Daily Commentary

Topics for Daily Commentary – May 18, 2012:

• Avian’s morning focus (see more details below):
• • Handsets SWKS RFMD PANL GLW: Korea Economic Daily article suggests much stronger Galaxy S3 unit ramp, a positive for several names in our supply chain and handset assumptions overall. Samsung has received 9M pre-orders for Galaxy S3, to launch May 29 in Europe from over 100 carriers, vs the Galaxy SII which took 10 months to ship 20M units. Samsung official said factory was running at full capacity of 5M units/month. We confirm that Samsung’s overall utilization is 91% and G5 fab is 95%+. The phone uses a Super AMOLED display and Gorilla Glass, positives for PANL and GLW. RF names with exposure include SWKS (announced 6 sockets) and RFMD (strong presence in Galaxy S2.) Also as Samsung is taking share, Taiwanese assembly datapoints which The Street relies on, are looking weaker, when in fact they simply reflect share loss to Korea and China. Our own checks point to better smartphone numbers month over month.
• • MRVL: We are raising numbers following strong Q1 and better guidance driven by HDDs and China TD. $800M share buyback and new dividend will drive stock. We are positive on semis overall; we were certainly positively surprised with the strength in TD business from China; MRVL is relatively cheap; we maintain our $19 target based on 14x C13 EPS and still believe it will trade in-line with Semis.
• • LSI: MRVL claimed first to market with 500 GB platter HDDs vs LSI. Dismissive of LSI share gains at WDC, although we believe it is extremely likely given STX is fully dual-sourced with MRVL that WDC will also do so-- but in late C13.
• • SPRD: MRVL claimed 70% share of current designs for TD, and dismissed SPRD claim of low-cost platform gaining 50% share in Q3. Our checks suggest SPRD has a lower cost structure, although MRVL is 3 quarters ahead in terms of product launch.
• • PMCS/BRCM: MRVL claimed 25% share in PON, mostly China based where PMCS as well as BRCM split the rest of the business. We expect PMCS is the likely loser since it does not have the rest of the gateway or connectivity silicon on the subscriber side, which both BRCM & MRVL do.
• • Analog/MCUs/processors: MRVL has designed 32-bit ARM MCUs, but has never succeeded in a catalog business (power management was a failed effort from 2003). Claims to have design wins for low-power servers using 32-bit ARM, to be launched in late C13. Software compatibility is key in servers, so we doubt that MRVL will seriously threaten INTC, especially without a 64-bit offering.
• • ARUN: In-line April Q. July Q guidance in line with our recently lowered estimates but below Street (expect reset to Consensus). Decelerating growth rate and lengthening sales cycle remains our top concern. Evidence of traction in wired replacement market driving revenue re-acceleration still 9-12 months away. ARUN is high quality name with good execution in a 20% growth market. Shares are becoming interesting at these levels, but we maintain our Neutral as estimates are reset and macro concerns remain.
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