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- PCs and their makers trying to morph to more - mobile, pads, storage, what next? More M&A - http://bit.ly/aFGWAK $DELL $GOOG $MSFT $AAPL
- Launching The Thematic Investor newsletter - take a look here http://bit.ly/bLO1H7 $KOPN $EQIX $CSCO $CL $K $PG $AAPL $NFLX $RIMM $SVVS $T
- Tune in to Chris Versace on America's Morning News....http://bit.ly/cta0IQ #economy #investing #politics
- $KOPN: Solid 2Q10 Lays the Ground for a Better 2H10 http://bit.ly/bPNFIU
- Getting ready for the July employment report http://bit.ly/aadu2D
- $IIVI Bookings for the quarter increased 120% to a record $125,985,000 compared to $57,245,000 in the fourth quarter of last fiscal year
- Big Lots 2Q revenue comparison rises http://bit.ly/cSdVvJ $BIG
- Smartphone demand drives 54% year-on-year growth in Kopin’s III-V revenue in Q2 http://bit.ly/cGKhkB $KOPN $SWKS
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Posts Tagged ‘Qualcomm’
Corporate earnings continued at a fast and furious pace this week, and we started to hear from a wider variety of companies.
Again, however, it was a mixed bag. Solid earnings and outlooks from the likes of Apple Inc., Qualcomm Inc., Morgan Stanley and eBay Inc. were offset by disappointing earnings, outlooks or both by Yum Brands, Starbucks, IBM, Goldman Sachs Group and others. This resulted in a topsy-turvy stock market, which should be expected. Not only is that one of the trials and tribulations of any earnings season, but it is amplified by where we are in the domestic economic recovery.
Or not.
While some may cut to the quick and ask, “How can he say that?” I would quickly point to Federal Reserve Chairman Ben S. Bernanke’s semiannual report to the Senate Banking, Housing and Urban Affairs Committee on Wednesday. At the heart of Mr. Bernanke’s testimony, he stated that the Fed continues to forecast moderate growth for the domestic economy this year despite a “somewhat weaker outlook.”
Mr. Bernanke went on to pronounce the outlook as “unusually uncertain.”
On the heels of the pending transaction between Hewlett-Packard (HPQ) and Palm (PALM) as well as announced Google (GOOG)-AdMob and Apple (AAPL)-Quattro Wireless, we are left wondering what other players are potential takeover targets for either strategic reasons or opportunistic ones.
Little action in mobile device manufacturers…for now. In our view, we are not likely to see many mobile hardware transactions at least not yet. We say that because in our view the smartphone business is taking on players and we would suspect buyers to be prudent and wait for the dust to settle as entrants both new and old battle it out. We have seen this movie before as it were in the PC space, basic mobile phones and other industries and verticals that had favorable growth prospects only to consolidate amid price competition as candidates jockeyed for market share. Despite the number of vendors entering the smartphone market either in response to the iPhone or because of the ability to utilize Google’s Android, we see price competition and margin pressure ahead as well as eventual consolidation. Longer term as the mobile device markets morphs into the larger connected device market…
Recently, Verizon (VZ) CEO Lowell McAdam shared via The Wall Street Journal that Verizon is working with Google (GOOG) to create a tabled device to compete against both Apple (AAPL) and AT&T (T). In our view, this comes as little surprise as it replicates the competitive response to Apple’s iPhone, which paved the way for touch enabled smartphones and app stores.
We expect this response to continue and would expect similar actions to be taken by Sprint (S), and T-Mobile USA (DT) on the service side as well as hardware/device companies, such as Dell (DELL), Hewlett-Packard (HPQ), Samsung, LG and the like. In our view, this simply underscores one of the key themes we believe to be driving the mobile ecosystem – cellular moving beyond mobile phones.
We do expect the tablet space to be a competitive one with many companies throwing their respective hats into the ring, much the way we saw in first the PC market then mobile phones and most recently smartphones. While many strived to garner share, we can count the key players that are still standing today for each of those first two markets on one hand.
What will be more telling in our opinion is watching to see which other companies enter the fray.
As we discussed in our January 20th report – “IPR Battles Heat Up with Kodak(NYSE: EK), Apple (NASDAQ: AAPL), Research in Motion (NASDAQ: RIMM) and Nokia (NYSE: NOK) in the Ring; Keep an Eye on Qualcomm (NASDAQ: QCOM) and InterDigital (NASDAQ: IDCC[FREE Stock Trend Analysis])” – intellectual property rights as they pertain to the mobile ecosystem continue to heat up. We would argue the flame powering that heat has intensified and could be considered to be a roaring fire. Per data from Bloomberg, both Apple and HTC are involved in more litigation in terms of patents
than they were in 2007. Moreover both are on track to beat their respective 2008 and 2009 records.
Consider that the International Trade Commission (ITC) has been rather busy with Apple - last year Nokia sued Apple, and Apple countersued, with both companies accusing the other of patent violations. In just seven months, the companies have exchanged five suits and countersuits. The ITC has also begun investigating claims made by Kodak against Apple, as well as a suit from Elan Microelectronics. Apple and HTC are not alone in these efforts as lawsuits filed in the last several months include Kodak suing Apple and Research in Motion over imaging patents, and Apple and Nokia have been battling back and forth as have Nokia and InterDigital. Earlier this year Motorola (NYSE: MOT) lost a patent infringement claimpatent infringement claimagainst Research in Motion after a UK Judge rejected the claims made.
Our view has been the following: while it is rather accepted that wireless technology companies cross licensecross license technology and patents from one another, patent infringement cases are likely to escalate as a defensive move to protect IPR assets as well as an offensive tomonetize IP and patents as a business model. Mobile devices and the larger connected device market are embedding a greater array of capabilities and technologies (connectivity, imaging, sound and the like). In our view, one area to watch will be audio and sound quality, including background noise cancellation, which we suspect will becoming increasingly important as these smartphones and longer term connected devices become more multimedia devices for not only music and short clips but also movies, TV and gaming. The latter is an interesting one because Dolby (NYSE: DLB) has just announced it will bring its 5.1 Audio to LG phones.
That offensive/defensive patent strategy is also evidenced by strategic decisions.
I was chastised via e-mail following last week’s column that flowed on the looming water crisis and how investors can position themselves rather than touching on the launch of Apple’s iPad and how an investor might play that.
No doubt Apple continues to innovate and change not only the where and the how about the way we consume content but also the way in which we purchase it. To be fair, the iPad is the latest in a new category of light computing devices, which includes other tablet computers and netbooks.
What is different with the iPad is how a person uses it, but is it that big of a breakthrough following the success of the iPhone and the iTouch? Probably not as big, but still meaningful enough for competitors like Google, Hewlett-Packard, Dell and others to launch similar products.
Sounds to me like a replay of what has occurred in the Smartphone in the past few years and but another way to play the bullets over the guns. For those new to that idea, it means to favor key suppliers that stand to benefit from not one particular product but rather the rising competitive tide in a product category. Semiconductors, memory and battery technologies are options when examining the light computing market, but to me what is truly different about the iPad and the response will be the touch capabilities. We have seen this before following the iPhone and are likely to see it again post iPad.
With that in mind, one of the companies that I have been examining is Synaptics Inc., which primarily serves the computing and mobile device market.
This morning Sony Ericsson (S/E) announced March quarter results, which in our view highlight the growing challenges to be faced by a mobile phone only supplier – read that as one that has a weak smartphone product offering. It also underscores our theme of favoring key suppliers over the device manufacturers in the mobile device space – buy the bullets, not the guns.
o S/E shipped 10.5 million phones at an average selling price of €134 in the first quarter, down from 14.5 million devices at an average selling price of €120 a year earlier.
o On a sequential basis, S/E’s handset shipments fell 28% from the 14.6 million shipped in the December quarter. Aside from seasonal factors, S/E clearly lost market share to smartphone centric companies and its estimated market share slipped 1 point sequentially to ~ 4%.
o Mix favored higher end handsets and as such revenues fell less than year on year handset shipments; net sales fell 19% to €1.41 billion from €1.74 billion, but lagged against expectations for sales of EUR1.63 billion.
o Key RF suppliers to S/E include Skyworks (NASDAQ: SWKS) and to a lesser extent RF Micro (NASDAQ: RFMD), which has been making inroads over the last several quarters. While shipments fell sequentially for S/E, we suspect the impact on suppliers like SWKS and RFMD were less severe given the increasing dollar content associated with the migration to WCDMA, a greater number of frequency bands and other RF content. Recall these RF suppliers positively preannounced March quarter results several weeks ago.
Sony Ericsson’s strategy is to focus on higher end mobile phones and recently introduced its first Android based product - the Xperia X10. In our view, it’s the latest in an already crowded and increasingly competitive space.
There has been much talk about the “recent” rally in the stock market. I say “recent” for a reason - even though there have been some bumps along the way in the last several months, the stock market has made a substantial move over the last year, as evidenced by the performance of the three major indices.
Those indices - the Dow Jones Industrial Average, S&P 500 and the NASDAQ Composite Index are up more than 40 percent, 55 percent and 45 percent, respectively, over the last 12 months. Pretty impressive at first blush, but we do have to remember how dire the outlook was last year at this time, when the S&P 500 had just finishing falling 52 percent from mid-May 2008 to early March 2009. The unfortunate but true perspective is while the stock market has rallied considerably, it remains below levels reached in late 2004-early 2005.
