After speaking with the management of several companies, analyst Mike Burton of Brean Capital reflects on his favorite technology picks: Qorvo Inc (NASDAQ:QRVO), Skyworks Solutions Inc (NASDAQ:SWKS), and Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO). In general, Burton notes, “After speaking with some of the companies and listening to investor concerns, we are cautiously optimistic about the state of the mobile environment, especially in China where it’s sounding more and more like inventory-related issues were confined to a few OEMs.” Mike Burton has a 51% success rate recommending stocks with a +11.8% average return per rating when measured over a one-year horizon and no benchmark.
Burton is optimistic on Qorvo after meeting with the company’s CEO, Bob Bruggeworth. Qorvo supplies chips for both Apple and Samsung phones, so Quorvo has benefited from strong phone sales. Burton added, “In addition to the Company’s synergies and integrated products to come in 2016, we believe one of the biggest opportunities is increasing share at Samsung. The Company noted that they won just 10% of available content at Samsung in 2015, but they are confident that they will be able to gain share as they align their product pipeline with Samsung’s launch schedule.”
Luckily, the analyst is not very concerned about the impact that China’s slowing economy will have on Qorvo, noting that most of the damage was limited to Xiaomi; China’s primary smartphone manufacturer. Although there are concerns of falling demand in China, Burton assures these concerns are “no worse than before.”
Burton currently has a Buy rating on Qorvo with an $80 price target, marking an approximate 40% potential upside from current levels.
After meeting with Skyworks Solutions’ management, Burton reiterated his Buy rating on the company with a $120 price target. The analyst noted that Skyworks “maintained their conservative guidance when it comes to China, emphasizing the RF content growth story driven by upgrades, but not commenting directionally on the China market.”
Furthermore, the company pointed out their three top growth drivers for 2016, including, Diversity Receive modules; PAD content driven by increasing bands per device; and Wifi. Burton concluded, “We continue to like Skyworks… We would not be surprised to see the Company increase its target model as it continues to drive revenues and lower costs.”
Silicon Motion is a semiconductor company and one of Burton’s top picks. Burton noted that the company “reiterated its positive outlook for its two main growth segments: controllers for embedded mobile memory (eMMC/eMCP) and controllers for Client SSDs.” He pointed to the Client SDD business in particular, noting that it is “on pace to grow more than 50% this year, and continue at 30%+ into CY16, as increasing TLC NAND drives down SSD prices.” The company does not have a direct competitor for TLC SSD controllers.
Burton also touched on the company’s EMMCs, which are embedded multimedia cards used for storage. The analyst added that Silicon Motion “reiterated that their 60 new Q2 design wins (vs. 30 normal) will help drive revenue growth through the 2H in contrast to the Company’s normal 4Q decline.”
Mike Burton reiterated a Buy rating on Silicon Motion with a $38 price target, marking an approximate 42% potential upside from where shares are currently trading.