$7.50

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.

STEADY GM IMPROVEMENT IN Q1/F2014; ANTICIPATE 300-400BP INCREASE BY Q3/14
Investment recommendation:

We believe RFMD’s broad RFIC portfolio is driving clear market share gains with leading smartphone platforms and versus its RFIC competition, and we believe RFMD should grow much faster than the RFIC market in F2014/15. We also believe the saleof the UK fab, improved capacity utilization and additional assembly capacity in Beijing, ramping volume of new ultra low-cost CMOS PAs, and an overall improving mix of new products ramping with leading smartphone platforms should drive strong margin leverage. We reiterate our BUY rating and $7.50 price target.
Investment highlights
 Q1/F2014 sales of $293M and pro forma EPS of $0.09 exceeded our $288M/$0.07 estimates. We were impressed with the 5.3% sequential

CPG sales growth following strong Q4/F2013 levels. We believe RFMD has strong design momentum with leading smartphone platforms and anticipate ramping sales exiting C2013.

 Guidance for Q2/F2014 sales of $305M-$310M and pro forma EPS of $0.10-$0.11 was consistent with our $311.7M/$0.11 estimates and consensus of $307M/$0.10. We believe this guidance is prudent given timing of leading smartphone launches and maintain our above-consensus December quarter estimates.
 RFMD reported June quarter pro forma gross margin of 35.1% versus our 35.5% estimate. While RFMD is making progress toward expanding gross margin, we believe margins will materially improve in H2/F2014 from current levels for the reasons outlined above, especially post the sale of the UK fab and ramp of new products.
 We increase our F2014 pro forma EPS estimate from $0.43 to $0.44 and maintain our above-consensus F2015 estimate of $0.68.
Valuation: Our $7.50 price target is based on shares trading at roughly 11x our F2015 pro forma EPS estimate.

Apple : Lowering Estimates

Image representing Apple as depicted in CrunchBase
Image via CrunchBase

AAPL : NASDAQ : US$422.35
BUY 
Target: US$530.00

Investment recommendation:

Our June global handset surveys indicated the iPhone 5 remained a top-selling smartphone at essentially all global carriers. Further, we were impressed with new iOS 7 features introduced at WWDC and anticipate new iPhone product launches in H2/C2013. However, our global handset surveys indicated the iPhone has lost sell-through market share post the launch of the Samsung Galaxy S4. Further, with Samsung reporting high-tier smartphone sales below market expectations and already reducing prices of the Galaxy S4, our survey work indicates softening demand for high-tier smartphones.
Given this and the uncertain timing for the launch of an iPhone 5S and mid-tier iPhone, we are lowering our H2/C2013 iPhone estimates.
Longer term, we maintain our belief Apple has a strong product  pipeline, including a refreshed iPhone 5S, mid-tier iPhone, and iPad lineup that should result in reaccelerating earnings growth during F2014. We reiterate our BUY rating but lower our PT to $530.
Investment highlights
 While our June handset surveys indicate the iPhone 5 remains a top selling global smartphone, our survey work suggests weaker high tier
smartphone sales. In fact, we believe demand for the lower priced iPhone 4 remains strong, leading to our below-consensus iPhone ASP assumptions due an increasing mix of lower-ASP iPhones. Please see our macro note titled “Adjusting smartphone estimates due to softer high-tier sales and increasing mix of low-end smartphones” for further details on our smartphone estimate cuts.
 We are lowering our September quarter iPhone estimates from 30M to 28M and still anticipate the iPhone 5S will ship in late September.
Further, we are lowering our F2014 iPhone unit estimates from 181M to 173M based on our lowered growth estimates for the high tier
smartphone market.
 We have lowered our F2013 EPS estimate from $40.12 to 39.29 and our F2014 EPS estimate from $46.80 to $44.04.
Valuation: Our

$530 price target (was $56 560) is based on shares trading at roughly 12x our F2014 EPS estimate.

ARM Holdings plc

Smartphone Configuration for Social Media Mark...
Smartphone Configuration for Social Media Marketing in Frederick MD (Photo credit: Frederick Md Publicity)

ARMH : NASDAQ : US$38.33
ARM : LSE
BUY 
Target: US$52.00

COMPANY DESCRIPTION:
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:

Despite the announcement of a much improved low-power application processor roadmap from Intel at Computex, we maintain our belief ARM is well positioned to maintain dominant market share of the growing smartphone and tablet markets, and Q2/13 results tracked well against our above-consensus estimates. While we believe accelerating emerging market feature phone to smartphone upgrades should drive both royalty TAM growth and rate expansion for ARM, we are slightly lowering our forward royalty estimates as our global handset survey work indicates weaker high-tier smartphone growth.

We believe a higher integrated chipset mix and Mali graphics attach rate in lower-tier smartphones should mute this impact to ARM’s royalty sales; therefore, our estimates remain above consensus. We reiterate our BUY rating, but lower our PT to $52.

