Weekly Tech Notes: BRCM, QCOM, TXN, NVDA, CREE

Having contracted marginally in 2012 on account of the weak macro environment, the global semiconductor market witnessed 3.3% year-on-year growth in 2013. Despite a continuing decline in PC shipments and still weak (though recovering) macroeconomic conditions, the semiconductor market continued to grow in the first half of 2014. The semiconductor market is expected to grow 4.4% in 2014. Semiconductor stocks have been one of the top performing sectors in 2014, significantly outperforming the S&P 500 index. Year-to-date, the SPDR S&P Semiconductor ETF has increased approximately 15%, in comparison to a 4% gain in the S&P 500 index and 0.6% growth in the technology sector as a whole. ^[1]

Below is a weekly update for some of the technology companies that Trefis covers.

See Our Complete Analysis for These Companies Here

Broadcom

Leading semiconductor provider for wired and wireless communications Broadcom (NASDAQ:BRCM) introduced a new development kit into its Wireless Internet Connectivity for Embedded Device (WICED) family to enable developers to rapidly prototype ideas and concepts for Internet-of-Things (IoT) devices and applications. IoT is still at a nascent stage, but it is expanding fast and is considered to be the next big growth driver in the semiconductor industry. By entering the market at an early stage, Broadcom aims to gain a significant footprint in this fast growing segment. (Read: Broadcom’s New WICED Kit Promises To Speed Up The Launch Of New IoT Devices)

The stock price hovered around $38 – 39 this week. Our valuation of $38.50 for Broadcom is in line with the current market price, which translates into market cap of approximately $23 billion. Our 2014 revenue and net income estimates for the company stand at $8.7 billion and 720 million respectively. Our non-GAAP diluted EPS forecast is $2.98, as compared to the market consensus of $2.55 (per Reuters).

Qualcomm

Qualcomm (NASDAQ:QCOM), which is already facing the wrath of Chinese antitrust agencies for possible monopolistic practice in the country, may also face a European investigation related to a complaint filed by Icera. Icera filed a report with the European Commission (EU) in June 2010 accusing Qualcomm of  using patent-related incentives and exclusionary pricing of chipsets to discourage customers from doing business with Icera. ^[2] If found guilty of breaching EU rules, Qualcomm could face a fine of up to $2.5 billion. ^[3] (Read: Possible EU Investigation Add To Qualcomm’s Regulatory Problems)

Our price estimate of $74 for Qualcomm (market cap of 125 billion) is only marginally lower than the current market price of $76 (market cap of $129 billion).  The stock traded between $76 and $77 this week. We expect the company to report revenue of around $28 billion and net income of $7 billion for calendar year 2014. For fiscal year 2014 (ended September), we forecast non-GAAP diluted EPS of $5.14 as compared to market consensus of $5.17.

Texas Instruments

Texas Instruments (NASDAQ:TXN) had a series of product releases this week. The company unveiled 46 new ultra-power microcontrollers, which it claims will help enable developers to reduce power consumption, bill of materials and product size of IoT devices. It also introduced new powerful, single-core MCU’s for industrial real-time control design, a display chipset designed to produce brighter, more efficient, next-generation projection displays from small form factors. Additionally, TI introduced the industry’s first automotive Class-D audio amplifier for emergency call (eCall) and instrument cluster systems. The company claims to be seeing rising demand for eCall systems in cars.

TI’s stock traded between $47 and $48 this week. Our valuation of $42 (~ $45 billion market cap) for TI is at a more than 10% discount to the current market price. We expect the company to report $13.1 billion and $2.6 billion in revenue this year. Our GAAP diluted EPS forecast for TI stands at $2.43 while the market consensus is at $2.31 (Reuters).

Nvidia

A few backs back Nvidia (NASDAQ:NVDA) declared its plan to revamp Chromebooks with the Tegra K1-powered Acer Chromebook 13. This week the company announced its collaboration with VMware and Google at VMworld 2014, to allow businesses to cost-effectively provide a great user experience with cloud desktops and 3D or graphics-rich workloads to Google Chromebooks, with the full benefit of desktop virtualization. Nvidia also bagged the VMworld 2014 Gold award for its GRID virtualization technology. The company also revealed that Nvidia-powered cars have reached 6 million. The expanding automotive market is an important segment which can drive Tegra processor sales in the future.

Nvidia’s stock price increased marginally (2%) this week. Our price estimate of $19 for Nvidia is slightly lower than the current market price. The company has a market cap of nearly $11 billion. We estimate Nvidia to report revenues of around $4.3 billion and net income in excess of $600 million this year. We forecast a non-GAAP diluted EPS of $1.42 as compared to the market consensus of $1.00.

Cree

Leading LED manufacturer Cree (NASDAQ:CREE) made an investment of $83 million and entered into a supply agreement as well as a royalty bearing license agreement with Lextar Electronics Corporation for sapphire-based LED chips. Taiwan based Lextar has a strong technology position and customer base in the mid-power backlighting LED segment. Cree believes that the agreement will enable its growth in LEDs and Lighting. Cree also introduced new TrueWhite LED lamps which it claims consumers 83% less energy and is the best 50-watt halogen replacement lamp.

Cree’s stock price has ranged between $45 – $46 last week. Our valuation of $58 for the company is at a more than 25% premium to the current market price. For calendar year 2014, we forecast Cree’s revenue and net income at $1.77 billion and $160 million, respectively. For fiscal year 2014 (ended June), we estimate non-GAAP diluted EPS of $1.87 as compared to the market consensus of $1.95.

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1. 5 Top Performing Semiconductor Stocks, Benzinga, June 4, 2014 [↩]
2. Qualcomm in Hot Water? May Face EU Antitrust Regulator, Yahoo Finance, August 28, 2014 [↩]
3. Chipmaker Qualcomm may face EU antitrust probe: Report, Tech 2, August 27, 2014 [↩]