Chipmakers got some encouraging news in early March when the
Semiconductor Industry Association said global chip sales in
January rose 8.8% year-over-year to a record $26.28 billion --
the biggest increase in almost three years.
Part of the growth is due to a move by global wireless
carriers to ramp up their networks in preparation for smartphones
with faster processors.Apple 's (
) iPhone 5S was the first phone out
with 64-bit processors
. This yearGoogle (
) Android-based devices will get them too.
As service provider networks upgrade to deliver faster speed
and more capacity, more consumers will want to buy new
smartphones, which in turn heightens
demand for chips
the service providers use.
One of the beneficiaries isCavium (
), which designs systems on a chip for the networking, telecom,
storage, wireless, security and video markets. Cavium is a
"fabless" chipmaker, meaning it designs the chips and outsources
the manufacturing process.
The company has strung together five straight quarters of
double-digit or better sales and earnings growth. Analysts expect
the trend to continue in coming quarters.
Outlook For The Year
Cavium is poised to benefit in 2014 from a "strong core
products design win pipeline, sizeable growth opportunities for
new products, and greater customer diversification," Wedbush
analyst Betsy Van Hees said in a report earlier this year.
One of the main growth drivers this year should come from the
wireless sector, which has benefited not only from a desire to
upgrade networks but also from an improving macroeconomic
Cavium officials did not respond to requests for comment. On a
fourth-quarter conference call with analysts, CEO Syed Ali said
Cavium should see growth this year across all of its core
enterprise, data center and service provider markets.
"We expect to see very robust revenue growth in the wireless
infrastructure market across macro base stations, radio network
controllers and EPC (evolved packet core) at all our major
customers in Asia and across the world," Ali said.
Those customers include Samsung and Emerson Network Power, a
unit ofEmerson Electric (
). Cavium's biggest customer isCisco Systems (
), which accounted for 19% of sales during the 2013 fourth
quarter. Cavium's Q4 sales to Cisco rose 8% from a quarter
earlier to $15.7 million.
"We were encouraged to see Cisco results beat expectations in
the quarter," noted John Vinh, analyst at Pacific Crest
Although Cavium guided revenue for Q1 2014 below estimates,
partly due to softness in the telecom sector, Vinh said this
outlook "may prove to be conservative."
"Cavium indicated that one of its wireline customers has
already indicated a recovery in Q1," Vinh noted. "Additionally,
booking trends at Cisco remain healthy, with revenue expected to
be flat to up slightly."
Earnings Report Ahead
Cavium is due to report Q1 results on April 30. Analysts
polled by Thomson Reuters expect earnings of 28 cents a share, up
from 19 cents a year earlier. They expect revenue to rise 17% to
Financially, Cavium continues to rebound from a rough patch a
couple of years ago, when it posted four straight quarters of
lower sales and earnings beginning with the December 2011
quarter. Several chipmaker stocks had also slumped around demand
weakness in parts of the industry.
During Q4 2013 the company logged earnings of 31 cents a
share, up 55% from a year earlier and a penny above consensus
estimates. Revenue climbed 22% to $81.1 million, in line with
On the conference call, CEO Ali said Cavium saw growth in the
enterprise and data center markets, with strength in enterprise
switches, routers and security equipment.
"We saw continued strength in the wireless infrastructure
market being offset by weakness in wireline and telecom markets,"
Ali says Cavium's new 28-nanometer Octeon III product line has
shown particular promise. This line has been "sampled
extensively" to a wide range of customers and end applications,
with thousands of shipments recorded.
"We already have over 20 customers for this product and have
won over 35 design wins in a very short time period," Ali said.
"We're especially pleased with winning a number of sockets that
in the previous generation was being serviced by incumbent
Cavium also expects continued growth in security products,
where it is a leader in the chip market.
Analysts polled by Thomson Reuters expect Cavium to report
full-year EPS of $1.35 for 2014, up 32% from last year. EPS is
seen rising 29% to $1.74 in 2015.
The company "should maintain share in the highest-growth
portion of the communications processor market, thus outgrowing
the peer group," Morgan Stanley analyst Joseph Moore noted.
Competitors in IBD's Electronics-Semiconductor Fabless group
includeBroadcom (BRCM),Marvell Technology Group (MRVL)
andAmbarella (AMBA). The group ranks No. 12 of 197 industries
tracked and hit a record high on March 21. That day, Cavium
shares touched a nearly three-year high of 47.47. The stock then
slid, but rebounded more than 4% intraday Monday to near 44.