Analysts today are responding to news this morning that Chinese equipment makers Huawei Technology (002502CN) and ZTE (0763HK) placed multi-billion orders for wireless chips from Qualcomm (QCOM), Broadcom (BRCM), and Avago Technologies Ltd. (AVGO) for mobile devices.
Shares of Qualcomm are up 9 cents at $62.61, Avago shares are up 16 cents, or half a percent, at $35.40, and Broadcom stock is up 34 cents, or almost 1%, at $38.
Dow Jones ‘s Joanne Chiu reported early this morning that ZTE has agreed to buy at least $5 billion worth of parts from Qualcomm and Broadcom “over the next few years,” citing company remarks Monday. And Huawei reportedly signed three-year contracts with Qualcomm, Broadcom, and Avago.
And in related news, Nvidia (NVDA) announced the “Mimosa X” smartphone from ZTE, which is said was the first smartphone using both Nvidia’s “Tegra” application processor, as well as Nvidia’s baseband wireless chip, which it got from the acquisition last year of startup Icera.
Nvidia shares are up 8 cents, or half a point, at $15.93.
Longbow Research’s JoAnne Feeney writes that Avago may yet get some of the ZTE business as well:
A second news report identifies new contracts coming from ZTE for QCOM and BRCM chips, but does NOT mention AVAGO � we think it likely that AVGO will also pick up orders from ZTE in conjunction with ZTE�s relationship with QCOM. Not only does Avago work closely with Qualcomm on system design, its front-end modules are often found where Qualcomm�s application processors are used.
Feeney, who has a Buy rating on Avago shares and a $39 price target, thinks the company will offer an upbeat forecast when it reports FYQ1 results tomorrow evening.
FBR Capital Markets’s Craig Berger estimates that the deals could add 23 cents a share per year to Qualcomm’s profit. He thinks the deals could add 35 cents to Broadcom’s annual per-share profit.
Berger, who has Outperform ratings on both Broadcom and Qualcomm stock, sees deals such as these fueling a cyclical rebound that will continue this year for the semiconductor group:
For the sector, chip stocks have appreciated far and fast in 2012 YTD, leaving many investors scratching their heads about further sources of equity upside. While some near-term profit taking or digestion is inevitable, we think chip firms are setting up for a 2H12 cyclical snapback that should be stronger and longer than many investors now expect, with several rounds of beat-and-raise earnings reports likely to follow once chip lead times begin to expand again (we expect in 2Q12 or 3Q12).
Regarding the Nvidia deal with ZTE, Berger is encouraged, though it will take time to see how the company stacks up in basebands:
This handset, launching in 2Q12 with Android’s Ice Cream Sandwich 4.0, is important as it is the first handset we have seen using Nvidia’s Icera basebands. We had previously been somewhat skeptical that any handset vendors would use Icera basebands in handsets (they are currently used as data card and dongle baseband processors) given feedback we received from channel contacts that software defined radio basebands (like Icera) are too power hungry. We look forward to reading user reviews about the quality of this handset to help ascertain whether Nvidia can make real progress penetrating the cellular baseband market. [...] This is incrementally positive for NVDA shares, in our view, though will take more time to determine the real field success of Icera in handsets.
And Canaccord Genuity‘s Mike Walkley, who maintains a Buy rating on QCOM and a $75 price target, sees the deals as one more sign of the company’s growing strength in China:
We believe this indicates Qualcomm�s strong position in the China 3G market, and we anticipate more positive announcements during the Mobile World Congress Conference we are attending next week.
No comments:
Post a Comment