TriQuint Semiconductor (Nasdaq: TQNT) straddles the dividing line between two important markets:
- TriQuint's bread-and-butter wireless communications chips trace a direct line to smartphones and other modern, mobile gadgetry.
- Its optical networking components actually attack the same mobile data market from a different angle: The nearest cellphone tower needs to interface with central servers and the wider Internet, and that's usually done by high-speed optical uplinks.
There's more to TriQuint than these two components, of course, but that's where all the growth is happening.
And TriQuint loves high-end smartphones. A very basic, voice-only phone needs only about $1 worth of TriQuint parts to make the connections it needs (and doesn't push those optical networks much at all), while a midrange feature phone rings up something like $3 per unit and a 3G or 4G smartphone adds up to roughly $6 of TriQuint parts. The more smartphones encroach on sales of lower-end handsets, the richer a company like TriQuint becomes.
The optical components help differentiate TriQuint from other radio-signal chip designers such as Skyworks Solutions (Nasdaq: SWKS), RF Micro Devices (Nasdaq: RFMD), and Hittite Microwave (Nasdaq: HITT). If you have to diversify, you might as well pick a secondary market that complements the first.
In the just-reported first quarter, TriQuint rode this strategy to 47% year-over-year earnings growth on 24% higher sales. That was exactly what your average Wall Street analyst had expected; nevertheless, TriQuint's shares have climbed gently since that report partially thanks to earnings from rival Skyworks that boosted the entire industry.
Skyworks claims that it's stealing market share from rivals such as RF Micro and TriQuint at the moment, and intends to back that tough talk up with more of the same in coming quarters. Then again, TriQuint CEO Ralph Quinsey is saying pretty much the same thing, so it's a duel of conflicting claims at 10 paces.
Sorting out who's right isn't easy -- or even necessary. The market for smartphone radios is large enough and growing quickly enough to support several winners, including both Skyworks and TriQuint. But TriQuint is hedging its bets with optical expertise all the same, making it the safer and more diverse bet in many ways.
