iPad Components And Their Makers

The semiconductor market is in a strong recovery mode. Chipmakers Texas Instruments (NYSE:TXN), Broadcom (NASDAQ:BRCM), and Atheros (NASDAQ:ATHR) all recently reported strong results and are trading close to their 52-week highs. Also, Broadcom and Texas Instruments have design wins in the iPad, which according to PC World reached 1 million in sales this past Friday, 28 days after its release. Let’s take a closer look.

Texas Instruments (TI), the world’s largest producer of analog chips with annual revenue of $10.43 billion, reported strong first quarter results that beat estimates. TI reported first quarter revenue of $3.21 billion, up 54%. Net income increased 38-fold to $658 million or $0.52 per share from $17 million or $0.01 per share last year. Gross margin increased to 52.7% from 38.6% last year. The company repurchased shares for $504 million and paid dividends of $149 million. Q4 analysis is available here.

TI has been focusing on its Analog and Embedded Processing segments, which grew 70% and 39% respectively. Wireless revenue grew 27% to $717 million including baseband revenue of $424 million. TI is phasing out its baseband business by 2012. Baseband accounted for 13% of TI revenue, down from 19% last year.

TI recently introduced the OMAP 4 platform and reports that its OMAP 3 will be ramping more than 50 design wins over the next year into production. In my most recent post on TI, I observed that the company dominates the market for standalone applications, but its OMAP line is under increasing pressure from No.2 Samsung. Samsung provides the application processor for the iPhone while TI has design wins for Palm Pre, Droid, and Omnia. In iPad, the latest innovation from Apple, TI has managed to get a design win for its touchscreen driver, worth about $1.80. Samsung, on the other hand, has design wins for the SDRAM worth $7.30 and the power management integrated circuit worth $1.25.

For the second quarter, TI expects revenue of $3.31 billion–$3.59 billion and EPS of $0.56–$0.64. This is above analysts’ estimate of $0.53 on revenue of $3.23 billion. During the downturn, TI and Intel maintained their manufacturing facilities and are now reaping the benefits of the recovery in the semiconductor market. TI is currently trading around $26.45 with market cap of about $32.3 billion. It hit a 52-week high of $27.44 on April 27.

Broadcom continues its relationship as a chip supplier to Apple. It was in the iPod Touch, the iPhone 3GS and now the iPad. According to the iSuupli teardown of the iPad, Broadcom has three design wins in the iPad: WLAN, Bluetooth, and FM module worth $8.05, a touch screen microcontroller worth $2.30, and a multitouch controller worth $1.40.

Broadcom reported first quarter revenue of $1.46 billion, up 71%, compared to the analyst estimate of $1.38 billion. Net income was $210 million, or $0.40 per share compared to a loss of $92 million, or $0.19 per share last year. Gross margin decreased 60 basis points from Q4 to 52.5% and total cash and marketable securities were $2.4 billion. Q4 analysis is available here.

Broadcom recently acquired Dune and Teknovus to expand its broadband networking portfolio. As a result, its enterprise networking business grew 15% over Q4. Its broadband communication segment grew 3% over Q4 driven by increase in demand for digital set-top boxes and broadband access equipment. Mobile and wireless business grew 10% over Q4 driven by the continued ramp of cellular products and wireless combo chips.

Broadcom expects strong momentum and forecast Q2 revenue of $1.535 billion–$1.635 billion, up 5%–12% over Q1. It expects set-top boxes to be one of its faster growing markets this year driven by the legislative changes in China, and for 3D TV to also be an area of growth. The stock is currently trading around $35 with market cap of about $17.5 billion. It hit a 52-week high of $36.94 on April 28 following the results release.

Like Broadcom, chipmaker Atheros with annual revenue of $542.5 million, also supplies chips to Apple and Nintendo. It faces stiff competition from Broadcom in Wi-Fi/Bluetooth and Ethernet chips – Broadcom beat Atheros to a design win in the iPhone 3GS and, recently, in Google’s Nexus One.

Atheros also reported a strong first quarter and forecast a strong Q2 driven by growth in its networking and consumer businesses. Q1 revenue was up 144% to $214.7 million. Net income was $19.7 million or $0.27 per share compared to loss of $7.6 million or $0.12 per share last year. The company ended the quarter with a cash balance of $443.6 million. Q4 analysis is available here.

Atheros has design wins in Intel’s new notebook platform and Apple’s new versions of the iMac. It should also benefit from the growing Windows 7 adoption and a corporate refresh cycle that industry observers anticipate being strong.

For the second quarter, Atheros expects revenue of $230 million–$240 million and EPS of $0.62–$0.67. Analysts were expecting earnings of $0.51 on revenue of $206.7 million. The stock is currently trading around $40 with market cap of about $3 billion. It hit a 52-week high of $43.90 on April 21 following the results.