Tuesday, July 30, 2013 6:51:17 AM
RFMD: Barclays Cuts to Hold; Smartphone Estimates Still Coming Down
By Tiernan Ray
Following a better-than-expected fiscal Q1 report last week by wireless chip vendor RF Micro Devices (RFMD) last week, Barclays‘s Blayne Curtis nevertheless cuts the stock to Equal Weight from Overweight, and cuts his price target to $5 from $7, writing that the “catalysts” for the stock he foresaw “have largely played out.”
Those catalysts had included gains by RF Micro at Samsung Electronics (005930KS) and Apple (AAPL). Curtis also reiterates an Equal Weight rating on shares of Skyworks Solutions (SWKS) and cuts his target to $20 from $24.
“We do believe RFMD has executed well but we now see more risk to estimates than upside and believe investors will be unwilling to assign a premium multiple given the uncertainty in the mobile market,” writes Curtis.
With areas of the smartphone market still facing downward pressure in unit shipment estimates, a lot seems to hang on Apple’s introduction of an iPhone “5S” this fall:
Samsung just saw a large correction in GS3/4 and Note 2/3 builds (down 50%+ from March to Sept), so the high-end group at Samsung likely has less risk for a correction into Q4; however, we believe mid/low-range smartphones still have more room to correct and represent a risk to SWKS, RFMD and Broadcom (BRCM). There is risk that China sees a correction after seeing a very robust C2Q. Certain companies in the supply chain (RFMD) are baking in a down Sept where SWKS is baking in growth. This then places a major emphasis on the success of the IP5S refresh cycle.
Curtis goes further and thinks that the next version of the iPhone after the 5S, an “iPhone 6,” could actually cut the amount of amplifier chips, which would not be good for RF Micro and others:
While it may seem early to think about the AAPL IP6 with the IP5S not yet released (est. Sept/Oct ’13 launch), we believe the IP6 moves to a multi-mode PA (MMPA) architecture similar to the Samsung GS4. The shift toward an MMPA architecture is a rational move by OEMs to reduce the overall RF BOM (AAPL increasingly focused on reducing semi BOM and pressuring vendor margins). Given this, we see the potential for the IP5S to have peak content as it stayed discrete yet likely added 3-4 additional LTE bands. AAPL is still the largest driver for the RF market given there is 3-4x the amount of RF content per phone.
The one stock that Curtis seems positive about in the group is Avago Technologies (AVGO), with the company having “very little China exposure” and a larger business at Apple than at Samsung.
RF Micro stock is off 23 cents, or 4.4%, at $5.28, while Avago stock is down 34 cents, or 0.9%, at $36.44.
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