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This $5 Stock Is the Key to Unlock Smartphone Riches

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

What’s the best way to benefit from the smartphone wars? Some would say invest in Apple (NASDAQ: AAPL), some might suggest Research In Motion (NASDAQ: BBRY) or Nokia (NYSE: NOK), and many would say that Samsung is the best way to play the smartphone revolution. In light of the highly polarized views and opinions in the smartphone arena, an investor would probably choose one of the options and hope that his pick is the winning pick.

But this would involve taking sides. What if there was a single common link enabling an investor to benefit from the success of any clan whatsoever fighting the smartphone war, maybe a weapon supplier to the warring fronts? It would be fantastic, right? Well, then take a look at radio frequency component maker RF Micro Devices (NASDAQ: RFMD), which is one of the best ways to profit from the smartphone wars and just reported a terrific quarter.

Rock solid results

RF Micro’s third-quarter revenue of $271.2 million was 20% higher than last year, and blew past the Street's estimate of $245.7 million. Its adjusted earnings of $21.3 million, or $0.08 per share, were a solid improvement over last year’s $5.1 million, or $0.02 per share, and exceeded analyst expectations of $0.06 a share.

As far as the outlook is concerned, RF didn’t disappoint. Its revenue expectations for the current quarter range from $250 million to $255 million, comfortably ahead of the $228.2 million Street estimate. Also, the bottom line forecast of $0.04 to $0.05 per share is ahead of the $0.04 per share analysts expect.

Catalysts galore

But all of this wasn’t unexpected at all. RF’s illustrious clients are always up to something, and this helps the company keep its revenue stream flowing. For instance, RF supplied two switches for the iPhone 5. Apple sold almost 48 million iPhones in the December quarter and it looks like RF rode its client’s coat tails with great effect, exceeding all expectations in the previous quarter.

If someone says that Apple’s days are over after yet another earnings miss and RF would go down as well, then they would be wrong since Apple isn’t the biggest driver for RF’s business, but Samsung is. RF derives more than 20% of its revenue from Samsung, and the figure has grown over time. With the next iteration of the famed Galaxy series on the way, RF’s business will receive yet another shot in the arm in the near-term.

Apart from these leading lights of the smartphone industry, RF also supplies components to Research In Motion and Nokia. Nokia, which used to be RF’s biggest customer a few years back, accounting for more than half the revenue, seems to be in turnaround mode. The Finnish phone maker’s preliminary results suggest that Lumia and Asha phones are gathering momentum, and RF should be pleased to see its old ally rise from the ashes.

On the other hand, the market is waiting with bated breath to see how RIM’s BB10 turns out. The buildup to the BB10 launch has been positive so far, and analysts are hopeful that RIM’s latest offering might be able to cut some teeth in the smartphone wars.

A bagful of opportunities

But RF Micro’s positives don’t end here. The company seems pretty well-positioned to ride the growth of wireless data and deployment of faster networks such as 4G LTE around the world. Also, RF isn’t all about high-end devices only, as its chips power smartphones in the lower end of the spectrum as well. This is certainly a huge advantage for the company as budget phones find a huge number of takers in emerging markets.

RF is also highly focused on profiting the most from smartphone growth in China. Its chips are compliant with a number of chipset makers, and the company is looking to derive the most out of the market with its 2G/3G components.

And then there is RF’s WiFi business. The company’s WiFi business is expected to double this year, driven by an increasing number of smartphones, tablets, enterprise equipment, etc. RF has witnessed solid design wins across a broad range of customers that include handset makers and chipset vendors. According to management, RF’s chips will power a “record” number of flagship devices this year and next.

The takeaway

RF Micro Devices has been increasing its share at its existing customers by virtue of its solid products, and I don’t see much reason why the stock shouldn’t head higher as the year progresses. Its shares gained almost 3% after earnings, but fell 1.4% in late trading after Apple’s miss.

But RF isn’t an out and out Apple play; rather it is a smartphone and tablet growth play and investors need to look at it that way. No matter where the balance of power is in the smartphone wars, RF will be there to benefit. Its WiFi business has been prospering and the advent of more data hungry devices along with faster networks will improve its prospects further. Keeping all these factors in mind, I would say that RF Micro Devices is one of the best ways to play the mobile revolution. What do you think?


TechJunk13 has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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!

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