TriQuint Semiconductor - University of Oregon Investment Group

Transcription

UNIVERSITY OF OREGON
April 15th, 2011
INVESTMENT GROUP
Technology
TriQuint Semiconductor
RECOMMENDATION: BUY
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta
Shares Outstanding
Average daily volume
(3 month average)
Current market cap
Current Price
Dividend
Dividend Yield
Valuation (per share)
DCF Analysis
Comparables Analysis
Current Price
(as of 4/11/11)
Target Price
5.77-15.20
TQNT
1.59
163.49M
4.41 M
1,955.29M
11.96
0.0
N/A
14.86 (50%)
14.47 (50%)
11.96
14.67
Summary Financials
Revenue
Net Income
Operating Cash Flow
2010A
(in millions)
878.7
190.8
244.3
BUSINESS OVERVIEW
@0
TriQuint Semiconductor (TQNT) is a manufacturer of radio frequency (RF) solutions and serves three primary
markets: mobile devices, networks, and defense and aerospace (D&A). It started out as a strategic business unit
underneath Textronix and then broke away in 1985. TQNT was reincorporated in Delaware in 1997.
Covering Analyst: Ryan Bennett
Email: rbennett@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
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TQNT „s headquarters are located in Hillsboro, OR, but it has operations located throughout the United States and
the rest of the world. These international operations include: manufacturing facilities in Costa Rica and the
Philippines, a design facility in Germany, and many support sales offices in China, Germany, France, Japan, Malaysia,
among other locations.
REVENUE
TQNT derives revenue from the sale of its RF products and its foundry services. A large majority of revenue is sold
directly to TQNT‟s customers through its distribution channels and sales force. TQNT also has a foundry service,
which is a type of contract manufacturing. It will produce RF products for fabless semiconductor companies who
don‟t have the manufacturing capabilities. This is not only another source of revenue, but it also allows the company
to stay current on industry technology and allows TQNT to look for potential acquisitions. It also operates under
research and development contracts; however this is a very small business segment and has accounted for less than
5% of revenues in past years. TQNT generates the majority of its revenue from the three business segments: mobile
devices, networks, and D&A.
Mobile Devices (66%)
Revenue from mobile devices includes sales of RF solutions to companies that make smart
phones, tablets, e-readers, and other wireless products. The mobile devices segment generated
66% of total revenue in 2010. TQNT has placed its products in over 100 different phones.
Customers from this segment include Foxconn, Samsung, RIM, LG, Nokia, HTC, Sony
Ericsson, and Motorola. Foxconn is TQNT‟s largest customer and accounted for 25% of total
revenue last year. Examples of products sold to customers in this segment are power
amplifiers, filters, and duplexers.
Networks (24%)
The networks business segment generates its revenue through sales of products that aid in the transfer of voice, video,
and other data through wired and wireless networks. This business segment accounted for 24% of total revenue in
2010. Some customers in this segment include Intel, Texas Instruments, Hittite, ZTE, and Delphi. TQNT breaks
networks into three different categories of product offerings. The first is transport that includes optical transport
networks, point to point microwave radio, and cable television/ fiber to the home. The second category is radio
access which includes products for 3G, 4G, long term evolution (LTE), and multi carrier base stations. The third
category is innovative solutions for emerging markets and this category has products for radio frequency
identification, advanced metering infrastructure, and automotive radar and telematics.
Defense and Aerospace (D&A) (10%)
The final business segment is D&A. Last year, this was responsible for 10% of total revenue.
TQNT‟s largest customers in this segment have contracts with the military and U.S. government.
Examples of customers in this segment include Raytheon, Lockheed Martin, and Northrop
Grumman. Customers use TQNT‟s products to track and target unknown threats. TQNT‟s
products are responsible for the F-35 Lightning/ Joint Strike Fighter‟s ability to track
multiple targets simultaneously. TQNT also provides power amplifiers and filters to handheld, satellite, land-based, and sea-based communication systems. Since military technology
is extremely advanced, this business segment also acts as a research and development
segment. In the past, TQNT has received government-based contracts for the specific
purpose of research and development. TQNT expects these contracts to continue into the
future.
TECHNOLOGY
As a RF solution provider, TQNT uses multiple types of technology in manufacturing its products. Technology is
essential for TQNT to win in its competitive landscape. Some of TQNT‟s notable technology includes “GaAs”
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(Gallium Arsenide), “GaN” (Gallium Nitride), “SAW” (surface acoustic wave), “BAW” (bulk acoustic wave), and
CuFlip. (Copper Flip)

GaAs and GaN: GaAs is the technology used in many of the power amplifiers TQNT manufactures.
Compared to silicon, it has much greater power capabilities, and is more efficient. For example, GaAs has
the ability to move its electrons up to five times faster than silicon. However, it is also more expensive than
silicon. GaN is even more powerful and expensive than GaAs. TQNT is concentrating on the uses of this
technology for current and future products.

SAW and BAW: These are the technologies TQNT uses to manufacture its filters. Advantages of using
SAW and BAW are smaller size, more precise frequency control, and greater reliability. SAW is mainly used
in devices with lower frequencies and BAW is used in devices with higher frequencies.

CuFlip: This is one of TQNT‟s patented technologies. It is an interconnect technique used to replace wire
bonds that most other semiconductor companies use. Some of the benefits of CuFlip are design flexibility,
superior RF performance, and cost efficiency.
BUSINESS AND GROWTH STRATEGIES
MISSION AND STRATEGY
TQNT‟s mission is to provide RF solutions that improve the performance and lower the cost of its customers‟
applications. TQNT continues to innovate and integrate products, serve a complimentary and diverse set of markets,
and achieve scale through targeted growth. Specific actions over the last five years to ensure it meets its goals include
investing in R&D, capacity expansion, and hiring the best and brightest employees.
TQNT focuses on unique strategies for each business segment to ensure its growth and success. In the mobile
devices segment it offers an in-house produced, complete RF solution. Many competitors will outsource the
production of filters and/or switches, and only produce power amplifiers. TQNT believes that manufacturing all
three components it offers the best RF solution. In the networks business segment, TQNT focuses on simplifying
RF connectivity. It does this by offering highly integrated products and superior customer support. In the D&A
segment, TQNT focuses on continually being a leader in technology and maintaining its relationships with its
customers. With these unique strategies, management forecasts that TQNT can move up in market share to the
second largest company in the industry.
GROWTH
Going forward, management has three goals. The first is to grow revenue 20% year over year. Last year this goal was
in place and revenue grew 34%. The second goal is to have a 20% market share in all of the business segments it
operates in. Currently TQNT projects it has a market share of 13% in mobile devices, 12% in networks, and 18% in
D&A. Finally, the third goal management has in place is to increase TQNT‟s operating margin to 20%. Management
believes that all of these goals are feasible in the coming years. To obtain 20% growth year over year TQNT has
developed different strategies for each segment.
Mobile Devices
Organic growth is the main driver of the mobile devices market going forward. Management estimates that there are
1.2 billion mobile phones in the current market with this growing at 8-10% per year. Smart phones take up about a
quarter, or 300 million, of this market. TQNT expects smart phones to grow 40% for the next couple years.
Therefore, management expects 20-25% growth in the mobile devices market. It will achieve this growth with its
superior product offering. In the future smart phones are going to be more powerful, more complex, and have a
longer battery life. Management projects high-end smart phones and tablets will expand content 4x-6x and low-end
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smart phones will expand content 2x-3x. This trend is going to offer great opportunities to TQNT‟s superior product
offering. Another growth driver is TQNT‟s uniqueness as one of the only RF solution suppliers to manufacture both
power amplifiers and filters in house. Management strongly believes this allows TQNT‟s products to offer increased
efficiency, design flexibility, maximization of battery life, and greater performance overall. These advantages will
allow TQNT to obtain its goals of 20% market share and 20% total revenue growth going forward.
Networks and D&A
TQNT‟s main growth strategy for these business segments is to maintain strong relationships with customers, simplify
wired and wireless connectivity, and actively look for acquisitions that fit with TQNT‟s business. TQNT is also
looking to diversify and expand into new markets, which can be seen by the acquisition of TriAccess Technologies.
TQNT will also look to increase its brand image in this segment with durable and reliable products that customers
learn to trust.
Capacity Expansion
A major problem in 2010 was TQNT‟s lack of capacity. This
led to TQNT having to turn away customer orders.
Management understands capacity expansion is going to be key
in future growth. Therefore, management has estimated $180
million of planned capital expenditures for 2011 that will
expand capacity by 40%. These planned capital expenditures
will also be used towards increasing efficiency within factories.
It is their belief that this amount will allow it to grow in
capacity to facilitate sales between $2 and $3 billion. The graph
at the right is an example of just one of TQNT‟s
manufacturing facilities and its projected output in future quarters.
MANAGEMENT AND EMPLOYEE RELATIONS
Ralph Quinsey: CEO
“Ralph Quinsey joined TriQuint in July 2002 as President and Chief Executive Officer.
From September 1999 to January 2002, Mr. Quinsey was with ON Semiconductor, a
manufacturer of semiconductors for a wide array of applications, as Vice President and
General Manager of the Analog Division. 2011 Volterra Semiconductor Corporation
(Nasdaq:VLTR), a leading provider of high-performance analog and mixed-signal power
management semiconductors, appointed Mr. Quinsey to its Board of Directors. Mr.
Quinsey received a B.S. degree in electrical engineering from Marquette University.”
- (TQNT website)
Steve Buhaly: CFO
“Steve Buhaly joined TriQuint Semiconductor as Chief Financial Officer in September of
2007. Mr. Buhaly has more than 20 years experience in finance and operations. Prior to
joining TriQuint he was Chief Financial Officer at Longview Fibre Company, and prior to
1999 he held positions of increasing responsibility in finance and operations at Tektronix.
Mr. Buhaly received Bachelor of Science and Masters of Business Administration degrees
from the University of Washington.” – (TQNT website)
Management at TQNT hopes to give the impression to its shareholders and customers that it is straightforward,
transparent, and honest. For example, TQNT had run already out of capacity this past year when Foxconn increased
its demand for TQNT‟s products. Management decided it was best to be honest with Foxconn about its lack of
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capacity, and help them find an alternative supplier who could serve Foxconn‟s needs. In doing this, it preserved its
future relationship with Foxconn.
RECENT NEWS
“Skyworks Off; To Get Lower Revs From iPhone 5 Than iPhone 4?” – 4/6/2011 Forbes
This article talked about the increased competition from TQNT and AVGO in the mobile devices operating
segment. It is predicting decreased revenue for SWKS in the new iPhone 5. This will help TQNT‟s goals of
revenue and market share growth in 2011 and years after.
“TriQuint chips are powering new iPad”- 3/15/2011 Oregonian
TQNT chips have been found in the AT&T version of the new iPad. TQNT has been in most Apple
products except for the Verizon iPhone. This was due to capacity constraints in 2010. TQNT is in the
process of expanding its manufacturing facilities in Oregon, Texas, Florida, and Costa Rica. The article ends
by talking about the huge 2011 expected growth in the tablet market.
ACQUISITION HISTORY
In the last ten years TQNT has made quite a few acquisitions. TQNT uses the foundry business segment to keep up
with trends in industry technology, and search for possible companies to acquire. Some of the main acquisitions in
TQNT‟s history are:
2002- Acquired Infineon‟s GaAs business in Munich. ($53.6 million)
 TQNT acquired Infineon‟s GaAs business to expand and gain a larger presence in Europe. TQNT also
added sixty employees with this acquisition.
2005- Acquired TFR Technologies in Bend, OR. ($5.3 million)
 TFR was a manufacturer and developer of thin film resonator filters for communication applications. This
added BAW to TQNT‟s technology portfolio and made them a stronger filter manufacturer for wireless
communications.
2007- Acquired Peak Devices. ($14.922 million)
 TQNT acquired Peak Devices to expand its high power product portfolio and its networks product line.
Peak Devices was a fabless semiconductor company that focused on RF technology.
2008- Acquired WJ communications. ($72.612 million)
 TQNT acquired WJ communications to strengthen base station products in the networks operating segment.
It gained a larger technology portfolio, a manufacturing facility in San Jose, California, and Foxconn as a
customer with the acquisition.
2009- Acquired TriAccess Technologies. ($9.382 million)
 Triaccess was a provider of cable TV and fiber to the home. TQNT acquired TA to expand build their
networks product portfolio and is able to now offer end-to-end solutions for signal amplification and
filtering. TQNT also gained TA‟s RF specific integrated circuits for the amplification of multimedia content.
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INDUSTRY
TQNT operates in the integrated electronic communication systems industry. Across this industry firms have similar
operating conditions. Firms have large capital investment in fabrication facilities and this fixed cost becomes a large
part of a firm‟s cost of goods sold. This being said, most firms enjoy increased profitability with higher demand due
to higher utilization rates. It is also common for firms in this industry to see seasonal growth around the third and
fourth quarter due to the holiday shopping season.
TQNT focuses on serving the wired and wireless communications segment. As demand to be always connected,
regardless of location, continues to increase, so does TQNT‟s growth opportunities. Growth in this industry can be
seen in the different product lines that TQNT serves.
Mobile Devices
This segment of the wireless communications is expected
to have substantial growth in the next couple years. The
graph to the right is from the Nielsen Company. By its
expectations, smart phones will overtake featured phones
in the U.S by the end of 2011. Other estimates have
projected smart phone growth between 30%-40% in the
next year. The best part about the mobile devices segment
is that it is not solely focused on smart phones. E-readers
and tablets are also positioned in this market, and are
expected to at least double in sales this year compared to
last year. (International Data Corporation) Tablet growth
is projected to be large into 2015.
Networks
To keep up with demand for tablets, smart phones, e-readers, etc., networks have to continually upgrade their
infrastructure. This includes expanding network capacity, redesigning the architecture of the network, expanding 3G
capabilities, and accelerating the planning for 4G technologies. For example, the cable part of the industry is
upgrading its networks to stay in line with triple-play systems. Last year, Netflix consumed 10% of Internet
bandwidth. A few years ago Netflix had zero presence on the Internet. This shows that change can happen rapidly
in the industry and firms continually need to upgrade to stay current.
D&A
Key attributes in this part of the industry include precision, reliability, and durability. Growth opportunities in D&A
include jammers, radars, and networked communications. As electronic warfare continues to grow so does demand
for integrated circuits. This industry will also see increased investment into new technologies like GaN in order for
the DoD to stay competitive against other nations.
TQNT has always considered itself as a total RF solution provider instead of a power amplifier or a filter provider.
Historically, it was alone in this way of thinking. However, more and more firms are starting to realize the benefits of
providing an entire RF solution. Most customers will need more power and greater efficiency as the industry grows,
and being a total RF solution provider is the best way to deliver this service.
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S.W.O.T. ANALYSIS
Strengths
 In-house manufacturing of the entire RF solution to create better performance and greater efficiency.

