After reporting losses and falling short of estimates in the past year or so, TriQuint Semiconductor's (TQNT) last reported quarter and guidance did please investors. In the last six months, the stock has surged more than 65% as investors seem to be very hopeful that the much awaited turnaround is here and the company will soon be delivering profits. Let's analyze what's going to help the radio frequency chip manufacturer to deliver in the future.
Driving On Mobile
TriQuint has a diversified portfolio, both in terms of products and clients, which will work well in its favor. The company provides advanced Radio Frequency equipment for the mobile, defense and aeronautical markets. With 60% sales coming from mobile devices, it is a leading manufacturer for RF filters, power amplifiers and switches.
TriQuint's major concentration is in the growing mobile industry, evident from the fact that smartphone shipments will exceed 900 million this year and will keep growing for at least the next five years. Furthermore, as the smartphone market is increasing, so are its complexities. Thus, with TriQuint's muscle in the advanced RF space and technological expertise for integrated solutions of active and passive contents, it is poised to grow. Moreover, apart from growth in smartphone sales, the tablet market is also expected to double this year.
Apart from being a part of a growing industry, TriQuint has some of the major players of the industry as its clients. Apple (AAPL) accounts for more than a quarter of its revenue and going forward, TriQuint will benefit as the smartphone giant will be coming up with new phones. The company has previously supplied amplifier modules for Apple's iPhones and has more opportunities as the smartphone giant's next generation device, iPhone 5S, is in production. Further, Apple is coming up with a lower-cost iPhone, within the price range of $300-$400, which is a good move as there is ample opportunity to grow in the mid-range smartphone market.
TriQuint also supplies its chips to the smartphone market leader, Samsung (OTC:SSNLF) and as it has announced that it will be coming up with many new devices, the RF player has all reasons to be happy. It previously supplied wireless chips for Samsung's flagship Galaxy S4. The company has already come up with a mini version of the same and is expected to come up with more models of it, thus TriQuint's market size is expected to grow.
Further, TriQuint has other smartphone players in its portfolio of clients and has struck up deals with manufacturers in China. Currently, the Chinese market is the largest and delivering exponential growth, so if the company can expand its operations there, it should increase its addressable market greatly.
TriQuint is also set to benefit from increased sophistication in the communication process and the dramatic shift of smartphones from 3G to LTE. Currently, in 3G enabled smartphones, the RF products are centered mainly to power amplifiers, switches and Wi-Fi, but RF content for LTE based handsets works on high performance SAW and BAW filters.
TriQuint is expected to benefit from the lateral shift to LTE, as it is among the few companies that manufacturer SAW enabled filters. Moreover, apart from TriQuint, only Avago Technologies (AVGO) manufactures BAW filters. The two companies have agreed to cross license BAW patents, thereby creating a duopoly in a market with high barriers to entry. Having a technological precedence will help the company earn higher margins and revenue in the future as it expects to supply 10 times more parts per mobile unit in manufacturing LTE handsets as compared to 2G mobile units. Further, it expects to supply content worth $10-$11 in an LTE device compared to $3-$4 content it supplied in a 3G smartphone.
The shift to the faster LTE network is happening pretty swiftly as telecom companies realize the value of technology to manage increased data traffic. The shift is evident from the fact that telecom giant AT&T (T) has set aside $20 billion to upgrade its wireless and wireline networks in order to swiftly roll out LTE. Sprint (S) is also investing heavily in order to boost its LTE network, post its acquisition by SoftBank. The company will receive $16 billion from SoftBank to invest in base stations in the next two years as it plans to provide unlimited data to its customers and grow its subscriber base.
TriQuint appears to be in an advantageous position with a solid client base and a strong position in the growing smartphone market. Moreover, with its SAW and BAW technological edge, it is in a good position to push its top and bottom line north. Further, as the second half has always been traditionally stronger for chip suppliers as new phones and devices hit the market, I believe TriQuint is in for a strong second half and year ahead.