Dear Siri, will Apple (AAPL) release an iTV this year?
Unfortunately, Siri isn't talking. She either doesn't know, or isn't willing to tell us what changes are coming to the iPad 3, rumored to be launched in March, or the iTV, rumored for this fall. Since Siri isn't talking, I searched for clues in the earnings transcripts of Apple's supply chain.
Apple's super secretive nature hasn't changed with the death of Steve Jobs. So, as expected, no supplier referenced Apple directly. However, each had interesting takes on their business, which sheds light on Apple's, and other OEMs', path.
Across the various suppliers, a clear theme is apparent. They're already knee deep in building out product lines in support of integrated at-home, connected devices designed for delivering and sharing video, audio and data. Such features scream smart television, the centerpiece of home entertainment.
There's no shortage of Apple speculation. I joined the fray with my article "Apple TV is Almost Ready for Prime Time" late last month. Speculation for both the iPad 3, rumored for next month, includes faster processing, a higher resolution retina display, and perhaps Siri. And rumors for an iTV include high resolution, connectivity to mobile devices via Wi-Fi, a convergence of land and air content, and voice control.
Is Nuance Going to be Found in More Apple Products?
Voice is the most exciting feature on Apple's hugely successful iPhone 4S, and Nuance (NUAN), the engine behind Siri, will likely find itself embedded across Apple's product line. Nuance reported results which came in light versus expectations. But, the tone of the call was bullish. Revenue of $360 million rose 19% from last year. It's likely a good portion of the increase came as a result of early payments and ramping usage tied to Siri in the iPhone 4S. The bump pushed the company's operating cash flow up 41%, which is good news because Nuance is ramping spending to meet mobile and consumer driven demand.
Nuance's CEO, Paul Ricci, noted manufacturer's interest in adding voice has increased partly thanks to "virtual assistant capabilities." No shock there. Siri's success has gotten device makers' attention, which is obviously prompting phone calls to Nuance's Burlington, Massachusetts HQ.
The level of integration and development is resulting in increasingly comprehensive and complex contracts with milestone speed bumps, which Mr. Ricci blames in part for the earnings miss. But, he's also quick to point out such milestone payments will drive sales and earnings higher as usage increases. Even without such revenue, the company's mobile and consumer solutions segment saw sales increase 23.7% year-over-year - not bad for Siri's debut quarter.
Importantly, Mr. Ricci reinforced the message that interest and activity in its offerings was "unprecedented," particularly in mobile and consumer. He reported Smartphone makers, consumer electronics firms and automotive as industries most focused on next generation voice.
Mr. Ricci also blamed contract complexities for prolonging some contract negotiations. Nuance guided mobile and consumer revenue higher through the year and cited growth from "additional contracts that are under negotiation that will deliver revenue later in the year."
Perhaps, one such contract is for the iTV? Mr. Ricci added "we anticipate that we will see meaningful revenues over the balance of this fiscal year from contracts that are under negotiation, and for -- in fact, in some cases for which work has already -- engineering work has already been done in anticipation of those contracts." The company's CFO, Thomas Beaudoin added some color in explaining Nuance's capex is overwhelming being spent on new product development. One translation: Nuance is already hard at work on something big enough to warrant the term "meaningful."
Will Broadcom end up inside an iTV?
Over at Broadcom (BRCM), quarterly revenue came in at $1.82 billion - above December guidance and 9% higher year-over-year. The growth outpaced the industry, and exceeding guidance could suggest some end of year deals came through - perhaps tied to the iPad 3. The quarterly strength generated $1.8 billion in cash flow from operations, which pushed Broadcom's horde to $5.2 billion.
CEO Scott McGregor has Broadcom focused on leveraging patents into products tying communication from the handset, to the base station, over the network and back to "devices in your home." Clearly, he's talking about smart homes - particularly, content intense devices such as smart televisions.
McGregor referenced Broadcom's 1 gigahertz full band capture digital tuner, which was announced for inclusion in 3 set top boxes and DOCSIS 3.0 Gateway system on a chip solutions last summer. Those products accelerate video, data and voice based content delivery. More importantly, such products allow content to flow easily between in-home devices, such as iPads and televisions, and it does it in a much smaller footprint, which is important for OEM's like Apple.
