This article is part of our Rising Star Portfolios series.
Here weeks ago I recommended investors not only buy stock in TriQuint Semiconductor
- The company completely struck out trying to get its components into the Verizon edition of Apple's
(Nasdaq: AAPL)iPhone 4. Ouch.
- After the Apple news broke, TriQuint missed on earnings, guided to a lower first quarter than analysts were expecting, and it blamed manufacturing constraints on losing not only the valuable iPhone contract, but also different products at important customer Samsung. That hurts.
- And since purchasing the stock for my portfolio at today's open, TriQuint has gained 10%. Oy ... Wait, up 10%? What?
Yes, that last bullet point doesn't seem to fit with the broader trend. Is the market seeing something missed in the "earning miss" headlines, or is the company soaring for no reason?
The big news surrounding TriQuint in the past two weeks was the company's earnings. While net income came in a bit light, I actually thought it was a decent quarter for the company. Sales were above expectations, and if it wasn't for some lumpy orders in the company's smaller networking and defense segments, earnings would have come in near or above expectations as well. That's the kind of earnings miss that doesn't really bother me; the company is still executing well in growth areas like mobile and optical networking.
The forward guidance is a bit more troubling. First, there's the headline figure of revenues down 13.2%, a larger seasonal decline than anticipated. Then there's also some quotes from the company's conference call that might foreshadow future trouble with their largest customers:
"As you know, we had a very, very high share at one of our customers and we knew, and we guided that we would not hold onto that forever ... So there will be some shift on platforms, but I think the strength of the business is very, very solid."
The statement could be backward looking, and referring to TriQuint's non-inclusion in Verizon's iPhone 4. Also, TriQuint has lost numerous contracts with its second largest customer Samsung. At the Mobile World Congress in Barcelona, Samsung announced a significant partnership with RF Micro Devices
However, my reading of TriQuint's management is that they often foreshadow future events with quotes that give strong hints to their future direction. With that in mind, could the company be looking at further design losses at Apple? The current quarter was guided down strongly despite an initial iPad run that could reach 5 million units. Granted, the number of iPads that include components for networks like AT&T's is less than 50% of that total; the iPad isn't exactly driving mobile results at TriQuint.
Also, from a longer-term perspective, TriQuint also acknowledged an ability to grow with Samsung and Apple. The company's optimism on this front gained some credence when multiple analysts said supply checks indicate that TriQuint's back in the iPhone 5. By itself, the iPhone is still the main event driving results, and that's positive news. However, you have to wonder whether the company is preparing investors for further shifts out of Apple platforms in the short run.
What might be more troubling than Apple, which I still believe benefits from sourcing power amplifiers from multiple sources and will stick with TriQuint, is trouble with Samsung. The Korean conglomerate has thrown its weight behind Android and is fast becoming a leader of that operating system. In addition, Samsung's targeting complex high-end phones and is pushing quickly into LTE phones that should offer higher content (revenue opportunities) for RF component makers.
I still like TriQuint's long-term outlook, but I'll be the first to admit that the first month owning the company has been a bit rockier than expected. Looking further down the line, TriQuint's rushing to add capacity and still appears to have a valuable expertise with its focus on an "integrated module" approach that's naturally appealing to smartphone manufacturers.
However, many of the short-term catalysts I thought had a high chance of coming true in coming months seem to have been buried by TriQuint losing contracts due to capacity constraints. For that reason, while I don't have concerns about owning the stock outright, I believe the call options are less valuable than I initially thought when buying the stock. I'm actually in the black relative to my initial purchase price, but I'll be looking for a good exit price to sell the August 2011 options in the near term.
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 no companies listed above. Apple is a Motley Fool Stock Advisor selection. The Fool has written puts on Apple. The 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.