3 Reasons Why Selling These Apple Inc Suppliers Would Be a Mistake

Both companies have appreciated strongly this year on the news of their merger, but there are some solid reasons you should still hold them.

May 12, 2014 at 12:30PM

In February, RF Micro Devices (NASDAQ:RFMD) and TriQuint Semiconductor (NASDAQ:TQNT) announced that they are merging to capture a larger share of the radio frequency chips market. Shares of both companies rose sharply after the announcement, as the merger will result in the creation of one of the biggest players in the market for connectivity chips. But, even after the announcement, shares of both companies have risen 25% on the back of terrific results.

Both RF Micro and TriQuint supply components to the biggest names in the mobile devices industry: Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF). As such, the merger of the two will create a powerhouse that will deliver terrific revenue and earnings growth in the future.

More efficiently tapping the Apple universe
In the first quarter, TriQuint derived 26% of its revenue from Apple contractor Foxconn. Even RF Micro's revenue from Apple was in the double digits, although the company didn't disclose an exact percentage. What stands out is the fact that both companies gained dollar content in the latest iDevices.

According to Michael Walkley of Canaccord Genuity, RF Micro was a winner with the iPhone 5s and 5c. In fact, the company seems to have strengthened its position with Apple by taking business from Peregrine Semiconductor. TriQuint, meanwhile, probably outpaced another Apple supplier, Skyworks Solutions. According to Pacific Crest Securities' teardown review of the latest iPhones, TriQuint "likely achieved more meaningful dollar content gains vs. Skyworks on overall up PA content in the iPhone 5s." 

So, it is quite clear that both companies have been gaining more business at Apple. This will be a big advantage for the combined company, as Apple is likely readying its newest groundbreaking iPhone for release this year, reportedly in August, according to supply chain rumors. The first, a 4.7-inch version, will probably be released first, followed by a bigger 5.5-inch or 5.6-inch model in September, according to Reuters. 

Also, according to the Economic Daily, a total of 80 million iPhone 6 handsets will be manufactured this year. Apple might be finally making a bold move to address the needs of customers who have wanted a bigger device, so the next product transition could bring new users into the Apple ecosystem.

A Kantar survey reveals that devices with a screen size greater than 5 inches accounted for 40% of shipments in the world's biggest smartphone market, China. Hence, a bigger iPhone, or rather an iPhablet, should help Apple generate more sales, ultimately benefiting the combined RF Micro and TriQuint.

RF Micro's Samsung clout
While TriQuint's top line is skewed toward Apple, RF Micro generates most of its revenue from Samsung. In fiscal 2013, Samsung accounted for 22% of its revenue. The company has been landing more dollar content in Samsung's phones and saw a ramp up in sales as the South Korean company increased production of its latest flagship, the Galaxy S5. RF Micro saw increased demand for discrete power amplifiers, or PAs, multi-mode PAs, antenna switches, discreet switches, and power management chips.

The good news is that sales of the Galaxy S5 are tracking ahead of its predecessor. According to Chitika, within 25 days after its launch, the Galaxy S5 accounted for 4.3% of all continental Samsung smartphone web traffic in North America. In comparison, the Galaxy S4 accounted for just 2% of web traffic in the same time frame last year. 

Thus, RF Micro's growing clout at Samsung and the strong performance of the smartphone giant's latest flagship should lead to solid gains for a merged RF Micro and TriQuint.

Cost benefits
The combined entity expects $150 million in cost synergies after the merger. In fact, both RF Micro and TriQuint have been undertaking cost-cutting moves in recent quarters, and this added synergy could lead to greater earning power in the future. In their respective last-reported quarters, earnings guidance of both companies was way ahead of consensus estimates.

TriQuint expects to post earnings of $0.06-$0.08 per share in the ongoing quarter, well ahead of the $0.04 consensus. Similarly, RF Micro guided for an EPS of $0.17, blowing past the $0.11 Wall Street estimate.  This is a sign of greater things to come, as the merger would enable RF Micro and TriQuint to further amplify their earnings growth.

Bottom line
The merger of RF Micro Devices and TriQuint Semiconductor is a win-win situation for both companies. They will benefit from the two major yearly smartphone launches, and the combined efficiencies of both will enable them to lower costs. As such, if you own shares of either company, you would be better off holding them instead of booking profits after landing terrific gains this year.

Apple's working on the biggest thing to come out of Silicon Valley in years, but this supplier is a better play than Apple
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and TriQuint Semiconductor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information