Broadcom went on to say "that we have production orders for these products and will ramp this innovative and disruptive technology in the middle of this year." Perhaps such a ramping would indicate a major product launch at Apple?
Broadcom also introduced its integrated MoCA 2.0 SoC portfolio at CES in January, which included 6 new set top box and hybrid IP gateway platforms. MoCA 2.0 doubles home network bandwidth, ramps video quality, reinforces security and does it all using less energy. All of this ties neatly into hybrid TV and over-the-top video media devices. These products also allow streaming simultaneous video content wirelessly, which supports video conferencing - a rumored feature of a potential iTV.
Finally, Broadcom talked up its 5G Wi-Fi. Next generation Wi-Fi products will allow us to stream "greater amounts of video content in the home and between devices." Broadcom further tipped OEM hands, reporting "we have already received early production orders for our 5G Wi-Fi chips, and consumers will start to see products in the marketplace in Q3." The slate of products Broadcom is touting certainly suggests integrated, content rich television is the big story this year, with a major product launch late in the year.
Qualcomm has bulked up its television product line too.
At Qualcomm (QCOM), focus was on its Snapdragon processor line and application expansion beyond mobile computing to consumer electronics. The company already shared how Snapdragon is powering Lenovo's K91 smart TV.
But, the real story is Qualcomm's Atheros acquisition in 2011. The acquisition was a blatant foray to bolster the company's reach into the connected home. The company's "Killer" product line prioritizes Internet data to make sure digital media and gaming content is delivered seamlessly. The Atheros XSPAN multi stream and Align single stream products are designed for wireless video and peer-to-peer connections. Clearly, Qualcomm wants to help manage the bandwidth growth driven by converged gaming, video, audio and data.
Triquint bulked up capacity at the request of "customers."
Triquint (TQNT) got $227 million in sales in Q4, the high end of guidance. Sales from its mobile device segment rose 6% year-over-year and 7% sequentially. It's high volume customers - ahem, Apple - told Triquint to boost capacity to ensure stable supply.
Triquint cited anticipated "significant uptake of PA-Duplexers, transmit modules and hybrid multimode multiband power amplifiers in 2012 and 2013." Clearly, the company believes more connected devices are in the pipeline and coming this year and next.
And, while Triquint doesn't name Apple, it does name Apple's assembly vendor Foxconn Technology Group, which represents a whopping 41% of the Triquint's sales, up from 35% last year.
Skywork's is positioning for a piece of the action too.
Skyworks (SWKS) revenue was $394 million last quarter, ahead of guidance and up 17% from the prior year. The company closed on its deal to acquire Analogic Technologies and shook of a "product transition within one of our major customers" - likely, the loss of slots in the Apple iPhone 4S to Avago (AVGO).
Skywork's CEO David Aldrich is expanding the company's RF and analog products across mobile internet into "high growth market opportunities," including a deal across General Electric's (GE) entire smart appliance lineup. Skywork's also highlighted its "wireless networking front-end modules for an ultrathin notebook platform with a leading OEM." Any guesses?
The AATI acquisition is intriguing, assuming Skywork's is angling to boost its share in an Apple iTV. AATI's power management IC's are focused on display and backlighting solutions, particularly for LED backlit LCD's. The company expects to see upside across its mobile internet customers, but highlighted the deal expands its footprint into new markets, which includes products targeting power management within cable products.
Clearly, there is a huge appetite for mobile devices and an emerging appetite for suppliers to position themselves for a connected content world. Each is suggesting growth will come not just from the endless stream of smart phone sales, but from emerging consumer electronics devices, such as smart televisions. The focus of product innovation on smart television, connected homes, better displays, smaller chips and energy efficiency all make sense.
Overall, I think suppliers have been tasked with - and are responding with - products to drive products which integrate video, data and voice. And, with guidance suggesting new products and significant back end year potential from such devices, evidence seems to support the theory of a major product out of Apple - even if Siri isn't willing to agree.
Disclosure: I am long NUAN, BRCM, AVGO.