With the demise of Apple Inc. (NASDAQ: AAPL) becoming an increasingly frequent topic on Wall Street, with some analysts even saying that the glory days are over, the question for investors is pretty easy, are they right? The bottom line is that Apple is continuing to add product and capabilities, and in a new report the semiconductor analysts at Merrill Lynch feel that the iPhone 7 cycle could be stronger and potentially bigger that the iPhone 6 cycle.
One thing that the Merrill Lynch team notes in their report, is that the radio frequency (RF) content in the iPhone 7 is expected to be 15% to 20% more than the iPhone 6s. With more content expected, the analysts are very bullish on three companies that are leaders in the RF chip category. Toss in a good start for Samsung Galaxy S7 and positive commentary from Mediatek management, and all three could be poised for a solid move higher. All three are also rated Buy at Merrill Lynch.
This is the newly combined entity that was formerly known as Avago and Broadcom. Broadcom Ltd. (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Its extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial and other. Applications for the company’s products in these end markets include: data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
The company produces RF front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Additional estimates are that the company has between a 13% and 17% revenue exposure to Apple in the wireless communications segment, which has been guided higher. Customer diversity and content for Samsung could be more than enough to offset slower Apple business, should it occur.
The Merrill Lynch analysts like the leadership in the mobile, data center and broadband markets, and especially in the RF arena. Many on Wall Street see a cyclical rebound in industrial and communications demand a well.
Broadcom investors are paid a 1.3% dividend. The Merrill Lynch price target is a massive $200, and the Thomson/First Call consensus target is $178.59. Shares closed most recently at $152.89.
This is the company that was formed after the merger of RF Micro Devices and Triquint Semiconductor. Qorvo Inc. (NASDAQ: QRVO) is a leading provider of core technologies and RF solutions for mobile, infrastructure and aerospace/defense applications. It has more than 7,000 global employees dedicated to delivering solutions for everything that connects the world.
The company has among the industry’s broadest portfolio of products and core technologies. The Merrill Lynch analysts are convinced that the higher RF content in new smartphones should offset quarterly unit volatility. They also think strategic mergers and acquisitions could help diversify the company away from mobile dependence and add longer life business cycle products.
Merrill Lynch has a $56 price objective, and the consensus target is $55.13. The stock closed Monday at $50.64.
This stock really rolled over from highs printed lasts summer and could be ready for a big move higher. Skyworks Solutions Inc. (NASDAQ: SWKS) designs, develops, manufactures and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, battery chargers, circulators, DC/DC converters, demodulators, detectors, directional couplers, diversity receive modules, filters, front-end modules, LED drivers, low noise amplifiers, modulators, optocouplers/optoisolators, phase shifters, phase locked loops, power dividers/combiners, synthesizers, technical ceramics, VCOS/synthesizers and voltage regulators.
The company posted a very solid fourth quarter, with sales up 15% and earnings up a stunning 27% year over year. While the low demand for the iPhone 6s did trim the first-quarter outlook, the analysts are very positive on the stock as the iPhone 7 cycle begins. In fact, they expect the company to gain 10% to 15% higher content versus the previous generation phone.
The $85 Merrill Lynch price target is lower than the consensus target of $91.23. Shares closed most recently at $77.21.
With most of the Apple slowdown long since priced into these top stocks, investors with an eye toward the second half of 2016 could be in a sweet spot now as the stocks still have big upside to the Merrill Lynch targets.