IPhone 7 cy­cle may be huge: chip stocks could ben­e­fit

Financial Mirror (Cyprus) - - FRONT PAGE -

With the demise of Ap­ple Inc. (NAS­DAQ: AAPL) be­com­ing an in­creas­ingly fre­quent topic on Wall Street, with some an­a­lysts even say­ing that the glory days are over, the ques­tion for in­vestors is pretty easy, are they right? The bot­tom line is that Ap­ple is con­tin­u­ing to add prod­uct and ca­pa­bil­i­ties, and in a new re­port the semi­con­duc­tor an­a­lysts at Mer­rill Lynch feel that the iPhone 7 cy­cle could be stronger and po­ten­tially big­ger that the iPhone 6 cy­cle.

One thing that the Mer­rill Lynch team notes in their re­port, is that the ra­dio fre­quency (RF) con­tent in the iPhone 7 is ex­pected to be 15% to 20% more than the iPhone 6s. With more con­tent ex­pected, the an­a­lysts are very bullish on three com­pa­nies that are lead­ers in the RF chip cat­e­gory. Toss in a good start for Sam­sung Galaxy S7 and pos­i­tive com­men­tary from Me­di­atek man­age­ment, and all three could be poised for a solid move higher. All three are also rated Buy at Mer­rill Lynch.

This is the newly com­bined en­tity that was for­merly known as Avago and Broad­com. Broad­com Ltd. (NAS­DAQ: AVGO) is a lead­ing de­signer, de­vel­oper and global sup­plier of a broad range of ana­log and dig­i­tal semi­con­duc­tor con­nec­tiv­ity so­lu­tions. Its ex­ten­sive prod­uct port­fo­lio serves four pri­mary end mar­kets: wired in­fra­struc­ture, wire­less com­mu­ni­ca­tions, en­ter­prise stor­age and in­dus­trial and other. Ap­pli­ca­tions for the com­pany’s prod­ucts in th­ese end mar­kets in­clude: data cen­ter net­work­ing, home con­nec­tiv­ity, broad­band ac­cess, telecom­mu­ni­ca­tions equip­ment, smart­phones and base sta­tions, data cen­ter servers and stor­age, fac­tory au­to­ma­tion, power gen­er­a­tion and al­ter­na­tive en­ergy sys­tems and dis­plays.

The com­pany pro­duces RF front-end for LTE-en­abled Ap­ple prod­ucts. Wall Street es­ti­mates that the com­pany does 15% of its to­tal busi­ness with Ap­ple. Ad­di­tional es­ti­mates are that the com­pany has be­tween a 13% and 17% rev­enue ex­po­sure to Ap­ple in the wire­less com­mu­ni­ca­tions seg­ment, which has been guided higher. Cus­tomer di­ver­sity and con­tent for Sam­sung could be more than enough to off­set slower Ap­ple busi­ness, should it oc­cur.

The Mer­rill Lynch an­a­lysts like the lead­er­ship in the mo­bile, data cen­ter and broad­band mar­kets, and es­pe­cially in the RF arena. Many on Wall Street see a cycli­cal re­bound in in­dus­trial and com­mu­ni­ca­tions de­mand a well.

Broad­com in­vestors are paid a 1.3% div­i­dend. The Mer­rill Lynch price tar­get is a mas­sive $200, and the Thom­son/First Call con­sen­sus tar­get is $178.59. Shares closed most re­cently at $152.89.

This is the com­pany that was formed af­ter the merger of RF Mi­cro Devices and Triquint Semi­con­duc­tor. Qorvo Inc. (NAS­DAQ: QRVO) is a lead­ing provider of core tech­nolo­gies and RF so­lu­tions for mo­bile, in­fra­struc­ture and aero­space/de­fense ap­pli­ca­tions. It has more than 7,000 global em­ploy­ees ded­i­cated to de­liv­er­ing ev­ery­thing that con­nects the world.

The com­pany has among the in­dus­try’s broad­est port­fo­lio of prod­ucts and core tech­nolo­gies. The Mer­rill Lynch an­a­lysts are con­vinced that the higher RF con­tent in new smart­phones should off­set quar­terly unit volatil­ity. They also think strate­gic merg­ers and ac­qui­si­tions could help di­ver­sify the com­pany away from mo­bile de­pen­dence and add longer life busi­ness cy­cle prod­ucts.

Mer­rill Lynch has a $56 price ob­jec­tive, and the con­sen­sus tar­get is $55.13. The stock closed Mon­day at $50.64.

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This stock re­ally rolled over from highs printed lasts sum­mer and could be ready for a big move higher. Sky­works So­lu­tions Inc. (NAS­DAQ: SWKS) de­signs, de­vel­ops, man­u­fac­tures and mar­kets pro­pri­etary semi­con­duc­tor prod­ucts, in­clud­ing in­tel­lec­tual prop­erty world­wide. Its prod­uct port­fo­lio in­cludes am­pli­fiers, bat­tery charg­ers, cir­cu­la­tors, DC/DC con­vert­ers, de­mod­u­la­tors, de­tec­tors, di­rec­tional cou­plers, di­ver­sity re­ceive mod­ules, fil­ters, fron­tend mod­ules, LED driv­ers, low noise am­pli­fiers, mod­u­la­tors, op­to­cou­plers/op­toiso­la­tors, phase shifters, phase locked loops, power di­viders/com­bin­ers, syn­the­siz­ers, tech­ni­cal ce­ram­ics, VCOS/syn­the­siz­ers and volt­age reg­u­la­tors.

The com­pany posted a very solid fourth quar­ter, with sales up 15% and earn­ings up a stun­ning 27% year over year. While the low de­mand for the iPhone 6s did trim the firstquar­ter out­look, the an­a­lysts are very pos­i­tive on the stock as the iPhone 7 cy­cle be­gins. In fact, they ex­pect the com­pany to gain 10% to 15% higher con­tent ver­sus the pre­vi­ous gen­er­a­tion phone.

The $85 Mer­rill Lynch price tar­get is lower than the con­sen­sus tar­get of $91.23. Shares closed most re­cently at $77.21.

With most of the Ap­ple slow­down long since priced into th­ese top stocks, in­vestors with an eye to­ward the se­cond half of 2016 could be in a sweet spot now as the stocks still have big up­side to the Mer­rill Lynch tar­gets. (Source: 24/7 Wall St.com)

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