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Here's Why Apple Supplier TriQuint Can Soar After Earnings

April 21, 2014 | About:
kcpl

kcpl

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Apple (AAPL) supplier TriQuint Semiconductor (TQNT) has been zooming this year with the stock up almost 60%. TriQuint’s share price received a boost after it announced a merger with RF Micro Devices (RFMD). Now, TriQuint is expected to release its first-quarter earnings report in April 23. Let’s take a look at what’s expected of the company and if it can sound out a good outlook.

What Are the Expectations?

Analysts, according to Yahoo! Finance, expect TriQuint to post revenue of $176 million in the first quarter. This would be a drop of around 4% from the year-ago period. The bottom line, on the other hand, is expected to improve from a loss of $0.17 last year to $0.11 in the first quarter. TriQuint had issued a mixed outlook the last time it reported earnings, so the consensus estimates now reflect the company’s own expectations.

TriQuint’s mixed outlook was on account of a drop off in sales at Apple, which started cutting orders due to excess inventory. However, Apple is expected to be a solid growth driver going forward due to a multitude of reasons, driving TriQuint’s revenue higher, while the merger with RF Micro will give rise to strong cost synergies that would enable the company to improve the bottom line.

Apple’s Expected Moves

Apple (via Foxconn) is TriQuint’s largest customer with 44% of revenue. TriQuint supplies power amplifier chips to Apple, so if Apple is able to grow its addressable market, TriQuint should benefit.

Recently, it has been reported that Apple is working toward releasing a couple of iPhones next time. One would be a 4.7-inch version that would bring Apple close to flagship devices from rivals, while a larger model at 5.5 inches is also expected to help Apple benefit from the phablet market.

This is a smart move on behalf of Apple. According to CNET (which got hold of analyst Ming Chi-Kuo’s latest reports):

“iPhone 6 4.7/5.5 phablet: There certainly has not been a dearth of iPhone 6 rumors, so this part of the Kuo's report was probably the least revelatory. He essentially repeated rumors of 4.7-inch and 5.5-inch iPhones while offering a few additional details.

The 5.5-inch model may be positioned as a phablet, according to the analyst. It will come out "later in the holiday quarter" and may eat into sales of the iPad Mini. The 5.5-inch model will pack a big battery with "50% to 70% more watt-hours" than the 5S.

Only the high-end phones, such as a 64GB version of the 5.5-inch device, will get a sapphire screen cover, according to the analyst.

The 4.7-inch model will be the most popular, Kuo claims, with full-year shipments hitting about 60 million units.”

Apple’s move into phablets will help the company grab a share of the phablet market that’s expected to grow to 146 million units by 2016 from just 60.4 million units last year, according to Statista. Since TriQuint is an Apple supplier and almost half of its top line is driven by the smartphone behemoth, these moves should certainly benefit the company in the future.

Cost Reduction Moves

TriQuint is looking to improve its product mix, as a result of which it should see an increase in its profitability going forward. In addition, TriQuint is reducing its overall gas capacity, resulting in lower cost and better alignment to market requirements in response to changes in industry demand. The company’s focus on higher value products, reducing unused capacity, and tightly managing the overall spending led to a better performance in the second half of last year and the trend is expected to continue going forward.

In 2014, the gross margin is expected to average 40% for the last three quarters, excluding Q1, where lower demand is anticipated due to short-term inventory correction. Looking forward, the increasing handset filter content, strong base station demand, and cost reductions in operations are expected to increase gross margin by approximately 500 basis points from 2013.

TriQuint is investing in higher value products, including discrete filters. These products are designed to support the growing demand for LTE devices and also push up margins. To improve its cost profile, TriQuint reduced gas capacity in the fourth quarter to better align its factory to market demand. Moreover, it is transitioning its Texas gas scan line from 4 inches to 6 inches to improve yield, throughput, and reduce cost in order to further optimize its gas footprint.

RF Micro Gains

TriQuint looks well-positioned for growth in the long run. Also, the company is looking to reduce costs and the merger with RF Micro will do just that. RF Micro and TriQuint will together have a diversified and broad portfolio of products to address the smartphone market. Moreover, the cost synergies that are expected as a result of this merger will play a big role in driving earnings growth in the future. Both companies expect cost synergies of around $150 million.

Conclusion

TriQuint’s strong performance should continue going forward. The company’s relationship with Apple and its cost-reduction moves should ensure that it performs well in the long run. Once the merger with RF Micro is complete, TriQuint will be in an even better position to make the most of the smartphone and connectivity market. As such, investors should still consider buying TriQuint even after its rapid rise this year.


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