Buy The Weakness In RF Names Following Qualcomm/TDK JV

• Shares of Avago Technologies Ltd AVGO, Qorvo Inc QRVO and Skyworks Solutions Inc SWKS plummeted by high-single-digit percentages on January 13.
• Chardan Capital Markets’ Mike Burton maintained Buy ratings on all three companies.
• Burton recommended buying the dip, following pressure on RF shares after announcement of JV between QUALCOMM, Inc. QCOM and TDK Epcos.

Qualcomm [Rated: Buy] has announced its plans to form a Joint Venture with TDK Epcos. Analyst Mike Burton said that the JV would have a “marginal impact” on the industry, after its expected close in early 2017, and the pressure on RF names from the JV concerns have created a “buying opportunity.”

Referring to the worst case scenario for RF companies, Burton commented that Qualcomm cannot force its OEM customers to purchase its RF front-end solutions. Moreover, Qualcomm has had a close relationship with TDK for some time and “has already been putting TDK on its reference designs to limited success.”

In the report Chardan Capital Markets noted, “Considering the deal doesn’t close for a year and RF Front-end wins happen at least 9 months out (and development of the platforms are discussed 1-2 years ahead of major platform launches these days), it will be a considerable amount of time before we expect RF360 Holdings would be able to ramp an integrated product.”

Burton added that the JV could actually open up new revenue opportunities for RF companies, which could grow their content at Qualcomm’s competitors. While currently this opportunity appears small, in case these alternative platforms gain market share going ahead, Qualcomm filters on these platforms are unlikely.