TriQuint Semi Becoming a Wireless Wonder?

Oct.25.06 | About: Qorvo, Inc (QRVO)

TriQuint Semiconductor (TQNT) fills it up with GaAs. The company uses specialized materials such as gallium arsenide (GaAs) instead of silicon as the substrate for its analog, digital, and mixed-signal integrated circuits (ICs).

GaAs ICs operate at greater speeds than silicon chips, or at the same speeds with less power consumption. TriQuint's GaAs ICs are used in cell phones, fiber-optic and satellite telecom equipment, data networking devices, and aerospace gear. Customers include Motorola (13% of sales), Nokia, Boeing, Ericsson, Nortel Networks, and Raytheon. TriQuint also offers contract design and fabrication services; subsidiary Sawtek (name recently changed to TriQuint Semiconductor) makes signal processing components for microwave and radio-frequency systems.

(As this is being written, it was announced that the U.S. Attorney is investigating certain companies in Oregon that may have back dated their options programs. TriQuint is one of three named in the article describing the companies that may be investigated. The company has denied any wrongdoing.)

TriQuint is doing something different this year. It's reporting a profit. Something it hasn't done since 2001. Estimates are for 17 cents a share, up from a loss of 3 cents last year and a loss of 21 cents a share in 2004. Next year analysts are looking for 25 cents a share. The June quarter profit was 4 cents a share, up 100% from the same quarter of the previous year. Revenues in the June quarter were up 10% from the last quarter, mostly due to more sales in the wireless handset and base stations divisions.

TriQuint's management is trying to get at least 50% of revenues to come from new products by the end of the year. They're on target to reach that. Revenues should grow by 35% this year and another 10% to 15% by the end of 2007. A lot of that increase will come from the wireless handset market. In the June quarter, that sector provided 52% of total sales, up from 41% in the previous year. The wireless sectors of WCDMA and EDGE products summed up to more than 10% of total handset sales for the first time and is expected to increase.

New markets are opening up for TriQuint's products as developing countries use cell phones more (some more than land lines as in China). And in developed countries, new product cycles for wireless handsets with more technology features such as digital cameras, video recorders, music players, and Web access will drive higher sales. Another increasing market opportunity: broadband capabilities. Higher demand for transferring data at high speeds over wireless or wired networks plays right into TriQuint's strengths. It's developing lower-cost products which should result in higher volume but don't look for increased revenues. The lower prices may mean more units, but sales will most likely remain flat.

Financially, TQNT is in pretty good shape. There's no long term debt and only one convertible bond issue of $218.8 million. But the conversion doesn't kick in until the stock gets to $67.50 a share. Current assets outnumber current liabilities about 1.8 to 1. Revenues should hit $400 million this year and $450 million next. Market cap is $700 million now but at one time, when the stock traded at $67.80, this was a large cap stock. Net profit margins should be 6.3% this year and 7.8% next year.

This is a volatile and small company with products for the wireless generation. If you're interested in investing in the wireless world, spend some time with TriQuint to see if it fits your idea of a good stock.

Disclosure: Author has no position in TQNT