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Piper Jaffray is out positive on RF Micro Devices (NASDAQ:RFMD) saying their recent industry checks and discussions with management suggest RFMD is well-positioned to drive strong revenue growth and improve gross margins during the next several quarters. While PJ expects normal seasonality in the March quarter slightly offset by accelerating Polaris 3 shipments to Nokia, they believe FY09 could witness several significant growth drivers.

Firm believes Samsung could also drive significant growth for RFMD during CY08, with design wins into multiple 3G handsets expected to launch. In fact, they believe Samsung could become a 10% customer for RFMD by mid-2008.

They expect RFMD to host an upbeat analyst day on Nov. 15th, with a focus on longer-run growth opportunities and efforts to improve its gross margins. Firm believes Polaris 3 yields could improve during the March quarter, helping this product approach its longer-run gross margins of ~30%. Further, they believe transition of pHEMT towards internal supply sources could further boost gross margins during the June quarter. Consequently, they continue modeling a return to 33-34% gross margins for RFMD by calendar Q208.

Strong ramp of Polaris 3, share gains within Samsung, and growing business with Tier 2 handset customers could lead PJ's FY09 estimates to prove conservative. Reits Outperform and $9 target.

Notablecalls: I was positive on RFMD starting from early September, highlighting several calls from CIBC and Citigroup as Actionable. The stock made a nice 25% upside move but after coming somewhat below expectations on guidance side (profitability) on Oct 23, the stock is back where it started.

The problem? The primary culprits were a sharp price increase in externally sourced pHEMT switches and poor initial yields on Polaris 3 (P3) due to a material problem (also sourced externally).

The management promised to take care of both problems and investors are likely going to hear at least some good news on these fronts on Nov 15.

The demand for components continues to be strong, so I view recent weakness as a buying opportunity. Note that PJ's target represents 50% upside from current levels.

Disclosure: none

Source: RF Micro Devices: Recent Weakness is a Buying Opportunity