Foundry segment allows TQNT to keep up with leading industry technology and gain government research
contracts.

Able to acquire companies that fit with strategy and provide strong growth opportunities.
Weaknesses
 2010 capacity was not in line with demand, and thus damaged possible opportunities with customers.

Heavily reliant on one customer Foxconn, who is responsible for 25% of TQNT‟s total revenue.
Opportunities
 TQNT‟s increased efforts into R&D of GaN technology can place TQNT as an industry leader when this
technology becomes more popular.

Increased growth of wireless devices across the world. (smart phones, e-readers, tablets, etc.)
Threats
 Any huge increase in silicon technology that allows it to compete with GaAs technology will directly affect
TQNT‟s market share and profitability.

Any disruptive innovation that TQNT isn‟t a part of will have an adverse affect to sales and change TQNT‟s
business environment.
PORTER’S 5 FORCES ANALYSIS
Supplier Power: Medium and Decreasing
Supplier power is medium and decreasing in the industry. There are multiple suppliers of raw materials within the
industry that compete for customer sales. This ultimately leads to decreases in the prices of raw materials. Then
again, there are some companies within the industry that use rare materials that only a couple of suppliers can provide.
Overall, finished products in the industry decrease in price each year due to fierce competition and suppliers have little
choice but to lower raw material prices as well.
Barriers to Entry: High and Steady
Barriers to entry are high and steady due to large capital investment, patented technology, and strong
customer/supplier relationships. In order to enter the industry a firm would need to have proprietary technology that
no existing firm can copy. Once a firm has this technology, it is extremely expensive to invest in a fabrication facility
to manufacture a product. This is why there are many “fabless” firms that TQNT can look at acquiring. Finally,
many relationships between existing firms and customers are hard to break, and therefore, it would be difficult for a
entering firm to sell product.
Buyer Power Medium and Steady
Buyer power in the industry is medium and steady. Many firms in the buyer market are large because there have been
many mergers and acquisitions. This gives the customer larger bargaining power. There are also are enough
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manufacturing firms in the integrated circuit industry to allow buyers to have multiple options in who they giver their
business to. Then again, there are a large amount of customers in the industry, weakening buyer power.
Threat of Substitutes High and Steady
In this industry the biggest threat is technological advances. Firms get left behind and lose when they don‟t keep with
the trends in technology. TQNT uses its foundry service, investment in R&D, and government research contracts to
stay competitive and mitigate this risk within the industry.
Degree of Rivalry: High and Steady
Competition is fierce in this industry. Price, reliability, and performance are attributes that firms need to compete on.
Most of the time a firm will need all three to win against other firms. Life cycles for most products are between 1-3
years. Therefore, firms constantly have the opportunity to gain market share in areas they had no chance in previous
years.
COMPARABLES ANALYSIS
For my peer analysis I decided to use three companies: Skyworks Solutions (SWKS), RF Micro Devices (RFMD),
Avago Technologies (AVGO). When looking for comparables, I wanted to use companies who would be subjected
to the same risks and growth prospects as TQNT. I was lucky enough to find three pure play comparables that
compete with TQNT. I decided to use the metrics EV/Revenue, EV/Gross Profit/, EV/EBITDA, and EV/Net
Income to come up with an implied price for TQNT.
Skyworks Solutions: 35%
“Skyworks Solutions, Inc., together with its subsidiaries, offers
analog and mixed signal semiconductors worldwide. The company
