We recently published an article on September 27, 2012 titled "Will these 3 Apple suppliers soar again?" examining the stocks of three Apple (NASDAQ:AAPL) suppliers: Skyworks Solutions Inc. (NASDAQ:SWKS), Qualcomm Incorporated (NASDAQ:QCOM) and Broadcom Corporation (NASDAQ:BRCM). Following such publication, we received inquiries from our readers about Triquint Semiconductor Inc. (NASDAQ:TQNT), and Avago Technologies Ltd. (NASDAQ:AVGO), with at least one reader wondering: "why do you analysts always leave TQNT out of your articles?"
Triquint Semiconductor Inc.
Triquint shares have only risen by 2.67% year-to-date, from $4.87 on December 30, 2012 to $5.05 on October 3, 2012. Meanwhile, Triquint has been identified as a supplier of chips to the iPhone 5, providing WCDMA/HSUPA power amp and duplexer modules. Triquint's stock gains seem quite limited when compared to Skyworks' 44.2% year-to-date increase as well as Broadcom's 15.74% and Qualcomm's 13.47%.
It has been estimated that Apple may sell as many as 200 million iPhones in 2013. It has also been estimated by Barclays that Triquint will generate about $1.40 for each iPhone 5 unit for its RF content. This could translate to $280 million in revenues for Triquint from the iPhone alone. Considering that Triquint's total revenues are expected to be about $816 million for the year ending December 2012, and $907 million for 2013, it is evident that Apple related revenues would represent a large percentage of Triquint's top line. When taking other products into consideration that also use Triquint chips, such as the iPad 3, in addition to Triquint's other clients such as Samsung, it is likely that Triquint's revenue estimates for 2013 may have some room to be revised higher.
For the current year ending December 2012, analysts are expecting Triquint to generate a loss of 1 cent. Meanwhile, for the year ending December 2013, such estimates are currently for a profit of 26 cents. With its current share price at $5.00, that would yield a forward P/E ratio of 19.23. Although Triquint's Price/Book ratio of 0.88 is on the low side vis-a-vis the semiconductor industry average of about 3.09, its forward P/E ratio of 19.23 is somewhat on the high side (whereby as per our September 27 article, forward 2013 P/E ratios for Apple, Skyworks, Broadcom and Qualcomm were 12.48, 10.68, 11.04 and 15.16 respectively). Furthermore, taking into consideration Triquint's poor performance during 2011, it is not surprising that analysts' opinions are bearish for Triquint, with 9 hold recommendations, 1 strong buy, 1 buy and 1 underperform.
It is possible that Triquint's share price has lagged due to subdued enthusiasm from analysts due to Triquint's poor performance in 2012. Although most analysts would typically evaluate the attractiveness of stocks based on future prospects, it is also the case of "show me the money," before they would necessarily give Triquint the benefit of the doubt. Despite the prospect for Triquint's revenues to be possibly revised higher for 2013 (as long as solid iPhone 5 sales materialize), the current valuation of Triquint is not necessarily as attractive as valuations of other Apple suppliers such as Skyworks and Broadcom. Hence, in the case of Triquint, it is not necessarily the case that it has been forgotten, but more of a case of having fallen out of favor. Having said so, Triquint's low market capitalization of about $819 million may appeal to some investors who are looking for diversification among multiple Apple suppliers, and who believe that Triquint's clients will experience solid sales in smartphones and iPads.
Avago Technologies Ltd.
Avago Technologies Ltd. shares have risen by 19.79% year-to-date, from $28.86 on December 30, 2012 to $34.57 on October 3, 2012. Avago has also been identified as a supplier of chips to the iPhone 5, providing dual band LTE duplexer module and LTE power amplifier. Unlike Triquint, Avago shares have actually shown solid appreciation year-to-date, even exceeding returns provided by Qualcomm (+13.47%) and Broadcom (+15.74%).
It has also been estimated by Barclays that Avago will generate about $2.40 to $2.70 for each iPhone 5 unit for its chips. This could translate to $480 million to $540 million in revenues for Avago from the iPhone alone (assuming 200 million iPhone unit sales in 2013). Avago's total revenues are expected to be about $2.58 billion for the year ending October 2013. As in the case of Triquint, although to a somewhat lesser extent, Avago's Apple related revenues would also represent a large percentage of Avago's top line. Similarly, when taking other products into consideration that also use Avago chips, such as the iPad 3, it is likely that Avago's revenue estimates for 2013 may also have some room to be revised higher.
Avago has a current market capitalization of $8.46 billion. For the current year ending October 2012, analysts are expecting Avago to generate a profit of $2.55. Meanwhile, for the year ending October 2013, such estimates are currently for a profit of $2.82. With its current share price at $34.57, that would yield a P/E ratio of 13.56 for the current year and a forward P/E ratio of 12.26 for next year. Avago's forward P/E ratio is quite attractive and quite similar to Apple's forward P/E ratio of 12.48. Such attractive valuation is evident in analysts' opinions for Avago, with 6 strong buy, 9 buy and 1 hold.
Given Avago's strong year-to-date performance, in addition to its favorable bullish analysts' outlook, it does seem that Avago is neither forgotten, nor out of favor. From a valuation perspective, we would favor Skyworks as an Apple play, although Avago may provide better diversification due to its lower volatility; Skyworks has traded between $13.72 and $31.44 during the past 52 weeks, with a beta of 1.60, while Avago has ranged between $27.39 and $39.22 with a beta of 0.95.