Integrated Device Technology BUY

Target: US$12.00

IDT designs, develops, manufactures and markets a range of semiconductor products for the communications, computing and consumer industries. Computing products are designed for use in desktops, notebooks, workstations and server applications while consumer products are optimized for gaming consoles, set-top boxes, digital TV and smartphones. Communications products are designed for use in networking and telecom applications.

Investment recommendation
IDTI delivered EPS upside and guided to EPS above the Street on strength across all verticals. While some uncertainty persists on SRIO demand in China (ship into hub and other suppliers have seen weakness), management remains committed to lowering the revenue threshold for achieving 20% operating margins. We are increasing our estimates and raise our price target to $12.
Investment highlights
 IDTI reported CQ3/13A (Sep) after the close. Revenues and EPS were $124.6 million and $0.10, compared to our estimates of $125.5M/$0.09 and consensus estimates of $125.1M/$0.08.
Revenue of $124.6 million came in slightly below the mid-point of the guided range ($122M to $128M) driven by sequential growth in all end markets and EPS of $0.10 was better than guidance driven by better-than-expected gross margins and an expansion in operating margin to 16.5% the highest level since September 2010.
Management guided revenue and EPS of $126 million (+1% Q/Q) and $0.12 at the mid-point, compared to consensus expectations of  $129.4 million and $0.11 and our prior estimate of $133.5 million and $0.12. Management reiterated their long-term operating margin target of 20% at the $135M to $145M revenue level with continued focus on cost controls and expanding gross margins.
IDTI’s price target of $12 (was $11) is 17x our C2014 EPS estimate of $0.54 plus net cash of $2.91/share.


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