Investment highlights
 Our global handset surveys indicate the smartphone innovation curve has slowed, resulting in weaker high-tier smartphone sales growth. In fact, we believe Samsung has already lowered pricing and increased retail incentives for the Galaxy S4 and Apple has lowered iPhone 5 pricing in many markets as high-tier demand has disappointed.
 Despite lower high-tier smartphone estimates, our near-term sales and earnings estimates remain above consensus as our surveys and
recent ARM partner results indicate accelerating emerging market smartphone growth. Due to the growth of multi-core integrated chipsets and higher Mali attach rates in these markets, we believe this trend should drive strong royalty sales growth.
 While our 2013 earnings/ADS estimate remains unchanged at $1.02, we are lowering our 2014 estimate from $1.34 to $1.31.
Valuation:

Our $52 price target is based on shares trading at roughly 40x our 2014 normalized earnings/ADS estimate.

Spreadtrum Communications

SPRD : NASDAQ : US$18.95
BUY 
Target: US$29.00

COMPANY DESCRIPTION:
Spreadtrum is a fabless semiconductor company that designs, develops and markets baseband processor solutions for the wireless communications market

REVENUE GUIDANCE; UPGRADING TO BUY
Investment recommendation: Spreadtrum significantly raised its Q2/13 sales guidance well above its prior guidance and above our expectations
driven by continued strength in affordable smartphone sales in China.
We believe Spreadtrum’s 2.5G and EDGE design wins with Samsung, strong ongoing sales of single-core TD-SCDMA chipsets to affordably priced smartphones selling in tier 3 to tier 6 cities in China, ramping sales of recently launched dual-core solutions, and expanding product portfolio contributed to the increased guidance. With an expanding portfolio combined with accelerating low-end smartphone growth in emerging markets, we believe Spreadtrum should post strong sales growth through 2014 despite increased TD-SCDMA competition and a secular decline in the global feature phone market. We increase our price target to $29 from $24 and upgrade to BUY from HOLD.
Investment highlights
Spreadtrum significantly raised its Q2/13 revenue guidance to sales between $270M-$278M, well above its prior $220M-$228M guidance and our $224M estimate. While April is typically the strongest sales month during the June quarter, we believe Spreadtrum’s sales remained strong throughout the quarter, resulting in the increased guidance.
 We believe affordable smartphone solutions supplied by Spreadtrum and other competitors have resulted in extremely strong smartphone sales growth trends in tier-3 to tier-6 cities in China. Given the strong mix of local Chinese brands, Spreadtrum’s customers in these markets, we believe Spreadtrum is well positioned for strong growth trends through 2014. With new multi-core and WCDMA smartphone solutions ramping in H2/13, we anticipate solid longer-term sales growth with slightly higher sales in the September quarter from the strong June guidance.
 Due to our increased sales assumptions, we increase our 2013 pro forma EPS estimate from $2.63 to $2.91 and 2014 from $2.71 to $3.24. Valuation: Our $29 price target (was $24) is based on shares trading at roughly 9x our 2014 pro forma EPS estimate.

ARM Holdings plc

The official logo for the ARM processor archit...
The official logo for the ARM processor architecture (Photo credit: Wikipedia)

ARMH : NASDAQ : US$47.24
ARM : LSE
BUY 
Target: US$56.00

COMPANY DESCRIPTION:
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.
All amounts in US$ unless otherwise noted.

Investment recommendation:
From ARM’s analyst day yesterday in London where ARM management highlighted strong longterm market and royalty growth opportunities in both high- and low-tier smartphones.

We believe ARM is well positioned to benefit from quickly increasing emerging market feature phone to smartphone upgrades, ramping low-tier tablets, and high-tier smartphone platform refreshes that should drive royalty TAM growth and rate expansion. Further, with a growing number of ARM partners moving toward multi-core Cortex-A, big.LITTLE, and ARMv8 designs at leading edge process nodes, we anticipate strong license sales in the near to medium term will drive strong royalty revenue growth and both operating and earnings leverage long term. We reiterate our BUY rating and raise our price target to $56.
Investment highlights
 Our Q1/13 monthly handset sales surveys and recent March quarter results and June quarter guidance for ARM mobile chipset partners are consistent with ARM’s estimates for very strong growth of the low- and mid-tier smartphone markets and also resilient growth of the high-tier market driven flagship launches and 4G/LTE upgrades.
 At its analyst day, ARM shared its target of 15-25% smartphone royalty sales CAGR through 2017 and anticipates smartphone unit CAGR of 20% for the industry during the same period. In fact, this estimate includes growth in both the high- and lower-tier smartphone markets, and we believe ARM will generate significant royalty revenue growth from both tiers driven by a royalty rate expansion multiplier in the slower-growing high-tier market and upgrades
from lower royalty feature phones in lower tiers.
 Due to increased royalty estimates from lower tier smartphones and tablets, we are increasing our 2013 earnings/ADS estimate from $1.01 to $1.02 and our 2014 estimate from $1.31 to $1.35.

Valuation:

Our $56 price target (from $52) is based on shares trading at
roughly 42x our 2014 normalized earnings/ADS estimate.