This article is part of our Rising Star Portfolios series.
When it came to recommending TriQuint Semiconductor
In the previous iPhone 4 model, TriQuint split duties with Skyworks
There could be many reasons for losing content in Verizon's iPhone, but realistically, all signs point to capacity constraints. As I noted in yesterday's buy recommendation, TriQuint's Oregon fabrication facility is running near full capacity, and it looks like TriQuint was unable to meet demand for the CDMA iPhone from Apple
What's the damage?
While the news might come as a gut-punch to some investors, it's important to note that TriQuint's a victim of its own success. I love component companies with advantageous positions within the iPhone, not only because demand for the devices is surging, but also because Apple releases a consistent model with a full year of production. Compare that to, say, winning a contract with the newest Motorola Mobility
Of course, there's a downside: Companies losing out on the iPhone are shut out for the year. In the Verizon iPhone 4, however, the lifespan should be shorter, since Apple will be readying a redesigned iPhone 5 for midyear. For TriQuint, that makes the lost sockets in Verizon's iPhone 4 a more temporary situation.
Long-term, it's far more important that TriQuint maintain a solid relationship with Apple than chase a win that could damage its relationship with the company, should TriQuint prove unable to perform. Some 80% of the world's networks use the GSM and WCDMA setup employed by AT&T. Holding that contract means far more to TriQuint's future.
Is the GSM contract in trouble?
I don't want to discount the pain of losing a design win with Apple. Whatever the situation, that's not a happy event. However, I still strongly believe that it's in Apple's best interests to spread out its radio-frequency chip contracts. With a longer lead time before iPhone 5 ramps, and capacity coming online throughout the second half of the year, I wouldn't assume that today's events mean that TriQuint will lose a place in the iPhone 5. It's always a possibility, but it seems counter to Apple's best interests.
Even after today's news, I'm still a fan of the RF industry and the positive dynamics it should enjoy throughout 2011. It's never fun to see a recommendation immediately drop 5% the following day, but this is a volatile industry where big wins and losses are common. That was part of my rationale for broadening out from Cirrus Logic
Likewise, if you find yourself with an outsized position in any semiconductor stock, it's wise to move your eggs into several baskets. If you like the RF industry, but today's announcement gave you a bit of a panic attack, maybe Skyworks Solutions would better suit your investing style. Skyworks is a leader in the field, which often brings a bit more stability.
In any case, I'm going forward with my TriQuint buy. There might be some choppy waters ahead, but I think if we look back on the company in a year, today will be less of a "canary in the coal mine" situation, and more of a speed bump.
If you'd like to continue following my thoughts on TriQuint, please subscribe to my Twitter account @bleekertech, where I'll post links to my updates on the company and other players in the mobile field.
Eric Bleeker owns shares of Cirrus Logic. Apple is a Motley Fool Stock Advisor recommendation. The Fool has written puts on Apple. The Fool owns shares of Apple, and Cirrus Logic. 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.