Today, let's look at three things investors should be watching regarding TriQuint Semiconductor, as they will provide us with better insight into the company.
1. Apple and the tech cycle
First and foremost, nothing matters more to the health of TriQuint Semiconductor than the growth of Apple’s
On the downside to TriQuint’s reliance on Apple, it also leaves the company’s telecommunications RF business extremely vulnerable to the ups-and-downs of the tech cycle. In the most recent quarter, Apple’s iPhone 4S sales tumbled from 35.1 million to just 26 million -- a 26% drop -- with consumers anticipating the debut of the iPhone 5 later this year. Similarly, TriQuint noted that its telecommunications revenue fell 24% in its second-quarter results, with production capacity falling due to fewer orders from Hon Hai Precision, the operator of FoxConn, Apple’s iPhone and iPad builder.
2. Competition and production capacity
The next most important factor to keep an eye on is to note what Apple’s other RF solution suppliers are up to. At the moment, TriQuint is splitting much of the RF solutions built into the iPhone 4S with Skyworks Solutions
Also, as my colleague and senior technology analyst at The Motley Fool, Eric Bleeker, has pointed out before, RF Micro Devices
Another boom or bust for TriQuint is its production capacity. Clearly, TriQuint wants to minimize downtime and maximize productivity but, hopefully, not at the cost of losing business to its rivals. During production of the iPhone 4, TriQuint’s production capacity was peaking around 90%. Given the ridiculously bullish forecast from iPhone audio-chip supplier Cirrus Logic
3. TriQuint’s networking and defense operations
Little known (or cared about) fact -- TriQuint actually makes more than just RF solutions for the iPhone. TriQuint’s networking and defense operations may not have the exciting growth potential that its telecom operations do, but they are without question an area of steadier cash flow and higher predictability.
TriQuint’s diverse portfolio of RF products for service providers witnessed a 5% decline in revenue in the second-quarter, but this was more or less consistent with the entire sector. Investments by big telecoms in mainline infrastructure build-outs have been put on the back burner in favor of developing data centers, storage, and other cloud-computing operations. At some point, mainline spending will return, and that will be when TriQuint begins to benefit.
TriQuint’s defense segment also adds cash flow stability, in that it receives contracts from the U.S. Armed Forces, which are backed by the full faith of the U.S. government. This year alone, TriQuint won contracts from the Army, Navy, and the Defense Advanced Research Projects Agency. The downside of these contracts is that they’re incredible difficult to predict on an ongoing basis, and they could shrink in the future with the U.S. government being forced to address its gigantic federal deficit by reducing defense spending.
Now that you know what to watch for, it should be easier to analyze TriQuint Semiconductor's successes and pitfalls in the future and, hopefully, give you a competitive investing edge.
If you're still craving even more info on TriQuint Semiconductor, I would recommend adding the stock to your free and personalized watchlist, so you can keep up on all of the latest news with the company.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of TriQuint Semiconductor, Apple, and Cirrus Logic. Motley Fool newsletter services have recommended buying shares of, and 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 opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.