GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Does This Apple Supplier have More Room to Grow?

July 16, 2014 | About:
sandyinvestment

sandyinvestment

1 followers

RF Micro Devices (RFMD) has increased in value in excess of 90% in 2014. The company released its quarterly report , beating the consensus estimate on earnings. Since RF Micro is an Apple (AAPL) supplier, the earnings beat wasn't surprising. Last quarter, Apple reported an incremental increase of 17% in quarterly iphone sales and consequently, RF Micro profited as well.

Superb Quarter

RF Micro Devices' gross edge has been increasing consistently, and it bounced to 42% in the latest reported quarter. Last year, RF Micro's administration promised an incremental increase of 300-400 basis points in the gross edge, notwithstanding it has almost multiplied that target, improving gross edge by 760 basis points.

The robust increase in gross edge was the essential reason why the organization's earnings surpassed the direction and the consensus estimate by $0.03 and came in at $0.12. On the income front, the organization figured out how to hit the $256 million imprint set by the analysts. I accept RF Micro can proceed with its upward trajectory, regardless is a decent purchase. We should examine the reasons why I think RF Micro Devices has more upside potential.

Apple Is Still A Growth Driver

I have always refered to Apple as an enormous development driver for RF Micro Devices. As an iphone supplier, RF Micro is poised to profit from Apple's sales-driving initiatives. Keeping in mind the end goal to boost iphone sales, Apple as of late thought of an in-store iphone overhaul occasion to lure users to redesign their more seasoned versions of the iphone with the iphone 5s and the iphone 5c.

As per 9to5mac, Apple is wanting to email the iphone users who are qualified for upgrades. The Cupertino monster is welcoming the iphone users to visit their neighborhood Apple Stores to exchange their more established iphone for a shiny new iphone 5s or 5c.

According to reports, Apple expects this occasion to be a colossal hit, and it is equipping its stores for the same sort of activity that is witnessed in Apple stores after an enormous item dispatch. Apple expects this system to drive up the sales of the iphone 5s and 5c, and RF Micro Devices will at last profit from it as well.

iphone 6 Will Be Successful

It's a well known reality that Apple derives a substantial part of its income from the iphone. Actually, the iphone represented about 53% of Apple's income in fiscal 2013. Depending intensely on one item might be a terrible thing for some companies, yet not Apple. Since Apple has an extremely unwavering fan base, over-dependence on the iphone is a plus point for the organization. Because of a dependable customer base, Apple enjoys great substitution sales, that is, numerous iphone users supplant their more established iphones with the new one consistently.

As per Statista, in 2014, something like 70% of the iphone 6's sales can come as substitution sales, and this figure can increase to as much as 80% in 2015. Such high proportion of substitution sales ensures that the iphone 6 will be a smash hit despite the fact that the smartphone business sector is getting saturated. RF Micro Devices' dollar-content in Apple's approaching gadgets is relied upon to develop, thus the organization should generally profit from the iphone 6.

Merger With Triquint

In the previous quarter, RF Micro advertised a conclusive merger understanding under which it will join together with Triquint Semiconductor (TQNT) in an all-stock transaction, making another pioneer in RF solutions with quarterly revenues of over $2 billion. The merger has opened up a ton of new opportunities in the smartphone market, as both the companies as of now give chips to Apple and Samsung (Otc:ssnlf). Likewise, the synergies between both the companies will save $150 million in the following two years. Bank of America redesigned RF Micro Devices to a Buy and revised its value target upwards to $10. Bofa's analyst said:

We update RFMD to Buy with $10 PO, as its proposed merger with Triquint would unite the #3 and #4 players in the radio recurrence chip [rf] business sector to make a powerhouse with ~35% share. RFMD's strong arrangement of force amps and switches joined together with Triquint's filters brings strong item, sales and cost synergies for 3g/4g smartphones, tablets and other associated devices. Also, ~25% exposure to high edge (55% GM, 30%+ Opm) and long life-cycle military/infrastructure adds defensiveness to the business model.

Conclusion

The organization is well-set to profit from the smartphone market, and the merger with Triquint has opened up new opportunities. I anticipate that the iphone 6 will be a smash hit, which is the essential reason why I think RF Micro Devices still has more upside potential. Also, as I specified above, RF Micro's dollar content in the iphone 6 is also anticipated that will increase. Thus, as I would see it, RF Micro Devices is still a decent purchase.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK