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Barclays Cites Technological Developments And Bandwidth Needs As Key Growth Factor For Small Cells - Cites Cavium As Primary Industry Beneficiary

|Includes:Cavium Networks, Inc. (CAVM)

According to a January 3 report issued by Barclays entitled "Technology 2013 - Balancing Traditional Playbook with Realities of Recovery and Valuation," the authors note that although "carrier capex is likely to remain muted (especially in 1H13), the need for higher bandwidth in wireless/wireline infrastructure as well as in the enterprise continues to shift toward multicore processors from only ~20% of the market today to 80% over time."

This need for increased bandwidth has been cited as a key driver in the development of small cells. A second key growth factor, the authors note, are technological development that have led lower equipment prices, including, "[t]he use of 16 and 32 core processors [which] allows for more streamlined designs that combine the control and dataplanes as well as the absorption of surrounding chips including discretes, DSPs, and PLD (gluelogic)." This development, the authors conclude, has led to a shift that "has helped lower the price of a macro base station from $50K to closer to $10K today." Moreover, the authors note, "[t]echnical challenges such as the more rapid data rate fall-off as physical distance from the base station increases for 4G/LTE vs. 3G are an additional factor driving the rollout of micro/small-cells.

With respect to specific industry beneficiaries, the authors note that "[w]e see CAVM as a winner in this environment with wins at 3 of the top 6 base station OEMs (NSN, Samsung, Huawei) and 5 of 6 wireless backhaul OEMs (adds ALU and ZTE). Cavium and Broadcom/NetLogic also see opportunities in micro/small-cell basestations as part of next-generation 4G/LTE networks as carriers explore ways of reducing the net cost of ownership for their wireless networks by reducing overall capex spend and power consumption." Accordingly, the authors conclude, that Cavium remains "a Top Pick on Base Station Ramps, Increasing Content in Back Haul Wired & Cable, and New Product Ramps (Fusion Proven, Neuron Sampling Now)."

Stocks: CAVM