Neutral on TriQuint

We recently reiterated our NEUTRAL recommendation on TriQuint Semiconductor Inc. (TQNT).

TriQuint is among the leading players in the handset market. The two important areas where the handset market is expected to grow in 2010 are GSM phones and smartphones. TriQuint’s wireless handset segment contains a broad product offering of RF devices used in the front-end portion of wireless handsets, such as receivers, switches, power amplifiers and SAW filters. RF content is increasing, with new standards that provide greater bandwidth, higher data rates and a better quality of service.

The RF industry is currently enjoying a rising tide of demand with 3Gcontent expansion, healthy smartphone unit growth and a rebounding infrastructure market. Consumer demand for wireless broadband is fueling rapid smartphone growth, bringing four to six times the RF dollar content per smartphone, as compared with a voice-only phone. Smartphones are expected to increase by more than 20% this year The company continues to provide content to all leading smartphone providers (Samsung and Motorola to name a few).

Earlier, TriQuint reported better-than-expected second quarter results driven by higher mix of networks, defense, and aerospace revenues, improved factory performance and lower legal expenses than expected by management.

TriQuint expects revenues to increase by 6% in the third quarter driven by growth in the mobile devices market. Excluding stock-based compensation charges and restructuring charges, EPS is forecast at 20 cents.

Revenues are expected to grow by 25%–30% in 2010. Management also expects increased capital expenditure in the second half to support long-term growth.

However, the battle gets tougher for design wins as each player strives to win designs as the economy shows signs of emerging from a deep recession. Competition is intensifying in the handset market, particularly from players like Skyworks Solutions Inc. (SWKS), RF Micro Devices (RFMD), Avago Technologies Limited (AVGO) and Anadigics Inc. (ANAD). The increased competition is stretching margins.

We are cautiously optimistic on the company’s projected path for margin improvement. Hence, we maintain a Neutral recommendation on the stock. Our recommendation is supported by a Zacks #3 Rank, which translates to a short-term rating of Hold.

TRIQUINT SEMICO (TQNT): Free Stock Analysis Report

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