provides power amplifiers and front-end solutions for cellular
devices from entry level to multimedia platforms and smart phones.
Its product portfolio consists of amplifiers, attenuators, detectors,
diodes, directional couplers, front-end modules, and hybrids”
-(Yahoo! Finance)
I decided to weight SWKS at 35% for multiple reasons. First it is TQNT‟s largest competitor with Foxconn for
power amplifiers and filters in the mobile devices market. 25% of SWKS mobile devices revenue is estimated to
come from Foxconn, which is very similar to TQNT. TQNT and SWKS also had similar growth last year and similar
projected growth going forward. Finally, SWKS is the company that management at TQNT uses to asses how TQNT
is performing. Many of TQNT‟s margin and efficiency goals have been set at levels where SWKS currently is
operating. A main difference between the two companies is that SWKS uses more silicon in its technology portfolio
than TQNT.
RF Micro Devices: 32.5%
“RF Micro Devices, Inc. designs and manufactures radio frequency
components and compound semiconductors in the United States and
internationally. The company provides integrated circuits. In addition,
the company provides passive components, such as splitters, couplers,
mixers, transformers, isolators, and circulators; and foundry services for
gallium nitride wafer production. Its products enable worldwide
mobility and provide connectivity and support advanced functionality in
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the cellular handset, wireless infrastructure, wireless local area network, cable television/broadband, and aerospace
and defense markets.”
-(Yahoo! Finance)
I weighted RFMD at 32.5%. RFMD is also a direct competitor with TQNT. Not only does it compete in the mobile
devices operating segment, but also in the networks and D&A. RFMD also has a foundry-operating segment, so they
compete and share in the risks of this business. RFMD is the world‟s largest manufacturer of GaAs RF solutions,
giving them similar risks to TQNT with disruptive technology innovation. Another similar characteristic the two
companies share is their research in GaN. RFMD is also using a similar strategy to TQNT in using acquisitions to
achieve future growth, and is subject to risks doing business internationally.
Avago Technologies: 32.5%
“Avago Technologies Limited engages in the design, development,
and supply of analog semiconductor devices worldwide. The
company offers RF amplifiers, RF filters, RF front end modules,
ambient light sensors, light emitting diodes, and low noise amplifiers.
Its products are used in various applications, such as voice and data
communications, camera phone, keypad and display backlighting,
backlighting control, base stations, and data communications.” (Yahoo! Finance)
I weighted AVGO at 32.5%. Again, AVGO is another competitor with TQNT in mobile devices. The news article
previously in the report explains SWKS is projected to lose market share. TQNT and AVGO are going to be the two
companies fighting for this new business. AVGO is located in Singapore, and therefore, does a lot of business
internationally. About 85% of revenue came from overseas in 2010, whereas TQNT had about 63% in international
revenue. AVGO also uses the GaAs technology to produce its power amplifiers and filters, exposing it to similar risks
as TQNT. 40% of total revenue is generated through its mobile devices segment and about 24% of revenue comes
from its wired infrastructure segment. Since they aren‟t exposed to as much mobile device risk, I chose to weight
them lower than SWKS.
DISCOUNTED CASH FLOW ANALYSIS
Beta
I used multiple ways to calculate my beta. First, I ran a 5-year monthly, 3-year weekly, and 2-year weekly regression.
The betas from these regressions were 1.97, 2.02, and 1.83. I did not think that these betas represented TQNT well.
I then ran a vasicek beta using a peer group beta that represented the industry beta. This gave me a beta of 1.28. I
was not happy with this as a representation of TQNT either, so I calculated a hamada beta. The hamada calculation
