Can TriQuint Ever Be More Than an Apple Derivative?

NEW YORK ( TheStreet) -- There is no question that technology giants such as Apple ( AAPL) and Google ( GOOG) have a considerable amount of advantage over their peers when it comes to the growing popularity of smartphones and mobile devices. The technological shift encouraged by these devices, which combine various social networking, gaming, scheduling and other business functions, have quickly moved from "wants" to "must-haves." The reason for this new fascination has to do with the fact that consumers have adopted lifestyles that are constantly on-the-go with no signs of slowing down.

One company that benefited from this trend is the once-unknown TriQuint Semiconductor ( TQNT), as it would appear that (until of late) its stock had also become somewhat of a "must-have." The company has been a staple in various iterations of both the iPhone and the iPad, and Apple accounts for 35% of its annual $900 million revenue. But will it ever be seen as more than just a derivative play on Apple? This is the question investors are beginning to ask, because after the stock had gained as much as 50% on the year to reach a high of $7.26, it has since lost 30% of its gains as of its recent close of $5.04. But what, exactly, has changed to cause this alteration in sentiment? Investors don't need to look any further than the company's own recent earnings report.

The TriQuint trifecta

The company disappointed Wall Street in three key areas. For the period ending March 31, TriQuint reported 2 cents earnings per share on revenues of $216.7 million. Though it beat analysts' estimates of $214.6, it represented a revenue decrease of 3.4% from the same period a year earlier. Its EPS number also met Wall Street expectations, but on a GAAP basis, it was 86% lower from a year earlier. The third disappointing trend was that it reported gross margins of 29.4%, representing an annual decrease of 960 basis points. Operating and net margins also trended lower.

As disappointing as these numbers were, the company also failed to inspire confidence with a better outlook. Management seems overly cautious with its revenue targets for the next couple of quarters by issuing guidance that was considerably lower than what it has issued in the past for the same periods -- by at least 20%. It seems there are concerns regarding its level of production with the new iteration of the iPhone due out this fall. More than anything else, I think that is what really disrupted its narrative and answered that all important question: Will it ever be more than a derivative play on Apple? It's hard to say no at this point.

Moving forward

As much as I have wanted to like TriQuint, it now appears that the same reason that has made it a popular name among the chips, is also the same reason to want to stay away from it. Currently, consensus Street estimates show an average price target of $6.84 with a "hold" rating on the stock. It would seem that as the stock is now 35% under this target, the actual sentiment would suggest that it should really have a "buy" rating. But it is hard to see where the value is at this point, because even with its recent declines, it still sports a P/E that is twice that of not only market leader Intel ( INTC), but also chips that are even more ubiquitous in Apple products such as Atmel ( ATML) and Texas Instruments ( TXN).

As uninspiring as things may now seem for TriQuint, taking a position at current levels may not be a bad idea if coupled with realistic expectations. Investors should ask themselves not only where they think this stock is heading, but (more importantly) to what extent will TriQuint's current market grow during the course of the next 12 months. In other words, should it be a concern that its revenues and margins have shown a decline for this year only or should it be seen as a precursor to a more dreadful situation? More specifically, are things only going to get worse for TriQuint as competition in the mobile space heats up?

Bottom line

The fact that Apple accounts for over a third of the company's revenue is clearly both an advantage and a disadvantage. As Apple will most certainly grow, it stands to reason that TriQuint should grow somewhat commensurately. However, from an investment standpoint, relying solely on this derivative angle absent some clear diversification remains a risky proposition -- one that is certainly worthy of paying attention to. With a current P/E of 25, the stock is certainly not cheap and investors would be better served by looking to a name such as Atmel -- while it also has the Apple exposure, it is broadly diversified in a host of other market leading analog devices.

At the time of publication, the author was long AAPL and held no positions in any of the stocks mentioned, although holdings may change at any time.