Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

ERIC : China 3G Contracts Support Thesis

|Includes:ADI, ALTR, CTV, LM Ericsson Telephone Company (ERIC), NOK, PMCS, PWAV, QRVO, SMI, TXN, VIEW, XLNX

EVENT $1B Contract With CHL; $700M Contract With CHU

CAUSE

Upgrades To Both 2G And 3G Networks

IMPACT

Positive For Names Exposed To China 3G Infrastructure Buildout

ACTION

Already Positive On 12 China 3G Names (3.3.09)

SUPPLY CHAIN EVENT TRACKER

5.6.09 Competitor CSCO guides FQ4 revs +2.2% above Street expectations

5.19.09 Supplier ADI guides FQ3 revs +7.5% above Street expectations

6.1.09 Supplier ALTR guides Q2 revs -0.5% below Street expectations

6.11.09 Supplier QCOM guides FQ3 revs +7.1% above Street expectations

6.11.09 Supplier NSM guides FQ1 revs +4.4% above Street expectations

6.22.09 Supplier MRVL guides FQ2 revs +10.0% above Street expectations

6.22.09 Supplier ISIL guides Q2 revs +0.7% above Street expectations

6.23.09 Supplier JBL guides FQ4 revs -4.3% below Street expectations

7.2.09 Supplier XLNX guides FQ1 revs -5.5% below Street expectations

7.8.09 Company ERIC announces US$1.7B In China 2G and 3G infrastructure contracts

EVENT: $1.7B IN CHINA CONTRACTS. Yesterday ERIC reported two separate contracts in China totalling $1.7B. The first, with CHL for $1.0B, is for both 2G and 3G network upgrades. The second, with CHU for $700M, will enable ERIC to be the main supplier to upgrade its GSM networks in 10 provinces, as well as improvements to its GSM/WCDMA core network in 15 provinces.

CAUSE: 2G, 3G UPGRADES.

 

Chinese service providers are expected to spend ~$58B in 3G infrastructure over the next three years, according to China’s Ministry of Industry and Information Technology. China Mobile (CHL; China’s largest wireless carrier with ~463.9M subscribers) is slated to add an additional 60K 3G base stations this year on top of the 20K it already has, rolling out its TD-SCDMA technology to 238 cities by year-end. China Unicom (CHU; ~134.2M subs) plans to roll out its WCDMA technology to 280 cities by year-end. China Telecom (CHA; ~28.9M subs) plans to roll out its CDMA2000 network to 100 cities by year-end.

IMPACT/ACTION: REITERATE LONG POSITION ON CHINA 3G INFRASTRUCTURE.

 

For more information, see our BizMaps at

There has been much speculation about a "pause" in China 3G infrastructure spending. Suppliers have acknowledged that the buildout could be "lumpy," but as we mention above, we view this as a long-term (2-3 yr) trend. Last week, XLNX lowered its Jun-Q guidance; however, the cause was not a pause in China 3G spending, but rather capacity constraints at the 65nm node at UMC, its largest supplier, due to the strong demand. While some of the $1.7B in China contracts ERIC announced today is for 2G infrastructure (we have no way of knowing how much), that does not diminish the fact that China 3G spending is continuing. As a result, we reiterate our long position on US equities exposed to China 3G infrastructure, including ADI, ALTR, ALU, COGO, CTV, ERIC, PMCS, PWAV, SMI, TQNT, TXN, and XLNX..www.connexiti.com.

 

Disclosure: No positions

Stocks: ERIC, ADI, ALTR, NOK, VIEW, CTV, PMCS, PWAV, SMI, QRVO, TXN, XLNX