RF Micro Devices Update BUY


15.01 BUY 
Target: US$20.00

RF Micro Devices is a leading supplier of power
amplifiers, front end modules and other RF components
for mobile devices (handsets, smartphones, tablets) and
communications infrastructure.
All amounts in US$ unless otherwise noted.

Technology — Communications Technology — Semiconductors
Investment recommendation

Based on our analysis of global LTE
network deployments and the improving LTE subscriber growth trends,
we forecast a 20% handset RFIC TAM CAGR from 2014-2016. We believe
this strong RFIC TAM growth will be driven by a 40% LTE smartphone
unit growth CAGR with stable RF $-content/handset in LTE smartphones
during this period combined with a modest 3.8% growth in 3G
smartphones due to share shifts from 2G/EDGE feature phones to 3G
smartphones. Following the final China MOFCOM approval, we believe the
merger between TriQuint and RFMD remains on track to close by
December 31, 2014. We believe the combined company, Qorvo, will have a
broad mobile device related RFIC portfolio and is well positioned to benefit
from the strong RF TAM growth. Further, we believe Qorvo can leverage
significant cost synergies through consolidating fab facilities, optimizing
R&D expenditures, and eliminating duplicate costs. We reiterate our BUY
rating and increase our PT to $20.
Investment highlights
Anticipate 20% handset RFTAM CAGR from C’14-C’16 due to ramping LTE growth and 2G to 3G
migration; Avago, Skyworks, Qorvo and Qualcomm should benefit’  on the RFIC handset market TAM growth drivers
and technology trends.
 We believe Qorvo is well positioned to benefit from this strong RFIC
TAM growth. We also believe Qorvo could benefit from potential RF $-
content increases in Apple’s next-gen iPhone products and also grow
$-content at Samsung as this OEM focuses on fewer handset SKUs but
potentially higher RF $-content per SKU. Further, the increasing mix
of affordable LTE smartphones from Chinese OEMs could help Qorvo
grow RF $-content and improve margins as it ships higher-margin
integrated products into this base.
 We believe these trends combined with execution on the $150M cost
synergies target should result in expanding LT margins and solid EPS
growth through 2016. This in turn could drive potential multiple
expansion for Qorvo to levels more in-line with higher multiple analog
semiconductor companies trading currently at 15x C’16 EPS estimates.

Our $20 price target is based on shares trading at roughly 14x
our C2016 pro forma EPS estimate of $1.42 for the combined company
and then assigning 50% of the value to RFMD.

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