Where to Invest for Carrier Aggregation
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Carrier Aggregation (CA) is one of the most fundamental and critical technologies used in cellular LTE-Advanced technology. Carrier Aggregation increases bandwidth and, thereby, increases bitrates. Recently, Carrier Aggregation achieved a few milestones, including the first complete network, SK Telecom, and the first smartphone, Samsung Galaxy S4 LTE-A. There were also other developments, such as the first public demonstration of LTE Carrier Aggregation at Mobile World Congress 2013, provided by Qualcomm (NASDAQ: QCOM), Sierra Wireless and Ericsson, as well as the trial and deployment of Carrier Aggregation in Australia by Ericcson and Telstra.
What exactly is Carrier Aggregation
Carrier Aggregation was first introduced in 3GPP Release 10 and enhanced in 3GPP Release 11. Carrier Aggregation enables a network operator to combine radio channels within the same frequency band, or across different bands, to achieve much higher data rates and lower latency, allowing operators to use the technology in bandwidths wider than 20MHz. With Carrier Aggregation, LTE-A will allow aggregation of up to five LTE carriers, also known as component carriers (CCs), to achieve a total effective bandwidth of 100MHz.
Carrier Aggregation allows 1Gpbs in the downlink and 500 Mbps in the upload, and targets to achieve wider bandwidth transmissions (higher data rates), more efficient use of fragmented spectrum, and more effective interference management for control channels in heterogeneous networks.
Where to invest for Carrier Aggregation
Where there are various design and test challenges for LTE-A, Agilent Technologies (NYSE: A) was the first to market the LTE-Advanced solution. Agilent focuses on addressing system simulation, signal generation, and analysis tools. Agilent will continue to deliver greater and deeper insight for customers into complex, evolving LTE technology and standard by testing and solving root causes of design problems. Recently, Spirent Communications announced support for LTE Carrier Aggregation testing on its CS8 Mobile Device Tester, which can ensure LTE-Advanced Carrier Aggregation functionality meets the performance expectations of telecom operators in India. Furthermore, the first LTE-Advanced Carrier Aggregation test case has also been demonstrated by RAN5 by Anite, a company focusing on providing mobile device and network testing systems.
On the other hand, in May, Skyworks (NASDAQ: SWKS) launched a family of antenna switches that support carrier aggregation. Skyworks introduced a breakthrough RF switching technology that enables early adopters to implement Carrier Aggregation solutions. Skyworks’ devices support standardized inputs to popular industry chipsets and address both transmit and receive switching paths. With the limited availability in the wireless spectrum, the technology offered by Skyworks is critical for carriers to fully utilize their allocated spectrum.
Lastly, Qualcomm was the first to successfully demonstrate LTE-Advanced Carrier Aggregation, enabling increased data speeds worldwide. Powered by the third-generation Qualcomm Gobi 4G LTE MDM9225 chipset with Sierra Wireless’ AirCard mobile hotspot and Ericsson network infrastructure, the first Carrier Aggregation demonstration was displayed at Mobile World Congress in Barcelona. This demonstration is a key step toward making LTE carrier aggregation technology a commercial reality.
Qualcomm, Agilent, and Skyworks have shown steady revenue growth in the past three years, as seen from the chart below.
With the continuous increasing demand for wireless technology and services, all three companies are expecting solid EPS growth for the next few years, as seen from the chart below.
By providing in-demand Carrier Aggregation technology with solid revenue and EPS growth, these three stocks present great opportunities for investors looking to invest into LTE-Advanced and CA technologies with stable growth.
As for valuation, Qualcomm, at a current P/E of 17.5, is well below the industry average of 34.1. Qualcomm also has a solid balance sheet with near $13.49 billion total cash and only $22 million total debt in the last reporting quarter. By generating near $4.69 billion levered free cash flow and offering 1.77% dividend yield, Qualcomm is a safe dividend play with solid revenue growth. Similarily, Skyworks has a healthy balance sheet with zero total debt. Skyworks also remains reasonably valued with P/E of 17.8, as compared to the industry average of 21.6. Lastly, Agilent Technologies, despite its steady cash flow, has higher financial leverage with a debt-to-equity ratio of 0.4. Overall, Qualcomm offers the highest dividend with the most solid fundamentals among all three companies.
With the continuous development and adoption of LTE-Advanced by telecom operators worldwide, the demand for Carrier Aggregation technology will pick up at a rapid rate. 2013 is just the beginning for Carrier Aggregation, and investors should pay close attention to the development of CA technology and those companies that offer CA-enabled products and services, including Qualcomm, Agilent Technologies, and Skyworks. For now, Qualcomm remains the best pick.
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Nick Chiu has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!