Soundview 12/17: Industry Net:We are cautious on RFMD due to near-term concerns regarding European GSM, which represents a sizable portion of revenue. For SWKS, while we feel that the company’s secular growth drivers are intact,
weaker GSM sell-through elevates the risk in the company’s ability to achieve positive 1Q revenue growth amid a 16% quarter-over-quarter decline in handset units.
• SoundView’s checks indicate weaker than expected sell-through in Western Europe, causing order pushouts that could affect GSM component sales in 1Q.
• RFMD receives 46% of its total revenue from GSM - much of this from
Nokia, approximately a 50% customer. While we believe that 4Q results are likely to be at the high end of guidance due to strong end-of-year component sales, 1Q GSM sell-in weakness puts our 1Q RFMD estimates at risk.
Weaker sell-through on Western European GSM platforms is a cause for concern for RFMD, which gains 46% of
its total revenue from GSM/GPRS components. NOK is the principal customer for the company’s GPRS
components, with NOK comprising 48%-49% of total revenue. As discussed in the accompanying notes from
SoundView’s handset team this morning, we believe that 4Q NOK product delays have served to hold back 4Q
sell-through. While our current estimates indicate a 3% quarter-over-quarter revenue decline for RFMD in 1Q,
we believe that SoundView’s handset unit estimate changes this morning suggest that RFMD could experience a
1Q revenue decline by as much as 7% quarter over quarter, below current Street estimates.
We are also concerned regarding previously discussed product delays with RFMD’s Polaris RF chipset, which is
intended to provide customers with a more integrated approach than the current generation of stand-alone
parts. The later than expected launch of Polaris means that this product is not expected to contribute to
revenue in 1Q, and therefore cannot provide a buffer against seasonality.
In addition, we note that we expect RFMD’s C03 estimates to decline by approximately $0.05-$0.06 as a result
of the Resonext acquisition, which has not yet closed. Revenue from this acquisition is not expected until
2H02. We further note that pricing declines on 802.11 chipsets could potentially create additional dilution from
the Resonext transaction, should current pricing trends continue.
david matherly |
