Watch This Mobile-Chip Maker From a Distance
Wireless chip manufacturer TriQuint Semiconductors (NAS: TQNT) posted poor first-quarter results recently, resulting largely from an 8% sequential drop in revenue in the company's mobile-devices segment, which accounted for approximately 68% of its total revenue during the quarter. And it's problems with this division that seem to be the chief cause of the company's lower-than-expected revenue and earnings outlook for the second quarter.
TriQuint did top expectations in Q1, even though the top and bottom lines both slid. The company also predicted losses for Q2, driven by a $12 million to $14 million restructuring charge as it transitions toward the production of higher-value products.
TriQuint's fortunes seem to be closely intertwined with that of smartphone maker Apple (NAS: AAPL) . One of TriQuint's major customers, accounting for about 35% of the company's revenue last year, was Foxconn Technology, which is one of Apple's key manufacturing partners in China. The problem, according to some analysts, is that Apple's demand for chips may fall before the iPhone 5 launch, as it attempts to clear out previous iPhone 4S inventories. And that's bad news for TriQuint.
To make matters worse, TriQuint also supplies chips to Nokia (NYS: NOK) and Research In Motion (NAS: RIMM) , both of which are laggards in the smartphone industry right now. Nokia recently reported first-quarter losses amounting to $1.2 billion, and RIM racked up losses amounting to $125 million in its fiscal fourth quarter.
Incidentally, industry peer Texas Instruments (NAS: TXN) has also been suffering in part because of the sluggish performance of Nokia and RIM, as its first-quarter net profits fell 60% to $265 million.
The Foolish bottom line
TriQuint seems to be too dependent on just a few customers in its mobile-devices segment, making its performance potentially volatile. One solution might be to concentrate more on its network infrastructure segment, where revenue rose 10% on a sequential basis. This segment is already performing pretty well, as wireless base station revenue jumped 20% sequentially because of the expansion of LTE networks and wireless traffic from data-hungry tablets and smartphones. If TriQuint manages to grow this segment further, it particularly stands to gain from 3G and 4G network buildouts taking place in the U.S., the European Union, and China.
If management is to be believed, TriQuint should recover toward the end of this year. While I'm not particularly happy about the revenue volatility created by its significant customer concentration, I'll still keep an eye on TriQuint. You can do the same by adding it to your free Watchlist.
Even if you aren't sold on TriQuint as a way to play the smartphone boom, I invite you to read this free report from The Motley Fool. Inside you'll learn about one company our analysts think is positioned to take full advantage of the "Next Trillion-Dollar Revolution" in mobile devices. Check it out now, before it's gone!
At the time this article was published Fool contributor Keki Fatakia holds no shares in any of the companies mentioned in this article. The Motley Fool owns shares of TriQuint Semiconductor and Apple.Motley Fool newsletter serviceshave recommended buying shares of Nokia and Apple and creating a bull call spread position in Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.