Will This Apple Inc. (AAPL) Supplier Come Through?

Apple Inc. (AAPL)TriQuint Semiconductor (NASDAQ:TQNT) never fails to surprise me. There was a time when I’d expected the company, and its stock, to really set the Street on fire. Under this belief, I initiated an outperform CAPS call on the stock in November last year, and I’ve seen my pick appreciate more than 18%.

However, the ride hasn’t been easy, and I’d lost all hope from the company after it had sounded out a poor outlook back in February and the stock took a massive beating. TriQuint Semiconductor (NASDAQ:TQNT) was at its outlook-missing game again last week, when it reported first-quarter results, which were once again poor.

Another miserable performance

TriQuint’s revenue declined 15% from the year ago period to $184.2 million and it turned in a loss of $0.17 per share. Analysts expected the company to post revenue of $185.7 million and lose $0.13 a share, but TriQuint missed on both counts. On outlook, the Street was looking for revenue of $192.4 million and expected the company to lose $0.10 a share.

However, TriQuint Semiconductor (NASDAQ:TQNT) expects revenue in the range of $185 million to $190 million in the ongoing quarter, while loss is expected to be between $0.12 and $0.10 per share. This completed a very poor report from the chipmaker, but despite so many shortcomings, its shares jumped more than 10%. Surprised? Well, even I was.

Surprise, surprise!

Management is confident that TriQuint Semiconductor (NASDAQ:TQNT) will be able to achieve profitability in the second half of the year, and this belief sent the stock soaring. However, as Titan Capital’s Bill Dazzlem pointed out on the conference call, this means that TriQuint needs to earn $0.28 to $0.30 per share in the third and fourth quarters.

This is a pretty tall task for a company that has just reported a loss and expects to post one more in the ongoing quarter. So, what makes management so confident about TriQuint Semiconductor (NASDAQ:TQNT) turning profitable in the second half of the year? Let’s check.

TriQuint CEO Ralph Quinsey stated that the company had to incur an incremental cost in order to address a quality issue and the problem has already been addressed. Thus, we can expect the company’s margin to return to normal levels after it slid to 22.8% in the previous quarter from 30.4% in the year-ago period.

Why so buoyant?

The company is primarily counting on its mobile business to provide the much needed thrust to turn profitable. TriQuint boasts of several high profile clients such as Apple Inc. (NASDAQ:AAPL), Samsung, Research In Motion Ltd (NASDAQ:BBRY) etc. The slowdown in demand from Apple Inc. (NASDAQ:AAPL), which is one of its largest customers via Foxconn, led to a sequential decline of 30% in revenue from the mobile business.

However, the company exited the quarter with a book-to-bill ratio of 1.08, which means that it is witnessing demand for its products. In addition, as Apple Inc. (NASDAQ:AAPL) would be refreshing its product line up later this year, TriQuint should turn in a better top-line performance. The iPhone 5S is expected to launch this September, and as such, it can be expected that TriQuint will see its order book swell further from next quarter onwards.

Moreover, the addition of a rumored cheaper iPhone will increase Apple Inc. (NASDAQ:AAPL)’s, and TriQuint’s, addressable market. Apple is looking to establish its dominance in the emerging markets and a low-cost iPhone might serve the purpose. Considering the fact that consumers in emerging markets are switching to smartphones, most of which are low-cost, a cheaper device targeted at these markets should do well.

Also, TriQuint’s customer diversification is a strength which shouldn’t be ignored. The company has close ties with Samsung as well and the Korean behemoth used its chips inside the latest Galaxy S4. According to reports, Samsung’s latest flagship is witnessing very strong demand and deliveries of the new phone might get delayed as Samsung tries to match up to the demand. So, if sales of the S4 exceed Samsung’s own estimates, then TriQuint might be in for some more orders from the company.

Also, since TriQuint was already booked 92% to the mid-point of its top-line guidance, there’s enough time before the quarter ends for TriQuint to actually exceed the original consensus estimate. Moreover, the company has landed quite a few design wins across a broad range of customers, which include a few Chinese phone makers and BlackBerry.

The addition of BlackBerry to TriQuint’s clientele is also a vote of confidence in the company’s products. According to Chitika Insights, sales of the Z10 have gradually gotten better as more carriers in the U.S. started carrying the handset. Also, as the Canadian company starts to aggressively market the device, sales could improve further. While the fate of the flagship Z10 is still quite unclear, the presence of one more smartphone maker that is trying to cut its teeth in the market might turn out to be advantageous in the long run.