Quick Hits: RF Sector Trends and More

There are always risks, but in this case, the data I’ve been able to collect suggests an upside from the companies in the RF sector is more likely than a downside. Utilization rates at contract fabrication companies in Asia that specialize in GaAs (Gallium Arsenide) have reported high utilization rates and service providers, particularly China Mobile, are forecasting strong demand for 3G handsets. China Mobile is forecasting that it will see its 3G subscriber base expand from 5M in 2009 to an astonishing 35M by the end of 2010. I think we can also fairly well count on an expansion of aggregate subscribers using entry-level 2G, 2.5G etc.

I think the fact that contract fabricators are reporting high utilization suggests that companies in the RF space are probably seeing strong demand. This would include not only RF Micro Devices (RFMD), but also Anadigics (ANAD) and Skyworks (SWKS) – due to its market share losses in South Korea, I’m a bit less certain about TriQuint’s (TQNT) positioning in the handset market, but think that it may be seeing some upside from U.S. military and aerospace applications that should kick in this quarter.

Another consideration here that is adjacent to this theme is Marvell (MRVL). As I noted following its last earnings report, MRVL is executing very well and has abundant design exposure to the Chinese smartphone sector with its newest applications processor, which is based, like others, on ARM Holdings (ARMH) core technology. I continue to believe Wall Street is undervaluing MRVL and that the stock will post strong gains this year if the company continues to execute as it has during the last year. For more on MRVL and what I see as its fair value range, please see our Q3 review that was posted on December 4th. You can also use our dashboard search engine to pull up previous posts ANAD, RFMD, SWKS and TQNT that discuss company prospects in more detail and present my thoughts on fair valuations.

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Q) Do you think there’s anything to the rumors about Microvision (MVIS) being in the Apple (AAPL) Tablet and whats the chance that QuickLogic (QUIK) is in the new Google (GOOG) phone?

A) I would be very surprised to learn that MVIS is in the new tablet and I have no data to predict one way or the other if QUIK is in the new GOOG Nexus One handset.

Disclosure: At the time of this publication, out of the companies discussed herein, Paul McWilliams had long positions in ANAD, ARMH, SWKS, AAPL, GOOG, and QUIK. In addition to these, he also had short positions in SWKS January $12.50 calls and ARMH April $7.50 calls. He is also a member of QUIK’s Advisory Board. His primary duties as a member of the Advisory Board will be to work with QUIK’s Strategic Marketing Council to accelerate the realization of QUIK’s CSSP vision. His compensation for this position is in the form of options to purchase additional shares of QUIK and reimbursement for direct expenses associated with the described duties.

On a year-to-date basis, the Next Inning portfolio has returned 53% versus 23% for the S&P 500.

Tags: AAPL, ANAD, ARMH, GOOG, MRVL, MVIS, QUIK, RFMD, SWKS, TQNT