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A Smartphone Play You Would Regret Missing
By Harsh Chauhan - July 29, 2013 | Tickers: AAPL, T, S, TQNT | 1 Comment

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If TriQuint Semiconductor’s (NASDAQ: TQNT) second-quarter report was a litmus test, then the company passed it with flying colors. After a string of disappointments over the past year or so, TriQuint had promised investors that it would deliver a profitable year in 2013 when it released its first-quarter results three months back, which were terrible to say the least.

So, TriQuint needed to call for a solid outlook this time to keep investors’ faith intact, and the fact that the company’s shares jumped around 16% after it released earnings means that it successfully accomplished its objective.

The resurgence begins

TriQuint beat estimates in the second quarter, posting revenue of $190.1 million while the loss came in at $0.07 per share. Both numbers were well-ahead of consensus estimates, which called for revenue of $188 million and a loss of $0.11 per share. After the second-quarter results, TriQuint’s total loss this year added up to $0.24 a share.

So, the company needed to deliver a spectacular outlook if it was to live up to its promise of being profitable this year. And so it did.

TriQuint expects revenue between $245 million and $255 million in the third quarter (and it is 90% booked to the mid-point of the guidance), which is comprehensively ahead of the $228.4 million consensus estimate. Also, the company expects to get back into the black this time, calling for adjusted earnings of $0.09 to $0.11 per share, once again well-ahead of the $0.03 per share Street expectation.

For the full year, the company is looking at a profit of “at least” $0.05 per share while the Street was expecting it to post a loss of $0.10 per share.

So, with the earnings report and the outlook being simply spectacular, I believe that TriQuint shares can continue their journey north going forward. The stock has been on a blazing run this year, appreciating close to 70%, and I’m pretty confident that it can rise further given the catalysts on the way.

TriQuint’s cutting-edge technology and the rapid introduction of new products are expected to help it deliver solid growth going forward. So far this year, the company has released 86 new products as it looks to benefit from various end markets such as mobile, networking, and defense. TriQuint expects to benefit from the roll out of LTE to propel its networking business, and the same has happened this year.

Networking providing a boost

TriQuint has seen strength in sales of it networking products as its various customers ramp up deployment of new products. The company is of the opinion that an increase in data traffic will lead telecom carriers to continue investing in a faster technology such as LTE, and help sales of TriQuint’s products in turn.

The trends in the telecom industry are clearly visible. Telecom giant AT&T (NYSE: T) is aggressively rolling out LTE and has earmarked $20 billion as capital expenditure as it upgrades its wireless and wireline networks. Its Project Velocity IP program is progressing well as AT&T has accelerated the rate of deployment of LTE.

But, Ma Bell isn’t the only player deploying LTE networks across various markets in the U.S., as Sprint (NYSE: S) is also now in the game big time after its acquisition by SoftBank. Sprint will have $16 billion from SoftBank to invest in base stations to boost its LTE network in the next two years as it looks to use its big spectrum hoard. Sprint’s subscriber base might be well behind the leading telcos in the U.S., but given its spectrum bank and capital, it should make things interesting from here.

Now, TriQuint’s revenue from base station transceiver cards has more than doubled in 2013, and as these telcos continue to invest in LTE, things should get even better.

Mobile on a roll

TriQuint is poised to benefit from growth in data by providing content for mobile devices as well. With smartphones becoming more complex with various frequency bands, TriQuint’s radio frequency solutions should help the new phones overcome such problems. TriQuint is innovating in this field as well, as it is focused on developing high performance filters and high efficiency amplifiers instead of older power amplifier modules.

TriQuint had supplied the power amplifier module for the Apple (NASDAQ: AAPL) iPhone 5, and with the next generation of the device being reportedly under production, it’s not surprising that TriQuint’s order book was overflowing in the previous quarter with a book-to-bill ratio of 1.17 (with Foxconn accounting for 22% of revenue). Also, a cheaper version of the iPhone is reported to be on the way as Apple focuses on budget consumers.

Apple’s cheap iPhone 4 is already helping its push in the emerging markets, and a new device with cheaper components and a mid-tier price tag could do even better considering that the iPhone 4 is three years old now. So, a cheaper iPhone should increase TriQuint’s addressable market and increase sales of its mobile products.

Mobile is the biggest catalyst for TriQuint as it derives more than 60% of its revenue from it. Throw in another smartphone titan in the form of Samsung, to whom TriQuint had supplied content for the Galaxy S4, and it becomes clear that the company is a good play on smartphones. Also, it counts BlackBerry and some smartphone manufacturers out of China as clients as well, which gives the company a pretty big market to sell its products.

The bottom line

The possibility of TriQuint turning in a profit this year is pretty strong now and the company has got enough drivers to get better going forward. So, if you have been riding this terrific turnaround story this year, there’s no reason to abandon it now.


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