MKM Partners
We are previewing radio-frequency names RF Micro Devices and
Skyworks Solutions, reporting this Wednesday and Nov. 6,
respectively.
Near term radio-frequency (RF) fundamentals will be driven by
sell-through and relative exposure across Apple (ticker: AAPL),
China Inc. and Samsung [of South Korea]. Apple exposure is most
favorable as evidenced by Skyworks' ( SWKS) preannouncement. China
Inc. exposure is turning more favorable -- November and December
sales should pick up as better models continue to launch in the
face of weak sell-through/inventory build in prior months (original
equipment manufacturers (OEMs) don't wait for digestion of stale
inventory). Samsung share loss may continue, on a squeeze at both
ends by large-screen iPhone 6 and [Google ( GOOGL)] Android
competition tarnishing brand perception and loyalty at the
low-end.
While both RF Micro ( RFMD) and Skyworks benefit from the
"golden age" of RF, at the moment we prefer Skyworks on present
exposure and content trends.
While some are calling the bottom, we think there is room for
further loss of Samsung market share given pressures at each end of
the product tier. At the low end, we don't think customers are
particularly brand-loyal; brand status and perception is tarnished
by share loss, and customers may readily switch to increasingly
price- and feature-attractive Android alternatives from China Inc.
In China, a rapid collapse of perception in the Samsung brand could
result in share carved up by China OEMs. Samsung likely impacts RF
Micro more than Skyworks (25% and 15% customer in latest respective
10-k filings).
Our proprietary consumer-device survey (done in conjunction with
MKM's Intelligence Community team), suggests that Samsung will
return to seasonal strength early next year. There are a greater
number of Samsung smartphone owners year-over-year (38% now versus
25% last year), and near-purchase intentions for Samsung have
markedly increased (38% versus 28%). In fact, near-term purchase
intentions are leaning slightly more towards Samsung rather than
Apple this year (38% and 35%, respectively) versus a more-even
balance last year (28% and 29% respectively).
Our checks with sales engagement teams in China indicate a
pickup in component sales for November and December OEM builds. The
past few months have been hampered by slow sell-through and some
inventory digestion as early movers launched more expensive, less
competitive products. However, OEMs do not wait for full digestion
of stale inventory, but continue to launch better products to help
drive subscriber growth at China Mobile ( CHL). At the moment,
suppliers are expecting fewer than 250 million 4G units at China
Mobile in 2015 (up from a 70 million-80 million unit target this
year). With China Unicom ( CHU) and China telecom slower to adopt
4G, this appears more cautious than more aggressive expectations
for total China 4G sales of 300 million.
Improving China should not be viewed as a positive derivative
for Marvell Technology Group's ( MRVL) (rated at Buy, $17 price
target) China 4G exposure. Not only is it facing intense
competition in quad-core and octa-core long-term evolution (LTE)
solutions from Qualcomm ( QCOM) and MediaTek [of Taiwan], but its
OEM exposure has turned less favorable as early-to-market LTE
suppliers (Lenovo, Coolpad [both of China]) face share loss as
competition improves feature sets and average sales prices
(ASPs).
-- Ian Ing
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