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Convergence Device: Nokia Aligns with ST, Motorola with Infineon

Posted on Tuesday, Nov 20th 2007

Following my posts on Texas Instruments, STMicro, ARM, Infineon in the iPhone and the Future series as well as the iPhone’s Component Ecosystem series, here is an update on the companies.

Texas Instruments Incorporated (NYSE: TXN) reported revenues of $3.66 billion for the third-quarter 2007 on 22 October, up 7% sequentially and down 3% y-o-y. Increased demand for analog semiconductor products and back-to-school demand for graphing calculators led to the sequential growth. EPS was $0.52, an increase of 24% sequentially and 16% y-o-y.

Revenue in the Semiconductor segment was $3.46 billion (up 6% q-o-q and down 3% y-o-y). Within the semiconductor segment, sequential increase was 10% in analog and 6% in DSP revenue. Revenue in the Education Technology segment was $202 million.

In the third quarter, TI repurchased $1.4 billion of its stock. In September, its Board authorized an additional $5 billion in repurchases. For the fourth quarter, TI expects revenue to be in the range $3.40 to $3.68 billion and EPS to be in between $0.48 and $0.54.

On October 10 2007, TI acquired POWERPRECISE Solutions, a fabless portable power management integrated circuit (IC) solutions company. The acquisition will strengthen TI’s high-performance analog and power management portfolio. I have said before, that Power is a key ingredient to optimize as the convergence device trend leads us into an era of highly integrated chips.

TI’s stock is trading around $31 after hitting a 52-week high of $39.63 in July. Its market cap is around $44.38 billion.

Coming to ST Microelectronics N.V. (NYSE: STM), it released third quarter earnings on 22 October. Net revenues for the third quarter increased 6.1% sequentially and 2.1 % y-o-y to $2,565 million, with growth led by application-specific wireless and computer products.

Net income was $187 million, or $0.20 per diluted share compared to $207 million or $0.22 per share in Q3 2006. The Application Specific Groups (ASG) recorded 7% sequential increase in sales due to a better product mix and manufacturing cost improvements. Earlier in the month, it laid the foundation stone of its chip packaging and test facility in China. It also closed the deal with Nokia on the licensing and supply of integrated circuit designs and modem technologies for 3G and its evolution.

STMicro expects to complete the divestiture of its Flash Memories Group in Q4. For Q4, it expects sequential sales to increase in the range 4% to 9%. Its stock price is hovering around $16 after hitting a 52-week high of $20.84 in April. Its market cap is around $14.86 billion.

ARM Holdings Plc.(Nasdaq: ARMHY) reported Q3 dollar revenues of $125.6 M, up 4% on Q3 2006. Fully diluted EPS prepared under US GAAP were 0.63 pence (3.8 cents per ADS) compared to EPS of 0.67 pence (3.8 cents per ADS) in Q3 2006. Gross margins in Q3 2007 were 89.8% compared to 87.7% in Q3 2006.

Though Physical IP license revenue was down 42.7% y-o-y, total dollar license revenues grew by 7% y-o-y to $55.1 million. License revenues comprised $42.4 million from Processor Division (PD) and $12.7 million from Physical IP Division (PIPD). The average royalty rate per unit was $0.601, down marginally from $.602 last quarter.

Total dollar royalty revenues in Q3 2007 were up 2.8% y-o-y at $50.6 million. Royalties were up 7% sequentially, due to the gradual unwinding of inventory correction in the industry and higher foundry utilization levels. $42.6 million of royalty revenues came from PD and $8.0 million from PIPD. Development systems division had revenues of $12.3 million, up 1.6%% y-o-y.

ARM bought back 23 million shares for £33.3 million. Share repurchase is expected to accelerate in Q4. Its stock is trading around $8 after hitting a 52 week high of $10.07 on 8 August. Market cap is around $10.62 billion.

Infineon Technologies (NYSE: IFX) this week reported revenues for Q4 2007 of Euro 1.13 billion, up 11% sequentially, reflecting increases in the Automotive, Industrial & Multimarket and the Communication Solutions segments. EBIT was negative Euro 25, down from positive Euro 13 million in Q3 mainly due to the sale of Qimonda shares. The quarter also saw Infineon acquiring the mobility business of LSI for approximately Euro 330 million or $450 million. In the fourth quarter, Infineon added Motorola to its illustrious list of customers with a development contract for its Smarti UE EDGE RF transceiver.

For fiscal 2007, revenues (excluding Qimonda) were Euro 4.07 billion compared to Euro 4.11 billion in 2006. EBIT was negative Euro 49 million, compared to negative Euro 217 million in 2006. Its share price is around $12 after hitting a 52-week low of $13.79 on 5 November. Market cap is around $9 billion.

As for the alignment with the Convergence Device trend, ST’s alignment with Nokia is the one that I find the most promising. ARM, of course, is in every device, and continues to be a company, which, like Tessera, is benefiting from a broad applicability of their IP.

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