English: IBM Simon smartphone in charging station. (Photo credit: Wikipedia)
RFMD : NASDAQ : US$5.44
BUY
Target: US$7.50
COMPANY DESCRIPTION:
RF Micro Devices is a leading supplier of power amplifiers, front end modules and other RF components for mobile devices (handsets, smartphones, tablets) and communications infrastructure.
STEADY GM IMPROVEMENT IN Q1/F2014; ANTICIPATE 300-400BP INCREASE BY Q3/14
Investment recommendation:
We believe RFMD’s broad RFIC portfolio is driving clear market share gains with leading smartphone platforms and versus its RFIC competition, and we believe RFMD should grow much faster than the RFIC market in F2014/15. We also believe the saleof the UK fab, improved capacity utilization and additional assembly capacity in Beijing, ramping volume of new ultra low-cost CMOS PAs, and an overall improving mix of new products ramping with leading smartphone platforms should drive strong margin leverage. We reiterate our BUY rating and $7.50 price target.
Investment highlights
Q1/F2014 sales of $293M and pro forma EPS of $0.09 exceeded our $288M/$0.07 estimates. We were impressed with the 5.3% sequential
CPG sales growth following strong Q4/F2013 levels. We believe RFMD has strong design momentum with leading smartphone platforms and anticipate ramping sales exiting C2013.
Guidance for Q2/F2014 sales of $305M-$310M and pro forma EPS of $0.10-$0.11 was consistent with our $311.7M/$0.11 estimates and consensus of $307M/$0.10. We believe this guidance is prudent given timing of leading smartphone launches and maintain our above-consensus December quarter estimates.
RFMD reported June quarter pro forma gross margin of 35.1% versus our 35.5% estimate. While RFMD is making progress toward expanding gross margin, we believe margins will materially improve in H2/F2014 from current levels for the reasons outlined above, especially post the sale of the UK fab and ramp of new products.
We increase our F2014 pro forma EPS estimate from $0.43 to $0.44 and maintain our above-consensus F2015 estimate of $0.68.
Valuation: Our $7.50 price target is based on shares trading at roughly 11x our F2015 pro forma EPS estimate.
Related articles
- RF Micro Devices(R) to Webcast Quarterly Earnings Conference Call on July 23, 2013 (virtual-strategy.com)
