Rosenblatt Securities on Skyworks

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Rosenblatt: Micron, Skyworks to benefit from Chinese 4G demand
Eric Jhonsa, SA News Editor

Rosenblatt Securities’ Jun Zhang thinks China Mobile plans to procure a whopping 200M 4G smartphones in 2015, after selling 75M-80M in 2014 (~20% less than originally planned). Smaller rivals China Telecom and Unicom are seen collectively procuring 80M.

Given the relatively high DRAM content of 4G phones, Zhang expects Micron (MU +1.3%) to benefit from the sales growth. Skyworks (SWKS -1.1%), meanwhile, is deemed well-positioned due to its high Chinese 4G power amplifier share; the higher RF content of 4G phones relative to 3G models also doesn’t hurt.

TrendForce recently forecast mobile DRAM, which tends to carry higher ASPs/margins than PC DRAM, would account for 40% of 2015 DRAM output, up from 2014’s 36%. The firm also forecasts mobile demand and healthy pricing will lead industry DRAM sales to rise 16% next year to $54.1B.

Chinese 4G phone demand was among the positives cited by Brean yesterday while hiking its targets for Skyworks rivals RF Micro and TriQuint. Strong iPhone production and healthy pricing/margins were among the others.

My wife is Chinese so I spend a lot of time in China (in fact, I’m in China right now as I post this comment).

People don’t realize that China Mobile is placing iPhones only in stores that are in areas where they have already deployed 4G networks. To date, this represents a relatively small geographic area. Total land mass of China is roughly the same as the US, although most of the population lives along the Eastern seaboard, there is still a significant inland population, remember, China has about 4x US population.

China Mobile is an SOE (State Owned Enterprise) with about 200,000 employees. As an SOE, profit is not the only motive for their existence, providing employment is at least as important. As such, the service area is pretty much all of China which includes the rural market. China pretty much skipped widespread deployment of land-line phones though they exist in the larger cities.

Basically this bodes well for Skyworks with a huge 4G roll-out still ahead in China and high demand for iPhones which remains the most preferred phone despite a host of low cost competitors (for example, sitting in the Guangzhou airport recently waiting for a connection, three smartly dressed young men sat down across from me - they all had gold iPhones, one of the guys had two of them, a 6 and a 6+ I assumed based on size).