That bumpy ride I mentioned before is rather evident in the year-to-date performance. On a net basis, the S&P 500 is up 5.8 percent as I write this, but that includes the 5.2 percent drop from the end of last year to early February, which was followed by a nearly 12 percent move from Feb. 8 to date. That upward move has been fueled by positive earnings announcements and preannouncements from a number of companies, including Best Buy, Qualcomm, Honeywell International, Ryanair Holdings, and others, as well as an improving global economic outlook.
On a global basis, we are getting improving results in some geographies and reduced expectations in others.
Last week several confirming data points emerged that renew our conviction in how to play what we continue to believe is a looming smartphone blood bath. Since initiating coverage on the mobile ecosystem last July, we have been a firm supporter of “buy the bullets, not the guns” – that is, favoring well positioned suppliers over device manufacturers. Our stance centers on rising RF dollar content owing to the migration to WCDMA from 2.5G devices, the shift toward smartphones from mobile phones and the migration of cellular beyond mobile phones. One of the key wrinkles for device manufacturers in the looming smartphone blood bath is the number of Google (Nasdaq:GOOG) Android powered devices on or coming to market by existing and new players in the space as well as migration of smartphones from premium priced devices to more affordable ones.
Despite strong sequential shipment growth in 4Q09 over 3Q09, up 25% per ABI Research, the smartphone market comprised only 17% of overall mobile phone shipments in 4Q09. On the one hand this leaves ample room for continued shares gains by smartphones, however, we see it as costly one given the number of players chasing that share shift. Current expectations call for 65 million smartphones to be shipped in 2010, up 38% from 2009.
We would remind investors, that in the already competitive mobile phone market the top three vendors (Nokia (NYSE: NOK), Samsung and LG) accounted for 70% of the market in 4Q09. We have stated that that success does not ensure a win, place or show position in the smartphone market, but instead we acknowledge that eventually share consolidation will occur for smartphones even as newer types of devices such as Apple’s (Nasdaq: AAPL) iPad and other competitive devices come to market. Case in point, there are rumblings that Samsung will bring an Android powered tablet computer to market with 4G connectivity. We would expect more as cellular moves beyond handsets in the coming quarters. As mentioned above, there were some confirming data points to our “buy the bullets, not the gun” thesis. Those came in the form of Palm (Nasdaq: PALM) and TriQuint Semiconductor (Nasdaq: TQNT).
As I have described in this column, my investment lens is comprised of several thematic perspectives and we have touched on a few here and there over the past several months. One of the newer trends that I am keeping my eye on is the growing importance of intellectual property (IP) not only as an industry matures but also as it pertains to a company’s assets and competitive position. In my view there is no area that showcases the growing importance of IP more than the mobile phone industry, or as I look at it from a thematic perspective “powering the mobile consumer.”
As our economy has shifted over the past decades from a manufacturing based one to one characterized by consumerism and services, corporate assets have increasingly come in the form of non-fixed assets such as technology, know-how and brands. It is upon these assets that companies base their businesses and as such IP and intellectual property rights (IPR) have become an increasingly important way to safeguard their business. In general there are two types of IP strategies - a passive one in which a company use its IP to protect itself from competitors and an active one in which a company will use its IP to generate additional revenue and profit by selling or licensing out its intellectual property rights.
As I mentioned, the mobile phone industry, or as I suspect it will be soon be renamed the mobile device industry, is a quagmire when it comes to IP. Considering how these devices have incorporated a long list of technologies and functionalities over the past few years - personal information manager, FM radio, camera, video, music, GPS, Wi-Fi, gaming and more - while the underlying cellular technology continues to evolve, it comes as little surprise the industry is a hot bed of IPR activity.
With the vast majority of mobile phone related companies having reported their December quarter results, we have pushed up our sleeves and sifted through the data.
In doing so, several observations have come to light that support our key investment themes for the mobile ecosystem. As a reminder these themes are: smartphones are the new and intensifying battleground; increasing RF content bodes well for key suppliers, which should grow faster than device shipments; and mobile is moving beyond cell phones to other devices and services.
As such, we continue to see RF and technology suppliers as better ways to participate on these themes than investing in device manufacturers or as we have put it “buy the bullets, not the guns.”
With regard to those RF suppliers that we follow – RF Micro Devices (Nasdaq:RFMD), Skyworks (Nasdaq: SWKS), Qualcomm (Nasdaq: QCOM), and InterDigital (Nasdaq: IDCC) – we continue to favor these companies and their respective shares.
While poring over recent industry and company data, we have found the following…