Why You Should Avoid TriQuint

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Oct 30, 2014

TriQuint Semiconductor (TQNT, Financial), along with RF Micro Devices (RFMD, Financial) and Skyworks Solutions (SWKS, Financial), has been on a great run thus far. The stock has appreciated over 100% in 2014, and it delivered a strong earnings report in the latest quarter. However, given the magnificent growth, is TriQuint Semiconductor still a value stock? We’ll find out, but first, let’s take a look at the company’s latest quarterly earnings.

A great quarter

TriQuint comfortably beat the consensus target both on revenue and earnings. The company even revised its guidance upwards, which is understandable given the success of Apple’s (AAPL, Financial) iPhone 6. TriQuint Semiconductor reported revenues of over $272 million, up 9% as compared to the corresponding quarter of the previous year, yielding EPS of $0.28. Analysts were expecting TriQuint Semiconductor to report $0.24 EPS on revenue $261 million.

Looking forward, the company expects revenue in the range of $330 million to $340 million and EPS of $0.40-$0.45 for the next quarter.

CEO Ralph Quinsey stated “our financial results in the third quarter were well above expectations due to strong demand and an improved product mix driven by a strategic focus on delivering high performance solutions in each of our markets.”

Time to sell?

The rising competition from Qualcomm (QCOM, Financial) and Skyworks Solutions can also hurt TriQuint. A year ago, Qualcomm entered the RF front-end market with the RF360, an item that places it in immediate rivalry with RF Micro Devices, which is merging with TriQuint. While Qualcomm's entrance into the business hasn't had much of an impact as such, Qualcomm's immense R&D and asset focal points ought to be wellsprings of stress for the New Co.

In addition, Skyworks has been expanding its footprint in the Internet of Things market. The IoT is a huge opportunity for every chipmaker and with so many companies already taking initiatives to make the most of it, TriQuint and RF Micro may struggle.

Overdependence on Apple and Samsung

TriQuint Semiconductors derives a large portion of its revenue from Samsung and Apple; although this has played well for the company to now, it may struggle if it loses contract from either one of these companies. The merger with RF Micro Devices will further improve the company’s dollar content in Apple’s products, but overdepending on a single company can be harmful. Cirrus Logic (CRUS, Financial), which once derived over 90% of its revenue from Apple, was pushed in a downward spiral when Apple forced the company to lower its prices and the same can happen with RF Micro Devices and TriQuint Semiconductors.

With Qualcomm entering the RF front-end market there’s no guarantee that TriQuint Semiconductors and RF Micro Devices will be able to consistently land a spot in the upcoming Apple or Samsung devices. So, given the risks, I think investors should consider selling TriQuint Semiconductors.

Conclusion

With a forward P/E ratio of over 20 and P/S ratio of almost 3.5, TriQuint is undoubtedly expensive, especially when you take a look at other cheaper stocks. The company may have performed brilliantly for investors till now, but at present price, I don’t think it has any more upside left. With no significant competitive advantage, TriQuint and RF Micro Devices risk losing its contract to superior rivals like Qualcomm and it can have a significant negative effect on the stock. Hence, I think investors should take their profits of the table as TriQuint doesn’t look like a value stock anymore.