gave me a beta of 1.24. I decided to take the average of the 2 and 3-year weekly regressions, the hamada, and the
vasicek betas. The average of these betas came out to be 1.59. This is the beta that I have chosen to use in my
assumptions, because it was the best representation of TQNT.
Revenue
I projected revenue based on industry data and growth opportunities, TQNT‟s future outlook and goals, and on my
assumptions of how TQNT will compete against other firms in the future. In the next few years I see TQNT
winning in its industry and taking away market share from its competitors. High growth rates were derived from a
downstream effect of large growth in the electronic communication systems industry. I also predicted TQNT to
increase market share, which will fuel TQNT‟s revenue growth. I have TQNT‟s mobile devices segment growing
faster than its networks and D&A segments due to the increasing popularity in mobile devices going forward.
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I used a percent of revenue model to project the rest of my line items in my DCF, except where management gave
specific guidance.
COGS
I have projected COGS to decrease as a percent of revenues. I chose to do this because of TQNT‟s increasing
economies of scale. There is a large amount of fixed cost for manufacturing facilities in the semiconductor industry.
When demand increases, factories become more efficient and have higher utilization rates. TQNT will be ready to
take advantage of this increased efficiency. Management has also guided higher operating margins in future years.
SG&A
Management has projected SG&A will grow half as much as revenue going forward. When looking at the nominal
values of these projections I thought it was unrealistic. Therefore, I took managements estimates for 2011, but then
decided to keep SG&A as a constant percent or revenue from 2011 onward.
Research and Development
Management also had the same projections for R&D as it had for SG&A. However, R&D is a key success to their
business and TQNT will continually need to update its products with new technology. I decided to keep it as 14.5%
of revenues and ignore the guidance from management.
Litigation and Settlement of Lawsuit
There is no estimation or probability of outcome for TQNT‟s lawsuit with Avago Technologies. Therefore, I did not
project any expense into the future.
Tax Rate
TQNT‟s tax rate has been all over the place in previous years. This is due to deferred tax assets and a tax holiday it
receives in Costa Rica. Management has guided a tax rate between 18% and 22% after 2012. I decided to use 20%.
Depreciation Expense
Due to a new tax law, TQNT will be able to depreciate its assets faster than normal. I decided to raise depreciation
expense to 11% by 2014, and then lower it back to normal levels in the following years.
Net Working Capital
I projected NWC to increase going into the future. TQNT is going to need this excess working capital as it expands
and its business grows. The main components of TQNT‟s current assets are inventory, A/R, and cash. The main
components of TQNT‟s current liabilities are A/P and accrued payroll.
Capital Expenditures
Management has guided $180 million in 2011. This is to increase TQNT‟s capacity by 40%. After 2011 capital
expenditure should decrease to a normal percent of revenues.
Acquisitions
In projecting acquisitions I decided to not use percent of revenues method. In the last ten years TQNT has had no
consistency in the amount of acquisitions. There have been three years of large acquisitions, four years of small
acquisitions, and three years of no acquisitions. I took the average acquisition amount over the last ten years and
came up with about $20 million per year. Therefore, I have acquisitions being held constant at $20 a year. This is a
reasonable estimate going forward as TQNT is looking for strategic acquisitions that fit the company well, and will
not acquire companies that don‟t fit this criteria.
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RECOMMENDATION
