I recently asked the universe whether TriQuint Semiconductor
The fourth-quarter results are in, and investors responded with a nearly 10% overnight price drop. All told, TriQuint shares have now gained just 24% in 2012. My bearish CAPScall from December is still firmly on the red side of the street.
You win some, you lose some
TriQuint beat Street estimates on both the top and bottom lines, delivering $0.08 of non-GAAP earnings per share on $227 million in revenue. The iPhone certainly helped, though TriQuint can't talk about its Apple relationship without angering the Cupertino overlords. CEO Ralph Quinsey wants to broaden his customer base but wistfully noted that the mobile market is concentrating on just a couple of leading players. "I'm glad that we are involved with some of the successful customers, and we benefit from that," he said.
For the next quarter, the company has locked up firm orders for about $215 million of revenue and expects to deliver about $0.02 of earnings per share. Those sales would be roughly flat from the year-ago period, better than the 10% sales drop seen in Q4 and well ahead of analyst projections.
That's the good news. On the downside, TriQuint's margins are shrinking like a cotton shirt in hot water. Gross margins in the fourth quarter were just 29.5%, down from 34.9% in the previous period and 39% a year ago. The last time this metric was that skimpy was the spring of 2009. CFO Steve Buhaly pinned the blame on product mix and low utilization in TriQuint's factories. Margins should rebound in the next quarter, but only ever so slightly.
In the long run, TriQuint needs its optical networking components to do well. That's a high-margin business and you could certainly do worse than following the successful template of Infinera
Let's take some action
So there's light at the end of the tunnel, and management seems to have a workable plan of action at this point. I've had enough punishment on the wrong side of this story and am removing my bearish CAPScall on TriQuint today.
That said, I wouldn't back up the truck at these prices either. I still think the company expanded its manufacturing lines way too quickly in 2011 and it'll take years before that investment pays off. Meanwhile, radio-chip upstart Avago
Others think TriQuint has what it takes. Some of the Fool's top analysts even call this stock out as one of the top three semiconductor plays on the mobile market. Read their free report so you can weigh it against my concerns. They don't call us "motley" for nothing, you know.
Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of TriQuint Semiconductor, Infinera, and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Infinera. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.