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TriQuint Semiconductor (Nasdaq: TQNT ) is a radio frequency solutions provider for the telecommunications, networking, and defense industries.
Today, let's look at three things investors should be watching regarding TriQuint Semiconductor, as they will provide us with better insight into the company.
1. Apple and the tech cycle
First and foremost, nothing matters more to the health of TriQuint Semiconductor than the growth of Apple’s (Nasdaq: AAPL ) iPhone. TriQuint’s RF solutions have been a part of the iPhone for numerous generations now, and it’s become an integral component supplier to the smartphone market, in general. The good news here is that, as long as TriQuint remains diligent in its innovating efforts, there’s little likelihood that Apple would switch away from using TriQuint’s RF chips. TriQuint also has time on their side, because it’s both expensive and time consuming to switch manufacturers in the iPhone.
On the downside to TriQuint’s reliance on Apple, it also leaves the company’s telecommunications RF business extremely vulnerable to the ups-and-downs of the tech cycle. In the most recent quarter, Apple’s iPhone 4S sales tumbled from 35.1 million to just 26 million -- a 26% drop -- with consumers anticipating the debut of the iPhone 5 later this year. Similarly, TriQuint noted that its telecommunications revenue fell 24% in its second-quarter results, with production capacity falling due to fewer orders from Hon Hai Precision, the operator of FoxConn, Apple’s iPhone and iPad builder.
2. Competition and production capacity
The next most important factor to keep an eye on is to note what Apple’s other RF solution suppliers are up to. At the moment, TriQuint is splitting much of the RF solutions built into the iPhone 4S with Skyworks Solutions (Nasdaq: SWKS ) . However, things haven’t always been so fun and nice; Skyworks Solutions was the RF winner in the Verizon iPhone at the expense of TriQuint.
Also, as my colleague and senior technology analyst at The Motley Fool, Eric Bleeker, has pointed out before, RF Micro Devices (Nasdaq: RFMD ) , which has seen sales slump due to its reliance on Nokia’s now archaic phone designs, will actively be looking for new streams of revenue, which could entail them sneaking their technology into the next-generation Apple iPhone.
Another boom or bust for TriQuint is its production capacity. Clearly, TriQuint wants to minimize downtime and maximize productivity but, hopefully, not at the cost of losing business to its rivals. During production of the iPhone 4, TriQuint’s production capacity was peaking around 90%. Given the ridiculously bullish forecast from iPhone audio-chip supplier Cirrus Logic (Nasdaq: CRUS ) of 70% to 90% sequential revenue growth, TriQuint’s production facilities had better be prepared to handle the influx of orders associated with the next-generation iPhone, or risk losing market share to Skyworks Solutions or its other peers.
3. TriQuint’s networking and defense operations
Little known (or cared about) fact -- TriQuint actually makes more than just RF solutions for the iPhone. TriQuint’s networking and defense operations may not have the exciting growth potential that its telecom operations do, but they are without question an area of steadier cash flow and higher predictability.
TriQuint’s diverse portfolio of RF products for service providers witnessed a 5% decline in revenue in the second-quarter, but this was more or less consistent with the entire sector. Investments by big telecoms in mainline infrastructure build-outs have been put on the back burner in favor of developing data centers, storage, and other cloud-computing operations. At some point, mainline spending will return, and that will be when TriQuint begins to benefit.
TriQuint’s defense segment also adds cash flow stability, in that it receives contracts from the U.S. Armed Forces, which are backed by the full faith of the U.S. government. This year alone, TriQuint won contracts from the Army, Navy, and the Defense Advanced Research Projects Agency. The downside of these contracts is that they’re incredible difficult to predict on an ongoing basis, and they could shrink in the future with the U.S. government being forced to address its gigantic federal deficit by reducing defense spending.
Now that you know what to watch for, it should be easier to analyze TriQuint Semiconductor's successes and pitfalls in the future and, hopefully, give you a competitive investing edge.
If you're still craving even more info on TriQuint Semiconductor, I would recommend adding the stock to your free and personalized watchlist, so you can keep up on all of the latest news with the company.
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