As long as the popularity of smart phones, tablets, and other mobile devices expand, TQNT is going to grow. Apple,
Nokia, LG, RIM, etc., are all going to need RF solutions that provide what its customers want in mobile devices;
increased power, greater reliability, and a longer battery life. TQNT was able to forecast this trend, and decided to
invest in technologies, like GaAs, that provide the power and efficiency that an end-market consumer wants. TQNT
also has a great customer profile, providing RF solutions to some of the leading mobile device and network
companies in the world. As the need to be connected anywhere in the world increases, so does TQNT‟s opportunity
to grow and take market share away from competitors. I recommend a BUY for all portfolios.
Analysis
Comparables
DCF
Target Price
Current Price
Undervalued
Weightings
Implied Price
50%
50%
14.47
14.86
14.67
11.96
22.62%
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TrqiQuint Semiconductor
APPENDIX 1 – COMPARABLES ANALYSIS
The University of Oregon Investment Group
($ in millions, except per share data)
Stock Characteristics
Max
Current Price
50 Day Moving Avg.
200 Day Moving Avg.
Beta
Size
ST Debt
LT Debt
Cash and Cash Equiv.
Minority Interest
Preferred Stock
Diluted Share Count
Market Cap
Enterprise Value
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense (MRQ)
Debt/Equity (MRQ)
Debt/EBITDA (LTM)
EBITDA/Interest Expense (LTM)
Operating Results
Revenue (LTM)
Gross Profit (LTM)
EBITDA (LTM)
Net Income (LTM)
Valuation
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/Net Income
TQNT
Min
Avg.
35.00%
SWKS
32.50%
RFMD
32.50%
AVGO
Median
32.23
33.80
27.47
1.90
6.10
7.05
7.04
0.86
21.93
24.54
20.66
1.35
27.07
32.06
26.94
1.29
11.96
13.47
11.67
1.59
27.07
33.80
27.47
1.29
6.10
7.05
7.04
1.90
32.23
32.06
26.94
0.86
0.00
207.37
450.05
0.00
0.00
276.12
7904.09
7541.09
0.00
0.00
304.70
0.00
0.00
188.44
1684.33
1587.00
0.00
76.17
374.52
0.00
0.00
235.40
4901.61
4603.26
0.00
25.07
363.00
0.00
0.00
245.24
5101.07
4676.09
0.00
0.00
223.66
0.00
0.00
163.49
1955.29
1731.64
0.00
25.07
450.05
0.00
0.00
188.44
5101.07
4676.09
0.00
207.37
304.70
0.00
0.00
276.12
1684.33
1587.00
0.00
0.00
363.00
0.00
0.00
245.24
7904.09
7541.09
55.05%
24.23%
31.60%
22.68%
36.00%
16.28%
25.22%
11.57%
44.74%
20.82%
27.30%
16.26%
43.28%
21.88%
25.24%
14.65%
39.93%
14.28%
20.51%
13.26%
43.28%
21.88%
25.22%
14.65%
36.00%
16.28%
25.24%
11.57%
55.05%
24.23%
31.60%
22.68%
3.80
0.31
0.75
545.68
0.54
0.00
0.00
73.01
2.40
0.11
0.27
289.58
3.00
0.02
0.09
230.33
0.00
0.00
0.00
0.00
0.54
0.02
0.09
545.68
3.80
0.31
0.75
73.01
3.00
0.00
0.00
230.33
2187.00
1204.00
691.00
496.00
1099.26
412.58
277.45
127.15
1474.66
701.37
417.31
262.08
1161.80
502.82
293.03
170.15
878.70
350.84
170.79
127.03
1161.80
502.82
293.03
170.15
1099.26
412.58
277.45
127.15
2187.00
1204.00
691.00
496.00
1.97 x
4.94 x
10.14 x
13.63 x
4.02 x
9.30 x
15.96 x
27.48 x
1.44 x
3.85 x
5.72 x
12.48 x
3.45 x
6.26 x
10.91 x
15.20 x
**Normalized Financial Adjustment Footnotes**
1) 2010 TQNT net margin was normalized to take into account
the tax benefit.
2) The multiple of EV/Net Income for SWKS
was thrown out and the weightings were evenly
distributed.
3.00 x
6.54 x
10.99 x
13.84 x
Metric
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/Net Income
Implied Price
17.48
15.40
12.85
12.12
Weight
25.00%
25.00%
25.00%
25.00%
12
Price Target
Current Price
Under (Over) Valued
14.47
11.96
21.0%
APPENDIX 2 – DISCOUNTED CASH FLOWS ANALYSIS
13
APPENDIX 3 - TERMINAL GROWTH RATE SENSITIVITY ANALYSIS
14
APPENDIX 4- NET WORKING CAPITAL MODEL
15
APPENDIX 5- REVENUE PROJECTIONS
16
APPENDIX 3 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
APPENDIX 7 - COMPARABLES SENSITIVITY
APPENDIX 6 – SOURCES








TQNT 10-k/10-q
Factset
IBISworld
The Nielsen Company
International Data Corporation
Roger Rowe- Investor Relations at TQNT
S&P Net Advantage
RFMD, AVGO, SWKS 10-k/10-q
17

TriQuint Semiconductor - University of Oregon Investment Group

Transcription

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